Budgeting Tips

I have a new client who has hired me to do their monthly bookkeeping. They are also wanting me to setup a personal and budget budget for them for 2021. I haven’t done this before. What is a good place to start?

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    Q4 of a calendar year is a great time of the year to plan the 2021 budget for both personal & business. It allows you some time to prepare, review & tweak the budget based on your clients feedback. The best place to start is to collect data about the personal & business outlook for 2021. I request all sources of income & expenditures for 2021, as well as the timing to go along with the inflows and outflows of cash. Using Excel, I create a template listing each month across one row, and a listing of all sources of income and all types of expenses for down one row. In each month, you drop in the month to date income amount or expense amount. This way you see a snap shot on a monthly basis of expected cash in & expected cash out.

    Let’s talk about the personal budget first. Request all sources of income the individual (or married couple) collects during the month & year, such as W-2 Income, Dividends, Partnership or Other Business Owned Income. You will also want to request all expenditures they have during the year, such as utility bills, credit card bills, mortgage or auto loan statements, insurance policies/statements. It will be helpful to see cash they have on hand such as bank statements, 401k/IRA statements, and any debt balances they are currently working through. Once you have that information, you can populate the template by month based on their documents. After you have a good draft of their current status of monthly cash in and out, review the budget with them to see what goals you can set (in the event they are trying to save for items such as an emergency fund, save for a home, retirement, & so on you’ll see how much room there is to work towards those goals). Once you revise the budget to include their financial goals, set a time to check in during the year (or if they want to handle on their own, show them how to check in) to see how they are performing against their budget and if they are meeting their goals.

    When you prepare the budget for their business, it’s really a similar set of items to collect in order to prepare the budget. Collect all sources of revenue, and all sources of expenditures. Something here to consider is seasonality. Their business may not have smooth sales or income collections, it could be lumpy. For instance, retail usually sees a spike in Q4 based on US holidays. This same logic applies to expenses being lumpy in the year. Once you have the draft together, review the budget with your client to see if the outlook matches the goals they have in mind for the year ahead, as well if you are missing any sources of income or expense. Many times, I find clients will remember income or expense items when you are reviewing the budget. Set a time to check in to compare the budget versus actual.

    In both cases, I recommend reviewing the budget monthly to reflect on actuals.

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