Monday, July 8, 2013

Budgets and Brain Cells

[Editor's note: As usual, Kris explains words in bold type in an earlier post.]

The appreciation of this post is that I hope you appreciate that I am NOT an expert on budgets.  I dislike them as much as the next guy. I deal with a budget rather than use it to manage my money, but as you will see, my budget is useful.

What is a budget? It’s an estimate of income and expenditures for a set period of time. A budget is like the limit on your credit card - it tells you when to stop spending, only ahead of time. A budget also is a Google map to reach goals and lets you know if your business, marketing, or financial plan is or isn’t working.

It may be new information that one can’t write a budget without a history of spending. What puzzles me is if a budget is touted as a safety net to debt and a barometer to your business, why is regarded with dread. I don’t even want to write here about a budget or budgeting. It’s painful, like my brain cells are doing Pilates for the first time. I’d rather be playing with metal clay.

But, since I am so into usefulness, I was curious: Is a budget useful? Let’s see. I’m going to look at my own budget in Quicken, right now, and report to you my thoughts and feelings. It so happens it is the end of the second quarter or the halfway point in the year, which is a good time to take a peek.

Okay, I’m looking at “Inflows” or income. Hmm. I should be making more than I am. In the back of my mind I’m thinking the new sales strategy I implemented in 2013 might not be paying off. This is valuable information for me.

“Outflows” or spending. There are two types: fixed and variable. My actual versus budgeted amounts are not too different. I had estimated my fixed costs well, because I have a long history of my personal expenses. You see, my studio is 10% of my living space and my accountant said I could take a business write off on 10% of my personal expenses (most of them). I did less well but not too bad on estimating my variable costs, because I have had my PMC business only a few years and have a shorter history of spending.

When I compare the Inflows with Outflows, it’s not a pretty site. I am producing and operating as usual but selling less. Here’s what is puzzling: I knew this already. Did I know it intuitively? Did I know it because I enter everything I spend and make in Quicken almost on a daily basis? Did I know it because I have a large inventory right now? Or did I know it because I wrote this dang budget?

Regardless of how I know the status of my business so far this year, I guess I need to take a closer look. Guess what? Exercising those brain cells, my budget gave me some useful details. These for example.

  • Consignment sales are down. Why? Perhaps because I make most of these sales in summer, so that income has not yet hit the books.
  • Likewise, with shows. My retail show season just started so that income has not hit the books yet.
  • My online retail sales are down--maybe because I haven’t been adding new items. I best get back into doing this.
  • The wholesale show I attended didn’t produce as many orders as I expected. Was it the particular show or my products? I’m thinking a little of both - good info for me to know to make changes.
Wow.  I was ready to register a complaint with myself about my sales strategy and make a request for change. But now I’m glad I took a closer look. It looks like this year might be on course with my financial predictions. I need to make some adjustments to my activities and keep going. Brain cell Pilates? Not so bad after all.

I think I’ll sleep better tonight, knowing that I’m on track and not about to lose my shirt. My wish is that you, in your own unique way, build a relationship with a budget. Then ask your budget, “What do I do that lets you know I value you?” Your budget might respond with, “Just pay attention to me once every three months.” You might be surprised at the obvious and subliminal messages your budget might bring you.

Lastly, here are a few ways to make a budget.
  • Notebook and pen. Accounting paper works well.
  • Spreadsheet. Click here (bottom of page) for a link to download an Excel budget example slash template.
  • Financial software such as Quicken and Microsoft Money.
  • Online Financial Software and Apps via a search.

By Kris A. Kramer

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