Financial Planning and Budgets
When it comes to the issue of finances, oftentimes people have trouble with things like financial planning and managing a budget.
Some people may also be confused as to the difference between having a financial plan and having a budget. On the surface, they can seem quite similar, so to help you understand better, here is a quick look at the differences between the two:
A budget, for all intents and purposes, is a guideline that people create to help with spending. Normally, it breaks down all expenses into various categories (such as rent, electric bills, etc.) over a certain period of time (usually weekly, monthly, or yearly).
Once every expense has been placed in the budget, they are then added together to get a total. The number of the total is then used to subtract against the total amount of income made for the same time period. The result, then, is how much money can be saved during that specific time period. For instance, if your goal is to save more money, then expenditures can either be changed or dropped from the budget altogether (if possible).
A financial plan is simply a tool that you can use to help you achieve long-term financial objectives. It is similar to a budget, in the sense that it also breaks down all of your expenses, but it is generally much more goal-oriented.
For instance, say that your goal is to save up a certain amount of money so you can retire. A financial plan would be the guideline you would use to reach that goal. Financial plans are also different from budgets since they tend to focus more on income and assets, such as: bank accounts, pensions, home equity, and the like. A financial plan will also estimate how much money you’ll make in stocks, bonds, mutual funds, 401Ks, and so on.
You can also use the BudgetMath website (www.budgetmath.com/) to create a hybrid of a “budget and a financial plan” based on your finances to give you a better idea of how exactly these two options work.
We hope that you’ve been able to find this information helpful, and hope that it has led to a better understanding of a couple of the options available to you when planning for retirement, or if you just want to better manage your finances.