Are budgets a waste of time?
Bruce Laister
Helping freelancers and business owners run their business better by harnessing their accounting information!
"Budget" is a common word that surfaces about three times a year. It is the first "tool" many people turn to when:
In my opinion, budgets are, aside from social media, one of life's greatest time-wasters.
You come away from the exercise of drawing up a budget with a nice, glossy, multi-coloured piece of paper or spreadsheet.
But really all you have done is lost time on a pointless exercise. You will never get this time back.
Why are budgets a waste of time?
Budgets are based on hopes and dreams, guesstimates and incorrect data.
The starting point in doing a budget is a blank sheet with a list of generic expenses, which you may or may not actually use.
You have to insert numbers which you think may be correct or what you hope are correct. But this is all wrong!?
What you really need is some real data from which to work.
Some examples are prior-year figures or current year-to-date figures. This eliminates guessing.
Should you ever budget for a loss?
Budgets are rarely used as they should be
When did you last update your budget? No further comments your honour
It's important to remember that budgets are living, working documents. They are fluid.
They change according to what happens in real life. This may mean that it may not change much, depending on how accurate it started out to be.
What is the point of you doing a budget?
IF there is no reason - there is no point
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It can be as simple as keeping track of money inflows and outflows. This will be different in each case.
Some of the reasons you may not use a budget are dealt with in this post .
Remember the timeframe
A budget must have a time frame or period for which it is designed.
Again, this can be simple. A month, a quarter or the length of a particular project. The bottom line is that it has to have a time frame.
A budget may be difficult if you have not yet traded through a full year yet.
Budgets vs projections
Projections are what you "would like to happen" in the next X number of months or years. While projections are necessary, they should not be confused with a budget.
Budgets tend to be more realistic than projections. Projections are often the "best case scenario" and the problem with this is they are based on hopes and dreams rather than reality.
From the point raised above, budgets can be incredibly useful. They can also be an incredible waste of time. It all depends on how they are used and what they are used for.
Conclusion
There are companies and individuals that use budgets in the correct way.
However, in my experience, about 95% of budgets are not used properly.
I hope this article has provided some food for thought.
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