Lesson 3 - Statements and Budgets - Part 11

Past Performance

Evaluating our Balance Sheet and Determining our Income statement will allow us to see where we are currently (Balance Sheet) and how we did over the past year (Income Statement). If we have a positive increase in Net Worth and the right amount of Positive Savings Contributions to reach our future Goals then we could be considered Financially Successful. It all depends on whether your plan to achieve your own personal Goals in life can be met.

Cash Budget

Either if we are in a good or bad situation after looking over our Balance Sheet and Income Statement it will allow us to plan for the Cash Budget. Our Cash Budget will map out how we should do in the future and is our plan that will help us get to our Goals.

Our Cash Budget can be as simple or complex as we want to make it. Any budget will need to have realistic goals that we can rightly achieve. A simple budget is not any worse or better than a complex budget however, keeping the budget simple will allow you to focus more time on other tasks. We shouldn’t aim to put every single expense in a category. We will be using the budget to monitor and allocate expenses. If we place something in the budget, we are creating a commitment to fulfill the item. For example if you routinely have dinner out at your favorite restaurant once a week and we put this in our budget, we have made a commitment to continue it. If we don’t put it in the budget then this should be an activity we don’t participate in because we have no commitment.

If we exceed our budget, let’s say we budgeted $200 a month on dining out, and we spend $250, we need to ask ourselves why we spent $50 over our budget. If we want to do this, then we might need to readjust our budget, if it was an impulse decision to spend the extra money, then we need to learn that it should be done with more care. If we don’t make an adjustment to our budget then we would need to cut back on the next month to bring the spending back in line with where it is supposed to be.