Lesson 3 - Statements and Budgets - Part 14

The Master Budget

We also see that our Contribution to Savings is a Positive $8,341. This means that we are Financially Stable, since the number is positive. However, is this amount enough for our Savings Goal? If we are in year 1 of our Savings Goal, we had planned for an $8,000 deposit (See Our Savings Plan Here). So we have enough to cover the $8,000 deposit into Savings, meaning that this Master Budget will work with our Current and Long Term Goals.

If this Master Budget only produced a Positive Savings of $6,000, we are short of our Savings Goal by $2,000. We must go back through and look at some of our Flexible Spending to see if we can do without. Or we might need to take on more income to make up the difference.

As we can see, if the Master Budget does not meet our Current and Future Goals, then we can’t make a Monthly Budget. Only when the Master Budget is satisfactory will we break it down into a Monthly Budget.

The Monthly Budget

Next we must determine how the items from the Master Budget will occur over the course of the next 12 months. We must remember that not all expenses might occur every month, property taxes only occur twice a year in January and August. Our vacation will only occur once later this year, and we might have larger gas bills in the winter months and less in the summer, while we have a larger electric bill in the summer than winter. When we sell our knitted shirts, it might only be in two or three months, not the whole year.

While we plan every month, we need to estimate when each expense and income will occur. Because some of our expenses might come in the beginning, we might not have generated enough income to cover those expenses early on. In certain months this can happen, it is important to know when these months might come so that we can make sure that we have enough money to cover them. We can do this by making sure at the end of the last year that we leave a little extra in our checking account. If we don’t have enough funds to cover this, we might have to consider borrowing money to fill the gap, until our income can compensate.

As with anything in our lives, we are subject to surprises and unexpected events. Any of which could change our Budget for the better or worse. With our Monthly Budget, we should be far better at overcoming these life events than we would be without it.