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A master budget is a document which is designed to be used to set budgeting plans. These documents can apply to individual months or to longer periods of time, such as a six month period or a year. They are used for financial planning by everyone from individuals to major corporations and they can be very useful tools for managing budgeting and financial situations.
In order to develop a master budget, it is usually necessary to have several pieces of supporting documentation. An income statement showing income brought in over a given period of time, such as a month, is important. A master budget often uses a balance sheet which maps out income and expenses. It can also integrate operating budgets, in a situation where a master budget is being planned for a large business or company. In these cases, individual departments may have their own budgeting needs which they use to develop an operating budget and these budgets can be pulled together in this document.
Expenses and projected income are considered when developing a master budget. These documents can also be used to map out things like setting funds aside in savings or investments. In addition to considering routine monthly expenses, the budget also accounts for expenses which come up less often, such as annual or biannual bills. The budget is used to determine how much should be set aside each month to meet these obligations.
The master budget maps out budget targets and can in turn be used to identify areas of a business or home's operations which need to be adjusted in order to bring them in line with the budget. For example, a company may determine that it needs to increase sales by a given percentage to meet expenses, or that a budget request by one department can only be met by cutting another department or slowing the rate of expansion to free up capital. Likewise, a household budget may reveal expenses which can be trimmed away or redirected; for example, the master budget may be used to illustrate that a debt could be paid down more quickly by rearranging how money is spent.
Many software programs designed for accounting are capable of generating reports such as balance sheets along with helping users develop budgets. In the case of a large company integrating operating budgets from diverse departments, creating a master budget may be a time consuming process because it can require waiting on reports and statements from all the departments of the company.
I wonder how closely many companies and organizations follow their budgets. There have been so many budget cuts lately, that I have a hard time understanding how it can get that far out of hand.
I recently attended a school board meeting where they were discussing the amount of money that needed to be cut from their budget. There is no way they could have been that far behind in just one year.
This had to be from more than one year of going over budget. Either they didn't have a very good budget planner, or they didn't do a good job of following the plan.
It was frustrating to see how many good programs were going to be cut and how many people were losing their job because of it.
My boss is a certified financial planner and one of the things she works on with her clients is a budget spreadsheet.
This may seem like a small thing, but many times the light bulb really comes on when they see this written in black and white.
It requires honesty with yourself with it comes to setting a budget, and a lot of discipline to follow it.
I have heard it said that if you can master your money, most everything else will fall in place. There is a lot of wisdom in those words, but many times it is much easier said than done.
Having money set aside as an emergency fund or back-up is important when it comes to setting a financial budget. It doesn't matter if this is for a family budget or for a major corporation, there needs to be a plan for emergency situations.
When I went through a money class, they advised us to have 6 months of income set aside as an emergency fund.
This seems like a daunting thing when you feel like you can barely make ends meet. Sitting down and writing out our income coming in and expenses going out really gave us a clear picture of where our money was going.
We saw areas where we could cut expenses and start
saving some money. Once we had some money in the bank for emergencies, I know I felt a lot better about things.
There are always situations that come up where extra money is needed. Knowing I had a way to pay for those without putting it on a credit card was a big relief.
We attended a class on how to manage your money at our church. Making and following a budget was one of the topics that was discussed.
You are never too old and it is never too late to start budgeting. I was even surprised to hear they still talk about the envelope cash budget system.
Most people don't use cash anymore, and maybe that is one reason so many people have troubles when it comes to their money.
With the cash system, you put cash in separate envelopes such as utilities, food, gas, eating out, etc. Once you have used up the cash in that envelope, that is all you have available to spend for that month.
One thing is for sure, it really makes you stop and think a lot more before you spend your money. It is not nearly as easy as swiping a card.