Over 17 years ago, my best friend asked me for financial advice. She was planning on completing a Master’s program, which required a change from full-time employment to part-time.

She was worried that as a part-time employee, she would not be able to meet her monthly expenses. I asked her if she had a budget. She did not.

Effective Budgeting Principles

When planning a budget, whether personal or professional, the principles are the same:

  1. Identify all expenses
  2. Determine all sources of income
  3. Categorize expenses as fixed vs. discretionary
  4. Set net surplus (profit or savings) or deficit (loss or excess spending)

Sounds simple, right? Not really. A budget is a plan of estimated income and expenses over a determined period in the future. Why is this definition important? Because an effective budget does not stop at just the four steps listed above. An effective and successful budget requires two key criteria— discipline and dynamic.

When planning your marketing budgets, I suggest the following steps (which you can also utilize for personal and overall business budget planning).

Need for Discipline

Discipline means to do something in a controlled and habitual way. Budget discipline not only requires tracking, monitoring, and adjusting, it also requires the conscious decision process to stay within or under budget (or to go over budget).

One way to impose discipline in a budget is to under-estimate income sources and over-estimate expenses, thereby imposing a level of reality to a budget.

This creates the impetus to identify appropriate or additional income sources to cover the relevant expenses. For a business, this would require an increase in sales goals and/or developing new products or services.

Budget planning also requires discipline to determine a level of control on how much can be spent. It dictates the measure of success in the management of a budget.

In business, budget planning and discipline means bigger profits (or reduced losses) or the difference between achieving one goal or multiple goals in shorter time frames.

Impact of a Dynamic Budget

A dynamic budget is one that is constantly tracked and adjusted as changes in income and expenses occur. When a budget is dynamic, it will achieve the following outcomes:

  1. Provide real-time guide of current financial condition
  2. Increase the accuracy of future estimates of income and expenses
  3. Identify flexibility to meet unexpected expenses, planned (increased expenses) or unplanned

What is the impact of a dynamic budget?

Personally, a dynamic budget can effectively influence discretionary spending decisions, such as: how often and how much on dining out, where and how much to spend on vacations, or even whether to splurge on that Starbucks coffee!

More importantly, it can guide savings goals (such as retirement savings) or career decisions (such as moving up the corporate ladder or change careers) to increase earned income.

On the business front, a dynamic budget can efficiently prioritize spending to reach business goals, uncover unused funds to meet increases or unplanned expenses, and more effectively predict the timing of cash flows — all of which enable the business to build credit history and profits for future growth.

Budgeting Lessons Learned

For our clients, I pose these questions to you: When you plan your marketing or event budgets are they disciplined and dynamic? Do you refer to your budget frequently? Do you include all related income and expenses in your budget?

Returning to my friend’s story — she transitioned successfully to a part-time position and obtained her Master’s degree by creating a budget.

She remained a part-time employee due to health struggles but she still uses a disciplined and dynamic budget—allowing her to save despite remaining part-time and to supplement her income with additional work during months when she is in good health.

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