Financial Budget Analysis

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Abstract
A brief description of a basic utilization of the various budgets and the components within.
Personal Finance Week 4: BudgetWhat financial tools described in this chapter can help you make better financial decisions?
The financial tools described in chapter 5 are budgets. A budget is a financial tool that can be likened to the financial planning process. A budget involves six primary components "defining goals and gathering data; forming expectations and reconciling goals and data; creating the budget; monitoring actual outcomes and analyzing variances; adjusting budget, expectations, or goals; redefining goals." (p.89 ) When assessing all of the afore mentioned components one must be sure to weigh each measure conservatively, that is to say overestimate costs while underestimating earnings. The final crucial aspect of the budget is time. The time needs to be long enough to limit the amount of data without neglecting to input vital data. When a budget takes in account all of the variables in one's …show more content…

It is comprised to two main components. These components are the operating budget and the capital budget. The purpose of the operating budget is to reflect the daily "recurring income and expenses, i.e., living expenses and incomes from wages, interest, and dividends, usually related to short-term goals." In keeping with the conservative theme it is wise to not list any irregularly recurring income. Generally for personal budgets a month is a popular time period but for a budget to reflect a more accurate depiction of uncertainty a period of one year is suggested. The operating budget should not only consist of your financial history but in order to be a true a reflection of daily life such should always be adding new information including micro factors (age, family structure, health, career choice) and Macro factors (economic cycle, unemployment,

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