What's to Love About a Budget?

Do you love to create a budget? Probably not.

In a national survey of over 500 family child care providers, only 23% had prepared an annual budget for their business for the previous year.*But, creating an annual budget is an important tool that can help you meet your financial goals.

A budget is a business plan of action, expressed in dollars. A budget estimates the income and expenses of your business for a specified period (usually one year).What is a budget good for?* Planning ahead* Promoting greater awareness of the overall operation of your business* Creating an early warning system to help you control your expenses* Guiding you in financial decision making* Making it easier to set aside money to meet your financial goals.

I've heard lots of excuses from child care providers about why they don't have a budget:

"It's too tedious and time consuming."

"I don't make enough money to do a budget."

"I want to spend money now and not worry about the future."

"I'm afraid to find out how bad my financial situation is."

All of these reasons, in my opinion, are simply excuses for not wanting to face your financial future.

First Step

The first step in creating a budget is to identify some short and long-term financial goals. Short-term goals (1-5 year horizon) might be: buy a car, set up an emergency fund, pay off credit card debt, etc.

Long-term goals (10+ year horizon) might be: invest for retirement, create a college fund for your child, etc.

Once you set some financial goals, you will have more incentive to create a budget that will help you meet your goals.

A budget is a tool to estimate your income and expenses for the coming year. You could start by doing a budget for next year. First, estimate what your income will be from parents (by child), the Food Program, subsidized children, grants, and assorted fees. If you've never done a budget before, use the numbers from your last year's tax return (Schedule C).

Next, estimate what your expenses will be for next year. Again, you can use your last year's tax return and experiences  to help in your estimating. Create expense categories in your budget using the same expense categories shown on your last year's tax return.

Subtract your total estimated expenses from your total estimated income. The result is your profit. (Let's hope it's a profit!) Now you can decide what you want to do with the profit. Obviously, you'll take most of this profit to pay for your living expenses.

But, you can also plug in some amounts in your budget to address some of your short and long-term goals. Let's say you estimated you will show a profit of $24,000 for next year. You could set aside some of this money towards your emergency fund, and some towards your retirement.

As the months pass, you can adjust your budget to reflect actual income and expenses. A budget is not something that is set in stone! You can make changes.

Use your budget to help you become more aware of where your money goes, so you can decide if you want to maintain or change your spending patterns. Once you identify a financial goal and put it into your budget, you are much more likely to reach it!

At the end of next year, set up a budget for the following year. Your experience with budgeting this year will make the job much easier.

Although budgeting is not as much fun as caring for children, I urge you to give it a try

I've created a sample budget on-line template that you can use to help you get started. I developed it as an added resource to my book Family Child Care Business Planning Guide, which discusses budgeting. Click on "Web Components" and then "Blank Budget Form" on this page.

What are your budgeting experiences (pro and con)?* See my book Family Child Care Money Money Management and Retirement Guide.

Tom Copeland - www.tomcopelandblog.comImage credit: https://stockagency.panthermedia.net/m/stock-photos/22873309/kvinde-tegning-budget-og-udgifter-plan/

For more information, see my book Family Child Care Business Planning Guide.