Create a budget that works for you: Understand the different types of budgets & plan for the future.

Types of budgets

Published in

Good Business Kit

3 min readJul 5, 2023

Budgeting and forecasting are essential skills for anyone who wants to manage their finances effectively.

By creating a budget, you can track your income and expenses, plan for future expenses, and make informed decisions about your financial future.

In this guide, we will discuss the different types of budgets and provide tips for budgeting and forecasting success.

This guide is for anyone who wants to learn about budgeting and forecasting.

Whether you are a student, a professional, or someone who wants to manage your personal finances better, this guide is for you.

By learning about different types of budgets, you can create a budget that works for you and your financial goals.

Incremental Budgeting: This type of budgeting involves making small changes to the previous year’s budget. It is a simple and easy-to-use method, but it may not be the best for long-term planning.
Zero-Based Budgeting: This type of budgeting involves starting from scratch each year. You will need to justify every expense and allocate funds accordingly. It is more time-consuming than incremental budgeting, but it can lead to more accurate budgeting and forecasting.
Activity-Based Budgeting: This type of budgeting involves looking at each activity in your business or personal life and allocating funds accordingly. It is a more detailed approach to budgeting and can be useful for businesses with multiple departments or individuals with complex financial situations.
Flexible Budgeting: This type of budgeting allows for adjustments throughout the year. It is useful for businesses or individuals with fluctuating income or expenses.

Set realistic goals and expectations for your budget.
Track your expenses regularly to ensure that you are staying within your budget.
Review and adjust your budget periodically to reflect changes in your financial situation.
Use budgeting and forecasting tools to make the process easier and more accurate.

Let’s say you are a small business owner who wants to create a budget for the upcoming year.

You have decided to use zero-based budgeting to ensure that every expense is justified.

Here is a conversation between you and your financial advisor:

You: I want to create a budget for the upcoming year using zero-based budgeting.

Can you help me get started?

Advisor: Sure, let’s start by looking at your expenses from the previous year.

We will need to justify every expense and allocate funds accordingly.

You: Okay, that sounds good.

I know that we will need to spend more on marketing this year, but I am not sure how much.

Can you help me figure that out?

Advisor: Absolutely.

Let’s look at your marketing expenses from last year and see what worked and what didn’t.

Based on that, we can make an informed decision about how much to allocate for marketing this year.

You: That makes sense.

What about unexpected expenses? How do we account for those?

Advisor: We can set aside a certain amount of funds for unexpected expenses.

This will ensure that you are prepared for any surprises that come up throughout the year.

You: Great, thank you for your help.

I feel more confident about creating a budget now.

Advisor: You’re welcome.

Remember to review and adjust your budget periodically to ensure that it continues to meet your needs.

Originally published at Smart Accounting Kit.
This publication may contain affiliate links to external websites.