Strategic budgeting is an approach to the preparation and use of budget plans that allows a company, a government entity, or even a household to manage income effectively while also allowing movement toward the stated goals of the entity. The idea with this type of budgeting is to develop specific goals for the future, including time frames in which those goals will be reached, then create a realistic and practical budget that will aid in achieving those goals by those due dates. While this type of budgeting can be used in many environments, there are several basic tips that will aid in the process, including setting specific goals, assessing current obligations, and understanding how to allocate income to best advantage.
One of the first steps in strategic budgeting has to do with identifying specific goals for the future. This effectively provides the incentive for arranging the budget line items to best advantage, and bringing focus to the process of strategic management of financial resources. The goals may have to do with retiring debt or even putting aside funds for a specific purpose. For example, a household may set a goal of retiring the balance of a credit card by the last day of the current calendar year, or having a specific amount of cash set aside for a vacation by 1 June of the upcoming year. This phase of strategic budgeting can also be used for more long-term goals, such as having a certain amount of money set aside for retirement by a certain age, with a series of sub-goals used to set annual amounts to achieve each year leading up to that retirement.
With the goals in place, strategic budgeting can move on to the process of accounting for all current debt obligations and expenses. The goal here is to compare the current amount of income received during a specific period with the amount of expenses that must be managed during that same period. A household will accomplish this by totaling the amount of monthly income received from employment and other sources, then comparing that to the total amount of household and other expenses that must be paid during that same month.
From there, allocating enough funds to meet fixed expenses then moving on to set limits on line items that are considered floating or variable, makes it possible to identify the amount of surplus income that can be devoted toward reaching those goals. This part of strategic budgeting is often the most difficult, since there is the need to be realistic with the variable line items in the budget and not allow much waste to creep into the budgeting process. Managing waste while still allocating a reasonable amount of funds to each line item will result in a higher amount of surplus that can then be allocated to a goal or even a set of goals. For example, if a household finds that at the end of the month there is a surplus of $400 US dollars, the decision may be to divert half of that amount into a savings account while the other half is applied to the balance of a credit card that is slated to be paid off by the end of the year.
Strategic budgeting at its best aids in setting specific goals, then creating workable strategy to reach those goals. By considering both current income and expenses, allocating that income to meet those expenses, and using the surplus in a responsible manner, it is possible to reach those goals and improve the overall financial circumstances of the company, government, or household. As with most processes, the success of strategic budgeting will depend on the accuracy of the data used to create the budget, how efficiently income is allocated to the line items, and how diligently the final budget is actually followed.
