Difference Between Budget and Forecast
Budgets and Forecasts. Budgeting your income is a critical step in being able to plan for what you want to accomplish with your money. In this article, we explore the difference between budgeting and forecasting so that you have a clear understanding of how each of these planning methods can help you on your journey towards financial success!
What is a Budget?
Budgeting is a process of setting and monitoring objectives where you strategically use your time, money, and resources to build the life you want. It is an action-oriented plan that enlists all of your efforts around where you want to be in the future.
What is a Forecast?
Budgets are for planning how much you’ll spend in the future. Forecasts are for looking into conditional probability of your goal completion.
When Should I Use a Budget or Forecast?
Budget and forecast can be used interchangeably, but budgeting should only be done when the forecast doesn’t work. For example, you might use a budget for your monthly grocery shopping rather than tracking the cost of each item. If you use a budget for something like this, then eliminate it when forecasting becomes successful.
How to Create Your Budget/Forecast
Budget and forecast are two terms that many business owners find confusing. Budgeting is the process of determining how much money you will need for something in the future and then applying your expenses to that total. For instance, if you wanted to save $100,000 for retirement, you would divide your yearly income by 12 and then multiply by 10 years.
Budget and forecast can both be found in accounting. The difference is that budgeting is a planned process, whereas forecasting isn’t. This means that budgeting requires extensive planning and thought, and therefore it’s best to do this before forecasting begins.