Hi …Am trying to get a better handle on my finances and have come across the terms “budget” and “forecast.” They seem similar, but I suspect there are important differences between the two. Can someone clarify this for me?
A budget is a plan for your income and expenses over a set period, helping you manage spending. A forecast predicts future financial outcomes based on current trends. While a budget sets limits and goals, a forecast estimates where you might be headed financially. Both are helpful for managing your finances.
When it comes to my personal finances, I define budgeting as managing the money I have on hand to pay bills, cover expenses, save for future purchases, etc.
Looking into the future as money that hasn’t yet arrived is called forecasting. What kind of pay might I anticipate? What bills are you expecting? What kind of return can I anticipate on my assets and savings? How does my retirement seem to be going? How will the decision x, y, and z turn out in the end?
For me they are intertwined. I use a very detailed spreadsheet for budgeting. At it’s heart it’s a table with rows for income and expense categories and columns for months. At the start of the year I fill in the income and expense categories for every month with forecasts.
While a budget outlines your company’s expectations for the given period, a forecast attempts to predict what you’ll actually achieve.
A budget is created for a given time frame and is typically based on historical data or the company’s experiences. A financial forecast looks at the present state of a company’s finances and projects whether or not a budget will be met.