This article is one of the more important ones to read when starting off, and it is essential to reference constantly and reflect throughout your time as treasurer. I plan to go through each of the critical aspects of budgeting and hopefully teach some overlooked aspects. As I have in other articles, I will mention that this comes from a membership organization, so some of the examples might not apply to you; however, the principles still apply. For this article, I assume you already have a budget spreadsheet or system in place. If you do not, check out some of our other articles on how to build a plan, or check out our store, where some of those spreadsheets are available. These tips also assume you already know how much money you will receive.
Start with what you know
The first step of any budget is to start with the expenses you know you will have to spend. This is anything from bills with a consistent price, purchases where the price is known, and anything else where you know what it will cost within a reasonable amount. For example, we owned a house when I was running my fraternity. So when I was making my budget, I always started with the three charges I knew what the prices would be: Trash, Wifi, and electricity. I knew what we would pay to the cent for trash and wifi because it was the same every month. Electricity was about the same, but it did vary a little, so I always took the higher number. This is how I would budget, shown below.
Actual Price per Month:
Trash: 175.45
Wifi: 400.91
Elec: 400 - 1100
Budget Price per Month:
Trash: 175
Wifi: 400
Elec: 1000
So notice how on the trash and wifi I rounded down. I did that simply because of how the math works out for the rest of the budget. It is easier to deal with whole dollars instead of cents, and I also rounded to the nearest $5. For electricity, I took a number on the higher end of the range that it can fall it. Most of the time, the actual bill will be lower, but we have created something I call a hidden buffer. A hidden buffer is money set aside for a specific purpose that most likely will not get used. I do this because it gives me the ability to have some emergency cash on the side and enables me to account for close to the worst possible scenario. Finally, the last thing you add, to begin with, is a cushion. This is a set amount of money you put aside for unexpected expenses and unknown costs. For example, say I set aside $1500 for my cushion. I do not plan to use that money for anything else and will leave it untouched. Do not forget the cushion. It will save your budget and reputation.
Bills, Bills, Bills
Now that you have set the known bills, you must plan for the bills and payments you do not have a set number for. It seems like all your money is going into bills, and it does, but there are ways to get around that, but that is a story for a different time. So now you must handle the bills you do not know a set price for. This is where it gets tricky. First, you must get close to the bill's cost without being significantly under or over. Then, once you have an estimate, you follow the steps above. It's pretty simple, but let's discuss how to come up with an estimate. Let's say we are trying to come up with a cost for a composite. So for reference, a group with about 150 members will come in around $2000 from my experience. So when coming up with an estimate, if you can, reach out to the company you will have to pay. Most of the time, they can give you a close enough number, and then all you do is round up and call it good. If you can not get a quote from the company or organization, you must come up with the number yourself. If the treasurer before you has old budgets, I would start there. If not, then you have to do more. I found that online will give you a rough estimate, but you have to be careful because there are a ton of factors that could change the price, but it will provide you with a good point. I would then multiply the number I got online by 1.2. This will give a 20% buffer, and if you are way high, some extra cash you can move to elsewhere. The goal is always to overestimate it. You never want to come in lower than the price.
Now the Fun Stuff
So we now have covered all the bills. Then comes all the planning for the fun stuff or even just the items you need a max amount to spend. Here, you should take your estimated total money in and subtract what you have already set aside for bills. This gives you the total money left. So this part is the hardest to advise because it depends on your organization's needs and wants. All you do is take the total money left and assign it to each remaining category. As I said, this is the most challenging place to give general advice because it all depends on the organization. If your executive board has different chair positions, ask each one for what they would like as a budget. Take that into consideration and then distribute the money. I always would get everyone to send me what they wanted for a budget, and if the sum was less than the total money left, then you are good to give everyone what they wanted and throw the rest of the money into the cushion. If the sum is greater, I will follow this order when deciding who got how much.
Category with the:
Most Events
Largest Purchase
Highest Turnout
Any Philanthropy
Anything else
That order is what I have found to be the most expensive to the least. By following this, you reduce the risk of going over budget.
Final Thoughts
Creating a budget should be relatively easy. It should be straightforward and a process and not take a ton of time. Everything above can be summarized into four simple points. 1. Handle Bills First. 2. Set cash aside. 3. Distribute the remaining. 4. DO NOT allocate more money than you have. You also should underestimate the amount of money coming in, but that is a different story. Once your budget is created, it then comes down to you holding your chair positions to their budgets and if you are a membership organization, make sure people pay dues.