Budgeting and Financial Planning
Distinctions between budgeting & financial planning.
The difference between budgeting and financial planning
The difference between budgeting and financial planning
Budgeting and financial planning are often used interchangeably in the speech of laypersons, when they are talking about the economic outlook of organizations. They are, however, very different processes, although the two are interrelated. One analogy is that of someone trying to maneuver the organization like a rowboat over a difficult current: "The energy you use to make the boat move is like the money you have to spend. You can row all day, but if you don't spend any time steering, you'll never arrive at your destination. Budgeting, like rowing, provides the resources...Financial planning, like steering, focuses our effort on our destination. Rowing without steering, or budgeting without a long-range strategic financial plan, will keep you moving -- but not necessarily in the right direction" (East Longmeadow Public Schools' strategic planning and finance: Looking into the future, 2012, East Longmeadow Public Schools).
Without a long-term map in the form of a financial plan, the organization is merely idling along. Without effective steering the form of budgeting, however, having a grandiose idea of one's specific destination means little because you will never 'get there.' Depending on the needs of the organization, there may need to be amendments to the five-year strategic plan on an annual basis. But although the path to the goal may change with the 'current' and the ebb and flow of the tides, the goal must remain constant, unless there are radical changes in the marketplace.
An effective budget is therefore necessary as a first step in constructing an organization's future course on a day-to-day basis. "Budgeting is used for...
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