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Planning vs. Forecasting When Budgeting

Budgeting and forecasting are not created equal.

Budgeting is planning how you will use money that you have on-hand. Forecasting is planning how you will spend money you think you will have—you hope you will have—in the future.

As a result, budgeting tends to be more realistic. You are aware of the scarcity of your money, which brings clarity. You are working with concrete, finite numbers, you are forced to make choices, and it is incredibly effective.

Forecasting on the other hand, is not as fine-tuned. There are a lot of hypotheticals. It is more nebulous and arguably more fun—because usually when we are predicting our futures we are optimistic and tend to round up. Spending hypothetical money from hypothetical raises and inheritances and dumb luck is without consequence. It is fun to dream about. But it is largely removed from reality, the finite reality of the money you actually have right now.

Dreaming about your future, making big plans – these are good things. And if you make them priorities, and budget for them, they become realities. And that is more fun than all the hypotheticals in the world.

Also, jet boats. (Watch the video.)

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Planning vs. Forecasting When Budgeting