Capital Needs Budget

In a previous entry I talked about the importance of having an emergency fund consisting of six months of expenses. This is not to be touch except in an extreme emergency. Today I am going to talk to you about another savings account you should have but this one you will tap into on a regular basis and that is your capital equipment fund.

Depending on the type of business you have you will either have a great need for capital or a small need but you still need to have a fund set up to save the money for these important purchases.

One regular reoccurring capital expense is computers. Computers either have to be replaced or heavily upgraded every three to five years. Every month you should be setting aside money for future computer needs. This not only includes the computer itself but also printers, copiers, scanners, etc. and anything else your business may use.

Here are the steps to take in order to start saving for your capital needs. First thing to do is figure out when you’re going to need a new piece of equipment. Then you set a budget for how much you’re going to spend. If it’s something that you buy on a regular basis you have a good basic idea on cost. If not, do some research and add a little padding incase of price increases or changes in needs.

The rest is pretty simple. Just divide the amount you need by the number of time periods before the purchase and you have the amount you need to save each time period. If you need a $1000 in 10 months and you will put away money every month then you need to put away $100.00 each month.

By using this system you will be ready for those major purchases and they will not take you by surprise. By budgeting for your big purchases and having your emergency fund, you will be ready when something major happens. After all like Dave Ramsey says, it’s when your not financial prepared that Murphy will come calling.

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