Budgeting is more than spreadsheets and numbers; it’s the art of aligning your goals with your financial reality. Over the years, I’ve had the privilege of helping many individuals and organizations create budgets that don’t just look good on paper, but actually work in practice.

What I’ve learned is this: a budget built on honest, conservative projections is far more powerful than one built on wishful thinking. For nonprofits and small businesses, it can be the difference between financial stability and financial disaster.

A common pitfall organizations fall into is focusing too heavily on what they plan to spend, without fully considering whether the revenue will be there to support it. The very first step in responsible budgeting is estimating your income. This is your foundation. Whether this income comes from salaries, product sales, donations, grants, or investments, your actual revenue is what should dictate the boundaries of your spending, not what the budget says you are permitted to spend.

Too often, organizations build out an overly optimistic expense budget full of plans for marketing, equipment, programs, or expansion based on what they hope to bring in, not what they’re confident they will. This approach can quickly lead to cash flow problems, mounting debt, or even collapse.

Drafting an impressive expense budget can feel empowering. It gives the impression of structure, intentionality and control. But if it’s disconnected from reality, especially the reality of revenue, it becomes just an illusion of success. After all, the most beautifully organized budget won’t keep you afloat if the money isn’t coming in to sustain it.

This is especially dangerous for businesses and organizations. For example, a nonprofit may plan a full year of programs based on last year’s donation levels, only to find fundraising results falling short. Without real-time adjustments of spending, the organization can risk financial ruin without a single person or department overspending their initial budget.

I’m not saying this is easy. With the volatility of our economy, it can often be very difficult to accurately project out long-term income levels. Here are a few tips you can use to better protect yourself from deficit spending.

  • Forecast conservatively: Base your revenue projections on verified income or highly likely sources, not optimistic guesses. It is always much easier to find things to spend surplus money on than it is to find things to cut.
  • Use percentage-based budgeting: Create flexible spending levels that are based on percentage of income not dollar amounts. This way, if revenue falls short, there’s a built-in plan to reduce the amount allocated to a category or item.
  • Regularly review and adjust: Budgets aren’t static. Check in monthly or quarterly to see if revenue is tracking as expected. If it’s not, adjust your expense plan accordingly.
  • Prioritize spending using tiered budgeting: Not all expenses are equal. Separate essentials from “nice-to-haves” so you know what can be trimmed if revenue lags.

Ultimately, the principle at play here is financial discipline: living within your means. It’s not enough to know how much you want to spend; you must also ensure you have the means to support that spending. The healthiest budgets are the ones built not on ambition alone, but on realistic and responsible revenue planning. Otherwise, it’s not a plan at all, it’s just a wish list.

(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)