We haven’t talked about the money side of a project yet. Money is a very important success factor. Do you usually jump in, pay what is needed to start without having an idea of what you will spend on your project or on the whole program in total? Sounds stupid? Well, maybe it does, but hey, I guess you would not be the only one who does this.
You think to yourself: “I can spend this amount of money now and next time when I have to pay something I will see at that moment, later in time”. That ‘later’ is usually when it becomes too expensive and when it starts to exceed your limits. Then your project dies, no resources anymore, no more money. This is called ‘Death by starvation’.
If there is one situation to avoid, it is this one, especially if it is an interest or passion you really, really, really love. If you would have known from the start, then you probably wouldn’t have started in the first place. You would have saved time and money.
Get your baselines right
The money side of a project has actually two sides: The money that comes in and the money that goes out of your pocket.
Not every interest, passion or project of yours will have incoming money. Other than in business, for personal projects this is not absolutely a must. You can have a hobby which you know only costs money but gives you so much fun or satisfaction that you’re happy to pay for it.
Will your project generate money? For projects that do have money coming in, an estimate of that amount of money should be part of the objectives of your project.
Whether your project generates money or not, chances are high that you will need to spend money. In that case, it is good to know in advance what expenses you can expect, in other words: What your budget is. You usually think about this for big projects like building a house but it’s good practice to create a budget for every project that you want to start.
It might even have an influence on setting your priorities for the projects and passions in your passions portfolio. If you don’t have the money yet that you’ve budgeted, this project will need to go to your bucket of projects and passions ‘To do later’. You don’t have a choice.
And although ‘Personal finance’ is not the topic of this blog and website, just a bit of general advice:
- First rule: Don’t spend money you don’t have!
- Some advice for taking a credit:
- If you take a credit, be sure you can pay it back.
- Paying with your credit card is credit too and you need to pay that money back as well.
- Remember that taking credit costs money. This is called ‘interest’ and you need to include this in your project budget too.
- If you take credit, then do this only for substantial goods and assets, like for a house or a car, etc. Don’t take a credit for consumer goods and general expenses as these have little worth after you’ve bought them.
That being said, it is good practice to create a budget for any interest, passion or project that you start. Your project budget is one of your project baselines. The other two baselines are the scope (what is part of your project and what isn’t) and your project time schedule, if you have one.
Money during your project life cycle
The money flows and the management of them depend on the phase your project is in.
At the start of the project:
- You need to include estimations of incoming money in your objectives
- You need to budget your investments and expenses.
- Ideally you also create a time schedule for incoming and outgoing money
While your interest, passion or project is ongoing:
- You might be receiving money
- You will be spending money
Monitoring and controlling while your project is ongoing:
Especially for big personal projects, you need to monitor and control the money flows.
- Money coming in versus money going out: Ideally you would have a positive cash flow but this is not always possible. It is even possible that the project generates money only after it has been finished. E.g. you build or create something first and sell it afterwards.
- Budget versus money spent: You need to compare what you’ve spent with what you estimated in your budget. And you need to compare your expenses with the time schedule you’ve set up for your expenses.
- Adjust your budget: From time to time, you will have to update your budget and adjust the figures based on the real figures.
When closing your project:
When closing your project you should see that all your pending money issues are solved to have a clean closure. Maybe you specified how to close the money aspect of your project in your exit strategy. In that case, now is the time to implement it.
- Pay any unpaid bills
- Cancel any recurring contracts
- File and archive all documents
The descriptions above give you a general overview of what needs to be done to manage money in your project. But all depends on the size and complexity of your interest, passion or project.
For simple projects in which you hardly spend any money, your budget should be very simple. It would be a waste of time to setup sophisticated controlling systems.
For bigger projects and projects that will take longer, doing all the above is really needed. A budget is not just something nice to have but a real necessity. It’s all about knowing exactly what the financial limits of you and your project are and avoiding bad surprises.