The Complete Guide to IT Budgeting

Technology changes. Your business changes. Even the size of your business changes.

To help ensure your IT infrastructure keeps pace with all this evolution, we’ve put together a comprehensive guide on how to create an effective IT budget — actually, two budgets — that reflect both your organization’s current needs and future plans.

This guide walks you through each step of the process, from inventorying your IT assets to forecasting capital expenses years down the road. Whether you're building a budget from scratch or refining your current one, this roadmap will help you avoid costly surprises and make smarter investments in your technology infrastructure.

Step 1: Create a complete IT inventory

Before any numbers hit a spreadsheet, you need a thorough accounting of all your company’s IT assets. This isn’t as simple as jotting down the number of laptops in the office. You’ll need a process.

Start with a network scanning tool to identify all devices connected to your system — laptops, phones, networking hardware, servers, etc. Then, cross-reference this list against your employee roster to ensure every device is accounted for and properly assigned. This step often uncovers surprises like unauthorized equipment or unlicensed software.

Next, review IT purchases from the last decade. Which devices are still in use? Are they within their expected lifespan? Are they even still necessary?

Once that’s done, use an asset tracking tool like Asset Tiger to consolidate and manage your inventory spreadsheet going forward. You should now know:

• Every piece of IT hardware your organization owns
• Who is using what
• When the equipment was purchased
• All related peripherals and accessories
• Every software subscription you’re currently paying for

With this foundational information, you're ready for the next step.

Step 2: Analyze past expenses

Now it’s time to dig into your Profit & Loss (P&L) reports. Go back at least five years and identify all categories that include IT-related expenses.

These often fall under office supplies or general administrative costs and include:

• Software subscriptions
• Monitors, printers, and scanners
• External IT support services
• In-house IT payroll (if applicable)

Cataloging these recurring, non-capital expenses helps clarify your real IT spending and sets the groundwork for more accurate future planning.

And if you’re paying for an internal employee to manage your IT, don’t forget to allocate employer-side taxes and benefits to those payroll costs. For most companies, these costs can range from 20 to 30 percent on top of wages.  

Step 3: Develop a replacement schedule 

Knowing what you have is only part of the equation. Now you need to understand when you’ll need to replace what you have. 

Use your inventory spreadsheet and cross-reference purchase dates with the typical lifespan of each asset:

• Laptops/PCs: 3-5 years
• Network equipment/accessories: 7-10 years
• Physical servers: 5-7 years
• Firewalls and battery backups: 4-6 years

This schedule will show you what needs to be replaced in the near term and help you estimate costs over a five-year horizon. Don’t forget to account for inflation (3+% annually) and market volatility (like tariffs or supply chain disruptions).

With this data, you can now begin building your actual IT budgets.

Step 4: Create your operating IT budget

The operating IT budget covers your known and recurring IT needs over the next year or two. This includes:

• Software and subscription renewals
• Scheduled equipment replacements
• Routine support and maintenance
• Anticipated employee growth and related IT needs

To build this, collaborate with department heads and answer key questions:

• How much are we expecting to grow in the next few years?
• Are we satisfied with our current IT tools?
• What technologies do we want to explore or upgrade?
• Are our IT vendors delivering adequate value?

This exercise requires educated guesses, but your earlier groundwork makes those guesses much more informed. 

Also, make sure to build in flexibility. The COVID-19 pandemic proved how quickly circumstances can change. Having a buffer in your budget can help you respond without derailing your finances.

Step 5: Create your capital IT budget

With your operating budget done, it’s time to think bigger. The capital IT budget looks ahead three to five years and includes:

• Major hardware replacements
• Costs associated with adding new staff and scaling IT systems
• Anticipated infrastructure upgrades
• Labor costs for setup and configuration

Start by revisiting your replacement schedule. For example, if you just outfitted the team with new laptops last year, you’ll likely need to plan for replacements in about four years.
Work with your IT vendors (or internal team) to get quotes for future hardware so you can build in real-world cost estimates. Also, layer in projected inflation and allow for unexpected growth or technological shifts.

Remember, creating a reliable IT budget is not just about controlling costs — it’s about giving your business the technology backbone it needs to grow and adapt. With a complete inventory, a smart replacement schedule, and two well-considered budgets (operating and capital), you’ll be positioned to make smarter IT decisions, avoid last-minute scrambles, and future-proof your organization.