Budget (or Monthly Statement of Income and Expenses)
A budget is an estimate of income and expenses over a specified period, often a year. It is used as a financial planning tool that allows an individual, family, business, or government to anticipate its income and expenses to best manage its finances and ensure its solvency. The budget can be adjusted based on needs or circumstances.
With a budget, you have a clearer picture of the money you earn, the money you spend, and the money you can save. The primary goal of a budget is to forecast future income and expenses to ensure that essential expenditures are covered while still achieving long-term objectives.
There are different types of budgets:
- Personal/family budget: concerns the income and expenses of an individual or a family.
- Business budget: plans the income and expenses of a business or organization. It might include sub-categories such as investment budget, operational budget, cash flow budget, etc.
- Governmental budget: a forecast of a government’s income and expenses for a fiscal year. It can be divided into operational and investment budgets.
The budgeting process generally involves the following steps:
- Income estimation: Predict all expected income for the specified period.
- List expenses: Predict all expected expenses for the specified period.
- Balance the budget: Ensure that the income covers all expenses. If expenses exceed income, adjustments must be made to balance the budget.
- Review: At the end of the period, compare the actual figures with the forecasts and adjust the budget for the following period accordingly.
Sticking to a budget helps to avoid unnecessary debts, save for the future, and ensure financial security. You should always work from a computerized budgeting tool. This should ensure that you don’t overlook significant expense items and/or make mathematical errors.