Budget
A budget is a means to track down income and expenses. When you know your bottom line or what is left of your income after your spending, you are in a better position to assess your financial condition and determine how you can improve it to achieve your goals.
Budgets are useful to individuals, as well as for businesses in terms of planning for short and long-term goals. For instance, a start-up company with limited capital would find budgets specially critical. In starting a business, there are assumptions and expectations built on revenues to be generated and expenses to be incurred, in order to gain profit or at least break-even. These are usually reflected in a budget. Any deviation from the budget helps to determine the causes and address them, such as: were the assumptions about the revenues wrong/too high or were there expenditures that were not considered in the budget? For families, whether the goal is about buying a house or sending kids to college, a budget helps to plan that enough money is saved to meet its purpose.
Aside from planning, a budget is also helpful in controlling activities in order to meet target savings or income. Control does always entail restricting expenses. If the financial condition is below target, control measures to improve income may also be undertaken. Conversely, if the bottom-line is positive and exceeds budget, control may also mean careful allocation of excess funds to expenditures that are aligned to long-term objectives.
In our home, my mother ensures that we stick to a budget to meet our basic needs such as, maintaining a home, having food on the table, and clothes on our back. When there is extra, she saves for our college education. Their income may be limited to enable us to do anything and everything we want so they have to plan carefully that when there is more than extra, we get some treats for shopping or travelling. However, when we are already overspending versus the budget, she will immediately call our attention and give directions on ways to save on our house bills. This may entail conserving on our electricity use or cutting down groceries.
Reference
Vohwinkle, J. (n.d). Budgeting 101, Everything You Need to Know About Budgeting. Retrieved
