What is a Budget?
A budget is a financial plan for a specified period.
It is an estimate of expenses a party will incur, usually broken out by category, for the purpose of providing a roadmap that the party should follow.
While budgets are useful for individuals, they are necessary for larger entities such as corporations and governments which require coordination between multiple people and initiatives.
Financial Budgets for Business
Creating a business budget begins by making some assumptions and financial projections about the upcoming period.
These include estimations of sales trends (or income), cost trends (or expenses), and the overall outlook of the market for the particular industry or sector.
Businesses create both sales and expense budgets, which get compiled into a master budget, guiding the company’s spending down the line.
What is Budgeting for Individuals?
Individual budgeting takes a similar path, except the goal of a personal or family budget is to plan for both day to day expenses as well as larger expenses like the birth of a child, college expenses, retirement, emergencies and vacations.
Proponents of individual budgets such as Dave Ramsey recommend assigning every dollar, even if that dollar is assigned to savings or entertainment.
Budgeting on an individual level can be as simple as tracking all sources of income and expenses, then making sure that more money is coming in than is going out.