Budgets

A budget is a financial plan that estimates future income and expenditures over a specified period, typically a year. It serves to allocate resources, set priorities, and guide decision making, while providing a basis for monitoring performance.

Budgets occur in various contexts. Personal or household budgets track income and outlays such as housing, food, transportation, and savings. Business budgets include operating budgets that cover revenues and expenses, capital budgets for investments, and master budgets that consolidate all plans. Government budgets plan public revenue and spending and influence fiscal policy.

Core components of a budget include forecasted revenues, fixed and variable expenses, cash flow, savings or reserves, debt service, and planned capital expenditures. A variance analysis compares actual results to the budget to identify deviations and inform corrective actions.

The budgeting process typically involves setting goals, gathering data, forecasting revenues, detailing expenses, calculating net income or surplus, approving the plan, executing it, and then monitoring and adjusting as needed.

Budgeting methods vary. Incremental budgeting adjusts from previous periods, zero-based budgeting starts from zero with justification for every item, activity-based budgeting links resources to activities, and rolling forecasts update projections regularly.

Limitations include dependence on assumptions, uncertainty in revenues and costs, and potential rigidity. Effective budgeting requires flexibility, regular review, and alignment with strategic objectives.