Budgeting is the planned allocation of funds to departments within a company or for personal expenses. It allows for control of overspending and prioritizes revenue-generating areas. Flexibility is important for unexpected events, but sticking to the budget is crucial for fiscal responsibility. Financial discipline is key to surviving financial crises.
Budget in the business sense is the planned allocation of available funds to each department within a company. Budgeting allows executives to control overspending in less productive areas and to put more corporate resources into areas that generate significant revenue or good public relations. The budget is typically managed in meetings with accountants, financial experts, and representatives of each department affected by the budget.
In terms of personal finance, budgeting can mean estimating your monthly living expenses based on previous bills and wages. If your monthly income is a constant $3,000, for example, you can subtract all of your known monthly bills from that figure even before they arrive. Some bills can be estimated and subtracted from the original income figure. The remaining balance after fixed expenses now becomes the family budget. Instead of allocating dollar amounts for miscellaneous items like groceries, entertainment, gas, and clothing, budgeting allows you to use percentages instead.
The key to budget success is both flexibility and lack of flexibility. Some expenses are fixed, so paying those bills should be an inflexible element. Nothing is more important than paying those particular bills in full. In the business world, departments need to know the absolute spending limit. Budgeting works best when very few exceptions to the upper bounds are made. The idea of fiscal responsibility is to form a workable budget and stick to it as best you can.
The budget also requires an element of flexibility. It’s not always possible to allocate a fixed dollar amount to a project in January and expect the budget to remain stable in July. There are always unexpected events that can drastically change a company’s or an individual’s priorities. Without a flexible budget, money set aside for a purpose could not be reallocated during a fiscal emergency. An unexpected drop in revenue in March can affect budget plans in November, so accountants and finance managers need to adjust their data regularly.
When economic times are good, many people become lax about personal budgeting. As long as there is more money coming in than going out, everything is fine. But those who learn to set a workable budget and keep it within it during lean times often survive major financial crises better than those who don’t. Financial discipline can be the difference between weathering the storm and declaring bankruptcy.
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