What is a Budget, What Does It Do? How is Budget Management Done?

What is a Budget What It Is What It Does
What is a Budget, How Does it Work How to Manage a Budget

Allocating a certain amount to the expenditures made to protect and improve financial health ensures that the person is prepared for the extra costs that may arise.​ ​

Budget means the amount allocated or accumulated for a specific purpose and can be created for any good or service that is desired to be purchased, not just for big goals. For example, a small child saving a certain part of his pocket money to buy a bicycle or a couple saving for their wedding can be counted as a budget.

The budget is not just for objects/services that are seen as desirable or luxury; It can also be created for basic needs. While looking for a house, the prospective tenant who wants to rent a new house determines a budget by considering the amount that he can easily pay the landlord every month, as well as other monthly expenses related to the house.

What is a Budget, What Does It Do?

A budget is a form of planning that must be done for one's financial health. This planning, which is based on an estimated income, includes expenditures that have not yet been realized, as well as financial targets.

Creating a budget helps a person achieve their financial goals and better value their money. As a matter of fact, budget makers can track their expenditures more easily.

It is not correct to reduce the concept of budget to only one person. Budgeting is essential for families, nonprofits, foundations, companies, and even governments. Properly planned budgets, taking into account all revenue channels and expenditures, eliminate potential risks for each unit we mentioned and enable better management of money.

How is Budget Management Done?

In order to manage the budget correctly, it is necessary to follow some steps. The first of these is to determine the period covered by the budget.

The budget can be monthly, quarterly, annual or several years depending on the goals of the person or institution that uses it. The important thing here is to pay attention to the fact that the determined time frame is a range where realistic results can be obtained.

While it would be more appropriate for a person with a fixed salary to make a monthly or quarterly budget, companies whose profits may vary by month should make longer-term budgets. Another point to be considered while making a budget is cash flow, that is, making an income estimation. While this is easier for people with a fixed monthly income, companies can also make forecasts based on previous months or the market.

Then the expenses need to be added to the item-by-item budget report. Office rent, marketing expenses, employee salaries are examples of these expenses for companies.

It should not be forgotten that there may be deviations and unexpected incomes and expenses may be encountered while preparing a budget.

Each budget sets a precedent for future budgeting. This ensures more accurate analysis every time. Therefore, it is of great importance that the budgets are not left in a corner after they are completed, that they are visited again from time to time and that the necessary arrangements are made. Thus, a more solid foundation can be created for the next period.

What are the Benefits of Budget Management?

With the right budget management, it is possible to gain many habits, including managing money more accurately. Benefits of budget management:

  • Controlling expenditures: By creating a budget, it is possible to track which area is spent more and to limit it. For example, if a person spends ¼ of his salary to eat out, he can realize this when he manages the budget and can set a different rate or figure for this expense. Thus, he can allocate the amount that he does not use for this expense item for another need.
  • Saving money: Budget management teaches people how to save, but also shows that saving money is not difficult. People who control their money and create reasonable budgets for each of their expenses can also allocate an amount for savings.
  • Being planned for emergencies: People who manage their budgets correctly not only set a limit for their expenses, but also allocate a certain amount to savings for emergencies. Thus, when they encounter bad surprises such as accidents and health problems, their daily spending habits are less affected.

What is Included in the Budget?

“What good is the budget?” After answering the question, it is necessary to find out what is included in a budget. The items to be included in the budget vary depending on whether the budget is made for an individual or an institution.

For example, a personal budget includes items such as a person's source of income or resources, compulsory expenses, arbitrary expenses. For companies, these items differ according to the purpose of the budget. Whether the budget is for a certain period (Ex: 2022 4th Quarter) or target/project-based affects the items to be included.

How Many Types of Budgets Are There?

Budgets can be evaluated according to different topics such as scope, handling the situation, marketing, finance, production. At this point, the determining factor is the usage area of ​​the budget created. While budgets with income-expenditure statements come to the fore for individual uses, companies and governments use other types as they manage much larger amounts and operate in more areas.

Günceleme: 08/12/2022 14:23

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