In this session, we will be discussing what is a budget, and also discussing the meaning of budget, the definition of the budget deficit, features of budget, types of budgets, the objective of budget, classification of budget, advantages, and disadvantages of budget, reason for budget, corporate budget, personal budget, building a budget, sticking to a budget, why is the budget so important, how do you start a budget, the process of budget, what are the step in the budgeting process, examples of budget.
What is a budget?
Money is that type of word, which is displaying the most important role in the life of a human being. Money, which can show the character of any human being. so, the word of money we also called the budget. Budgets can be made for an individual, a social affair of people, a business, an administration, or essentially whatever else that makes and goes through cash.
A budget is a list of all the money that is coming in, all the money that is going out, all the bills that are due, and all the savings. This means that budgets are useful because they ensure that you’ll have enough money to pay your bills, while also having some sort of savings for emergencies.
While some people say they don’t need a budget because they’re good with money, this is only true if your definition of “good with money” is spending all of your money. If you’re using a budget to monitor how much you’re spending on entertainment versus how much you’re spending on clothing versus.
Meaning of budget
The meaning of budget is the way that people choose to spend their money. It is the amount of money that one has, how it is spent, and how it is used. The term “budget” is used to describe the plans for spending money over a certain period of time. The term “budget” can also be used to describe the plan for spending money over a shorter period of time, such as a week or month.
In the session on the definition of the budget deficit, we will be also discussing the definition of budget.
Definition of budget
Here is describing the definition of the budget by the most important authors of budget like Dimock, Harlod R. Bruce, Munro,Wilne, Storum, Rene Gaze, Taylor,
“A budget is a budget summary, ready ahead of the kickoff of a monetary year of the assessed incomes and proposed consumptions of the given association for the guaranteeing financial year.” — Harlod R. Bruce
“Budget is an arrangement of financing for the approaching monetary year. This includes an organized gauge of all incomes from one perspective and all uses on the other.” — Munro
“A budget is a monetary arrangement summing up the monetary experience of the past expressing a current arrangement and extending it throughout a predetermined timeframe in future.” — Dimock
“Budget is a detail of assessed incomes and consumptions a similar diagram of incomes and uses and far beyond this it is a position and bearing of the skillful power given for the assortment of incomes and use of public cash.” — Wilne
“Budget is a record containing a starter supported Arrangement of Public Income and Consumption.” – Storum
“The budget in an advanced state is a figure and a gauge of every single public receipt and expenses and for specific costs and receipts an approval to bring about them and gather them.” — Rene Look
“Budget is a monetary arrangement of government for a clear period.” — Taylor
In the session on the definition of the budget deficit, we will be also discussing the features of the budget.
Features of budget
A budget is an estimated financial plan for a specific time period. The budget is prepared for various purposes like business, government, or personal. The important features of a budget are its purpose, scope, periodicity, control, and flexibility. The budget is prepared for a fixed time period.
The features of the budget can be dedicated to the following points.
- It is a gauge of the financial activities of an element identified with a predetermined future period.
- It should be composed and endorsed by a suitable position.
- It ought to be altered or remedied, at whatever point, there is an adjustment of conditions.
- It assumes the part of a business gauge that aids in estimating the exhibition of the business by looking at genuine and budgeted results.
- It is ready based on past encounters and patterns in the business.
- It is a business practice, which is utilized to estimate the working activities and monetary position of the business.
In the session on the definition of the budget deficit, we will be also discussing types of budgets.
Types of budgets
There are several different types of budgeting systems that a firm or a person might use. These include a zero-based budget, an Incremental budget, and an activity-based budget, a value proposition budget.
- zero-based budget
- Incremental budget
- activity-based budget
- value proposition budget
In a zero-based budget, each dollar is identified as a dollar on the books, and every dollar is accounted for. Thus, there is no assumption that money will be spent on certain items and no assumption that money will be available for other items. Everything is budgeted and allocated with the understanding that everything is on the table and that the goal is to find dollars to fund everything.
The zero-based budget has become standard practice in business accounting, where it is generally understood that all expenses are “real” expenses and all revenue is “real” revenue.
An incremental budget is that type of budget, which is changed in small increments. For example, if you spend $100 every month, but one month you only spend $90, you spend $100 + $10 = $110. This is an incremental budget change because the amount spent remains the same. But if you spent $100 for the month but then next month you only spent $90, then you would spend $100 + $0 = $100.
The Activity-Based Budgeting (ABB) process is a process that uses the results of a review to determine the amounts to be spent to support an activity. The ABB process is a planning tool that has been used at the federal, state, and local levels.
The key principles of ABB are that all activities should be considered in the budgeting process, budgets should be constructed at the lowest possible level of aggregation, budgeting must consider the full life cycle of goods and services, and budgets must reflect current activities. The process is used in both public and private sector organizations to ensure that the budgeting process is an activities-based budget.
Value proposition budget
The value proposition budget is the sum of all the costs of producing a product, including the cost of developing the product, all necessary expenses involved in placing the product into production, and all necessary expenses involved in placing the product into the marketplace. This is also called the fixed costs budget.
A clear understanding of fixed cost can be used to predict the actual cost of a product at any point in time. Also, it is used to predict the overall success or failure of a product if it is compared with other products.
In the session on the definition of the budget deficit, we will be also discussing the objective of budgets.
Objectives of budget
The primary objective of a budget is to organize and prioritize upcoming expenditures. A budget is a tool that helps an organization allocate limited resources, plan future expenditures, and track spending. This allows for better financial decision-making. A budget can also be used to determine whether the organization’s financial objectives are being met.
The objective of the budget can be dedicated to the following points.
- Redistribution of Resources
- Economic Growth
- Management of public Enterprises
- Economic Stability
- Reducing imbalances in pay and riches
- Reducing local inconsistencies
Redistribution of Resources
Although the concept of redistribution of resources might seem to be an anathema to the tenets of classical and neo-classical economics, it is actually a fundamental principle and one that is widely accepted in most modern societies. Redistribution of resources is the process by which some or all of the economic resources are transferred from one individual or group to another through various means, including taxation, gifts, or the transfer of assets. The reason why redistribution is accepted in most modern societies can be explained by the fact that it helps to achieve various other economic goals, such as equality, economic stability.
- Tax concessions and subsidies
Tax concessions and subsidies are an important part of any government’s budget and also a significant component of tax reform policy. Subsidies and concessions to various sectors and activities are designed to encourage particular types of economic activity, protect certain industries from international competition, or support those who are most vulnerable.
For example, some view the concessional treatment of superannuation as a subsidy, as individuals do not pay tax on contributions or on earnings until they retire and start drawing on their superannuation account. The concessional treatment of capital gains is a subsidy because individuals do not pay tax on capital gains until they sell an asset.
- Directly producing goods and services
In a free market system, a reallocation of resources would not be necessary because prices would adjust to ensure that all factors of production are being used in their most efficient way. In this case, the most efficient way would be using all factors to directly produce goods and services. In a situation where there is increasing demand for a good or service, the free market would respond with increasing prices rather than having to increase production.
In May, the United States Federal Reserve, along with other central banks, began an experiment with negative interest rates. This means that instead of receiving interest for depositing a sum of money in a bank account, a person will have to pay a fee. The idea is to encourage people to spend rather than save, in the hope of stimulating the economy. But there are many other ideas about how to make economies grow.
Management of Public Enterprises
There are enormous quantities of public area ventures (particularly normal syndications), which are set up and overseen for social government assistance of the general population. The spending plan is ready with the target of making different arrangements for overseeing such undertakings and giving that monetary assistance.
Reallocation of resources is a process that is used by the government to prevent economic stability from getting undermined. This is done by taking money from one group and giving it to another group that is not in the position to gain money on its own and is therefore in need of financial help. The government usually takes money from the rich people and gives it to the poor people. This process of reallocation of resources is used by many countries in the world today and has been for many years.
Reducing imbalances in pay and riches
The lack of financial resources for many people in the world is a major issue. In order to reduce this imbalance, it would be necessary to take from the rich and give to the poor. The problem with this strategy is that it can have a negative effect on the economy. A different method would be to take from the rich and give to the poor by reducing taxes for everyone in a certain income bracket.
Reducing local inconsistencies
The public authority budget means to decrease territorial differences through its tax collection and use strategy for empowering setting up of creation units in financially in reverse districts.
In the session on the definition of the budget deficit, we will be also discussing the classification of the budget.
Classification of budget
The classification of budget can be dedicated to the following points.
- Long-term budget
- Short-term budget
- Current budget
Long term budget is a budget that is used for a longer period than the usual 3 years. The long-term budget includes all the expenses and incomes of the company or institution during one year, two years, or three years. A long-term budget is used when the company or institution has to plan for future investment in capital assets and other long-term investments according to their long-term goals. The long-term budget may include expenses for capital assets, research, and development, organizational growth, patent registration, etc.
The short-term budget is the latest budget available. It includes the current fiscal year and the next two fiscal years.
A budget that is set up for use over a brief period and is identified with the current conditions is known as the Current Budget. This budget is changed in accordance with the current conditions winning in the business.
In the session on the definition of the budget deficit, we will be also discussing the advantages of the budget.
Advantages of budget
There are many advantages to budget reallocation from specific projects to others that demand similar levels of resources. If a project is significantly behind schedule or over budget, the budget could be reallocated to another project that is on schedule and under budget. This will ensure that the overall project schedule is not violated. It also ensures that the project is not working towards a specific delivery date, but rather a set of milestones.
- The budget assists in planning
- The budget communicates and co-ordinates
- The budget helps in the decision-making process
- The budget can be used to monitor and control
- The budget can be used to motivate and control
The budget assists in planning