Budget

A budget is a financial plan for a defined period of time. It may also include planned sales volumes
and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows. It expresses
strategic plans of business units, and an organization, activities or events in measurable terms.[1]
A budget is the sum of money allocated for a particular purpose and the summary of intended
expenditures along with proposals for how to meet them.

Purpose
Budget helps to aid the planning of actual operations by forcing managers to consider how the
conditions might change and what steps should be taken now and by encouraging managers to
consider problems before they arise. It also helps to co-ordinate the activities of the organization by
compelling managers to examine relationships between their own operation and those of other
departments. Other essentials of budget include:

To control resources
To communicate plans to various responsibility center managers.
To motivate managers to strive to achieve budget goals.
To evaluate the performance of managers
To provide visibility into the company's performance
For accountability
In summary, the purpose of budgeting tools:

1. Tools provide a forecast of revenues and expenditures, that is, construct a model of how a
business might perform financially if certain strategies, events and plans are carried out.
2. Tools enable the actual financial operation of the business to be measured against the
forecast.
3. Lastly, tools establish the cost constraint for a project, program, or operation.

Types
Sales budget an estimate of future sales, often broken down into both units and currency. It is
used to create company sales goals.
Production budget - an estimate of the number of units that must be manufactured to meet the
sales goals. The production budget also estimates the various costs involved with manufacturing
those units, including labor and material. Created by product oriented companies.
Capital budget - used to determine whether an organization's long-term investments such as
new machinery, replacement machinery, new plants, new products, and research development
projects are worth pursuing.
Cash flow/cash budget a prediction of future cash receipts and expenditures for a particular
time period. It usually covers a period in the short-term future. The cash flow budget helps the
business to determine when income will be sufficient to cover expenses and when the company
will need to seek outside financing.
 Marketing budget an estimate of the funds needed for promotion, advertising, and public
relations in order to market the product or service.
Project budget a prediction of the costs associated with a particular company project. These
costs include labour, materials, and other related expenses. The project budget is often broken
down into specific tasks, with task budgets assigned to each. A cost estimate is used to establish
a project budget.
Revenue budget consists of revenue receipts of government and the expenditure met from
these revenues. Tax revenues are made up of taxes and other duties that the government levies.
Expenditure budget includes spending data items..
"Flexibility budget - it is established for fixed cost and variable rate is determined per
activity measure for variable cost.
' Appropriation budget - a maximum amount is established for certain expenditure based on
management judgment.
Performance budget - it is mostly used by organization and ministries involved in the
development activities .This process of budget takes into account the end results.
Zero based budget - It has clear advantage when the limited resources are to be allocated
carefully and objectively.

Aim and Objective of Budget

Some of the important objectives of government budget are as follows: 1. Reallocation of

Resources 2. Reducing inequalities in income and wealth 3. Economic Stability 4. Management of
Public Enterprises 5. Economic Growth and 6. Reducing regional disparities.

Government prepares the budget for fulfilling certain objectives. These objectives are the direct
outcome of governments economic, social and political policies.

The various objectives of government budget are:

1. Reallocation of Resources:
Through the budgetary policy, Government aims to reallocate resources in accordance with the
economic (profit maximisation) and social (public welfare) priorities of the country.

2. Reducing inequalities in income and wealth:

Economic inequality is an inherent part of every economic system. Government aims to reduce such
inequalities of income and wealth, through its budgetary policy. Government aims to influence
distribution of income by imposing taxes on the rich and spending more on the welfare of the poor.
It will reduce income of the rich and raise standard of living of the poor, thus reducing inequalities
in the distribution of income.
3. Economic Stability:
Government budget is used to prevent business fluctuations of inflation or deflation to achieve the
objective of economic stability. The government aims to control the different phases of business
fluctuations through its budgetary policy. Policies of surplus budget during inflation and deficit
budget during deflation helps to maintain stability of prices in the economy.

4. Management of Public Enterprises:

There are large numbers of public sector industries (especially natural monopolies), which are
established and managed for social welfare of the public. Budget is prepared with the objective of
making various provisions for managing such enterprises and providing those financial help.

5. Economic Growth:
The growth rate of a country depends on rate of saving and investment. For this purpose, budgetary
policy aims to mobilise sufficient resources for investment in the public sector. Therefore, the
government makes various provisions in the budget to raise overall rate of savings and investments
in the economy.

6. Reducing regional disparities:

The government budget aims to reduce regional disparities through its taxation and expenditure
policy for encouraging setting up of production units in economically backward regions.

Needs and importance of budget

1. It helps you keep your eye on the prize.
A budget helps you figure out your long-term goals and work towards them. If you just drift aimlessly through
life, tossing your money at every pretty, shiny object that happens catch your eye, how will you ever save up
enough money to buy a car, take that trip to Aruba or put a down payment on a house?

A budget forces you to map out your goals, save your money, keep track of your progress and make your
dreams a reality. OK, so it may stink when you realize that brand new shoot 'em up Xbox game or the
gorgeous cashmere sweater in the store window doesn't fit into your budget. But when you remind yourself
that you're saving up for a new house or school, it will be much easier to turn around and walk out of the
store empty-handed.

2. It ensures you don't spend money that you don't have.

Far too many consumers spend money they don't have -and we can owe it all to credit cards. As a matter of
fact, the average credit card debt per household reached $8,329 in 2008, according to an April 2009 Nilson
Report.

Before the age of plastic, people knew if they were living within their means. At the end of the month, if they
had enough money left to pay the bills and sock some away in savings, they were on track. These days,
 people who overuse and abuse credit cards don't always realize they're overspending until they're drowning
in debt.

3. It leads to a happy retirement.

Let's say you spend your money responsibly, follow your budget to a "T" and never carry credit card debt.
Good for you! But aren't you forgetting something? As important as it is to spend your money wisely today,
it's also critical to save for your future.

4. It helps you prepare for emergencies.

Life is filled with unexpected surprises, some better than others. When you get laid off, become sick or
injured, go through a divorce or have a death in the family, it can lead to some serious financial turmoil. Of
course, it seems like these emergencies always arise at the worst possible time - when you're already
strapped for cash. This is exactly why everyone needs an emergency fund.

5. It sheds light on bad spending habits.

Building a budget forces you to take a close look at your spending habits. You may notice that
you're spending money on things you don't need. Do you honestly watch all 500 channels on your
costly extended cable plan? Do you really need 60 pairs of black high heels? Budgeting allows you
to rethink your spending habits and re-focus your financial goals.

6. It's better than counting sheep.

Following a budget will also help you catch more shut eye. How many nights have you tossed and
turned worrying about how you were going to pay the bills? People who lose sleep over financial
issues are allowing their money to control them. Take back the control. When you budget your
money wisely, you'll never lose sleep over financial issues again.

Conclusion
A budget is a great tool not only for managing your money but for helping you sleep soundly at night. With
a well-constructed and well-maintained budget, youll always know where your money is going, if you're
on track to meet your financial goals and that you've planned to weather the storms that will arise from
time to time.

If your spending is too high for your income, a budget serves as a pesky but necessary reminder that you
need to change things and the sooner you listen to those irksome numbers, the better off you'll be.
Living paycheck to paycheck only works temporarily; sooner or later you will have an expense you can't
meet or a goal you can't achieve if you don't learn how to budget.