We explain what a budget is, what its functions are and what it is for. In addition, its characteristics and what is the public budget.
What is a budget?
A budget is an estimate of expenses and income in advance . Budgets are also used in the family, private, institutional and business spheres to anticipate what expenses can be made and achieve a more efficient use of resources .
The use of this term in everyday life can also refer to the report of the cost that the contracting of a service will mean.
In all cases, the budgets must be planned according to achievable conditions , to avoid misinterpretations or discussions.
Governments also define a budget (generally annual) for the various sectors under their administration .
The budgets of companies , institutions and governments are usually combinations of various types of budget (administrative, financial, production, etc.), each with its own characteristics, so they must be prepared by specialists .
These budgets are discussed and usually have previous phases and must be approved before becoming final budgets. On the other hand, personal or family budgets are less complex and do not usually need specialists for their development.
Characteristics of a budget :
A budget has a number of main functions:
- Financial control .
- Control of expenses. A comparative record of the current expenses with the previous ones and the results obtained allows correcting errors and confirming achievements.
- Minimize risks. Anticipating income and expenses avoids making investments that are too large for predictably poor results.
- Planning . Developing action plans effectively is only possible if it is known in advance that the necessary resources will exist to carry it out in its entirety.
There is no single pattern for all companies but it must be modified for each case .
A budget depends on various variables that may appear in the future . Therefore, each type of budget has a specific flexibility depending on how much it will be modified by these unplanned factors.
- Static budget. It is a fixed budget, which assumes that the estimates of the future situation will be correct. It is only possible if there is a stable economic context with respect to all the factors that will intervene in the plan.
- Flexible budget. They are prepared to adapt to changes in the economic context. They are the most common because they are the only ones capable of responding to changing circumstances but, at the same time, they are more complicated and costly since they take into account multiple variables.
The periodicity of the budget depends on the type of budget in question (production, sales, administration, etc.).
A sales budget anticipates the amount and type of sales a company will have in a given period of time.
These budgets are usually made over the long term , between three and ten years, and rely heavily on market research .
- Manufacturing. It depends on various variables such as the cost of work (hours required for manufacturing), machinery, equipment and maintenance.
- Materials . The materials have a specific budget. In unstable economies , the cost of materials can be calculated accurately in the short term, while in the long term it will require a flexible budget.
Every company or organization has a specific expense that is not related to production but to administration.
From the comparison between the income budget and the expense budget, the net flow is obtained, that is, the profit or loss that is anticipated.
The budgets designed by governments have various functions, from the operation of services, to programming investments or managing public debt . Due to their state nature , they are established through regulations that have the force of law .
Although there is a ceiling provided for by law, it is the expected income item, which is only an estimate , so there may be contradictions in public budgets (more expenses than income).
personal and family
- Income. A person can have a single type of income (salary) or several different incomes (investments, rummage sales, etc.). In a family there may be one or more incomers. The budget is made based on the total expected income. If they are not enough to cover the items listed below, a way to increase income should be found.
- Savings and investments. Savings allow you to face unexpected expenses that are not within the budget, while investments allow you to increase future income.
- Basic needs. Every budget must include, first of all, unavoidable expenses (basic services, transportation and other employment expenses, education , food , etc.).
- Pleasures. Once the basic needs and savings are covered, the rest of the income can be used for leisure activities. In some cases, the savings are used, for example, on travel.
The above content published at Collaborative Research Group is for informational and educational purposes only and has been developed by referring reliable sources and recommendations from experts. We do not have any contact with official entities nor do we intend to replace the information that they emit. The above content published at Collaborative Research Group is for informational and educational purposes only and has been developed by referring reliable sources and recommendations from experts. We do not have any contact with official entities nor do we intend to replace the information that they emit.