Budget

A budget starts with expected income for the period. It then lists planned spending, usually split into categories such as housing, food, transport, bills, debt payments, savings and personal spending. The goal is for planned spending and saving to add up to no more than income.

For example, someone with a monthly take-home pay of 3,000 might plan 1,100 for rent, 400 for food, 200 for transport, 250 for bills, 300 for debt repayments, 450 for savings and 300 for everything else. Every unit of income has a purpose.

A budget is only useful if it is compared with what actually happens. At the end of the month, actual spending is checked against the plan. If food came to 520 instead of 400, the person can decide whether to adjust the plan or change their habits.

Businesses and governments use budgets in the same way, on a larger scale. A company budget sets targets for sales and limits for costs, and managers are judged partly on how closely results match it.

Note: Budgeting is the ongoing process of creating, tracking and adjusting a budget. The budget is the plan itself.