Personal Finance Budget Homework Help

Budget is a French word “ baguette ”, meaning purse. Budget is a financial plan and a list of all planned expenses and revenues. A financial budget is a plan for borrowing, planning, and spending. In simple terms, the budget is an estimate of income and expenditure for a set period of time which reflects a reading of future financial conditions and goals.

It is a financial document which is used to project the future income and expenses. Budgeting process may be carried out by individuals or by the companies to estimate whether the person or company can continue to operate with its projected income and expenses. Budget is an important concept in microeconomics which uses a budget line to illustrate the trade-offs between two or more goods. Also, the budget is an organizational plan stated in monetary terms. The budget can be made for an individual, group of people, government, family, country, organization etc or just anything else that makes and spends money.

Budget is a microeconomic concept which shows the trade-off made when one good is exchanged for another.

The main purpose of the budgeting is as follows:

a) It provides a forecast of revenues and expenditures, i.e. it constructs a model of how our business might perform financially if certain strategies, plans, and events are being carried out.

b) It enables the actual financial operation of the business to be measured against the forecast.

c) It establishes the cost constraint for a project, operation or program.

The procedure for preparing a monthly budget basically includes:

a) Listing of all the sources of monthly income

b) The listing of all the expenses, fixed expenses like rent/mortgage, phone bills etc.

c) The listing of other possible unplanned expenses

A budget serves as important administrative tools as a

a) The plan of action for achieving the quantified objectives

b) As a standard for measuring the performance

c) The device for coping with the foreseeable adverse situations.

There are various types of budgets available in the market:

a) Sales Budget: It is an estimate of the future sales which is broken down into both the number of units and currency.

b) Production Budget: It is an estimate of the number of units which must be manufactured to meet the sales goals.

c) Capital Budget: It is used to determine whether an organization’s long-term investments such as new machinery, products, plants and R&D projects.

d) Cash Flow /Cash Budget: It is a prediction of future cash receipts and expenditures for a particular period basically for short period of time. It helps to business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing.

e) Marketing budget: It is an estimate of the funds needed for promotion, advertisements and public relations in order to market the product or service.

f) Project budget: It is a prediction of the costs associated with a particular company project. The cost includes the labor, goods, raw materials and other related expenses. The project budget is often broken down into specific tasks with task budgets assigned to each.