Finance

Budget: what is it? | Definition and use

The term budget is common, but what exactly does it mean? We explain the areas in which it is used and why it is good to have a budget.

There seem to be budgets everywhere. The backpacker is on a low budget, your boss denies you a raise with reference to the budget and the state sets a budget for itself, but calls it the budget. It’s not that easy to keep track of things.

What types of budgets there are, why it makes sense to worry about your personal budget, and where the word actually comes from – you will find answers here.

What is a budget?

Most often the term is probably used to refer to a amount of money available to describe. That turns out to be Result of all expected income and expenses. For example, you could set a budget for your next vacation after looking at your salary, living expenses, and the estimated cost of the trip.

But not just as a private person or household can you have a budget, too Companies, societies or the Country work with it. However, the budgets fulfill different functions depending on the specialist area.

Budget in companies

In companies it is the job of Financial planningto draw up a budget at regular intervals. The employees in the finance department look at how much capital is needed to meet the company’s goals, for example to produce goods or provide services, and how much money is generated as a result.

Through this Comparison of costs and revenues becomes the so-called Earnings situation visible. This is to ensure that there is always enough money available.

The budget is used in companies as a internal target – both for certain expenses that must not be exceeded, as well as for revenues that should at least be achieved. If the borders are broken, that’s called Budget overrun or Under budget.

Public Sector Budget

There are also budget targets in the public sector; there, however, they listen to the name Budgetary principles. After all, the budget is also called there household or budget. The most important factors are economy and economy. In this case, thrift means achieving a goal or result with the least amount of resources possible. The whole thing is economical when the return is greater than the effort.

Why do you determine a budget?

In short: to keep your finances under control – regardless of whether you are a private person, a company or an entire state. The budget provides an overview of income and expenses and thus prevents nasty surprises.

The budget book is a good aid for private budget planning. There you enter all income and expenses for the month, ideally divided into main categories such as fixed costs and flexible costs, as well as sub-categories such as food, hygiene, transport or leisure.

Because the budget book shows you exactly what you are spending your money on, it also helps you save. Because there will certainly be some items that you will be surprised about – and that you can reduce in the next month.

Like companies, you can also set certain budget targets for this. For example, cap the expenses for going to restaurants to a certain amount or expressly set a minimum for your personal further education.

Where is the term used?

There are budgets in many different subject areas. The most important are:

  • Public budgets: These are the budgets of states. They are called the budget or simply household. They compare state income and expenditure for one year. While the expenses are usually fixed, the tax receipts must be estimated.
  • Private household: According to microeconomic household theory, the budget of a private household consists of that part of the income that is available to it for private consumption and private savings. But it can also be understood as part of private financial planning. Then budget means a fixed sum of money that is intended for a specific expenditure.
  • Business Administration: Here the budget is the result of what is known as budgeting. This is a financial plan that controls the short-term distribution of resources – for investments, personnel or marketing, for example.
  • Personal budget: In Germany, people with disabilities or chronic illnesses can be supported with money instead of traditional goods and services in order to participate or to be integrated into social life. This legal right is called personal budget.

Where does the term come from?

Budget is a Loan word from French. It is derived from “bouge” (travel bag) or from its diminutive “bougette” from a leather bag used for money. From France, the term spilled over to England in the 15th century, where it was also used for small leather bags – but now as “budget” ([ˈbʌdʒĩt]).

As a term for a comparison of expected income and expenditure, the term budget is first used in 1733, when the Chancellor of the Exchequer of England “opened the budget”, that is, presented his budget to the people. France followed three quarters of a century later: in 1806, the government of Napoleon Bonaparte officially used the term for the first time for the annual budget (“budget de l’an”).

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