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Budget generally refers to a list of all planned expenses and revenues. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods.
A personal budget is among the most important concepts of personal finance. In a personal budget all sources of income and expenses are recognized and a plan is developed for the excess income to be spent or saved or in the case of a financial shortage the source of financing (whether it be increased income, decreased expenses or outside financing). A personal budget, as with any budget, is only helpful when adhered to with diligence.
The budget of a government is a summary or plan of the intended revenues and expenditures of that government. In some countries, such as the United States, the budget is mainly prepared by the legislature, in others it is prepared by the government. In the UK the budget is prepared by the Chancellor of the Exchequer, the second most important member of the government, and must be passed by Parliament.
The budget of a company is compiled annually. A finished budget usually requires considerable effort and can be seen as a financial plan for the new financial year. While traditionally, the Finance department compiles the company's budget modern software allows hundreds or even thousands of people in the various departments (operations, human resources, IT etc) to contribute their expected revenues and expenses to the final budget.
Usually, a company will produce two types of budgets: a static budget and a flexible budget. The static budget is what is projected. A flexible budget is a special budget that is used to compare what actually happened to what should have happened, based on the amount of sales (or units sold). With a flexible budget, fixed costs should remain the same and variable costs should change depending on whether sales were more or less than projected. The flexible budget is then compared to "reality" and the differences between what was budgeted and what happened is calculated and designated whether it was favorable or unfavorable.
If the actual numbers delivered through the financial year turn out to the close to the budget, this will demonstrate that the company understands their business and has been successful driving it in the direction they had planned. On the other hand, if the actuals diverge wildly from the budget, this sends out an 'out of control' signal and the share price could suffer as a result.
Budgets are increasingly being seen as old-fashioned and are being replaced or complemented by monthly forecasts. Monthly forecasts provide fresher and more up-to-date financial plans.
As an adjective, budget is used in marketing as a euphemism for cheap.
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