What is a Budget?

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A budget is a formal statement of estimated income and expenses based on future plans and objectives.
In other words, a budget is a document that management makes to estimate the revenues and expenses
for an upcoming period based on their goals for the business.

What Does Budget Mean?

There are tons of different kinds of budgets from short-term and long-term to department specific.
Management can make a budget for anything. The important thing to remember is these budgets are
really just the management’s future goals and plans for the business written down in financial form.

For instance, if management were planning to purchase a new piece of equipment next year, that
expense would show up in the budget. See what I mean? It’s just a written plan that details the financial
goals of the company for a future period.

Example
Short-term budgets typically only cover a one-year span of time or less. The estimated revenues and
expenses are set at the beginning of the year and the actual numbers are evaluated later in the period
to see if they “met the budget.”

Long-term budgets cover time periods of one-year or more and are usually are quite general. Since it’s
difficult enough to estimate production expenses and sales volumes in the current period, it’s even
more difficult for years into the future. Instead, long-term budgets general tend to focus on large
investments and broad company goals.

Other budgets are created to track job performance during a period. For example, the sales budget is
used to track sales growth during a period and gauge the how successfully new goals are met. The cash
budget tracks the amount of cash spent and taken in during a period and compares it with the goals for
that time frame.

At the end of each period, the current budget numbers and actual performance numbers are compared
and adjustments are made if needed.

What is Budgeting? What is a Budget?

https://www.mymoneycoach.ca/budgeting/what-is-a-budget-planning-forecasting

Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget.
Creating this spending plan allows you to determine in advance whether you will have enough money to
do the things you need to do or would like to do.

If you don't have enough money to do everything you would like to do, then you can use this planning
process to prioritize your spending and focus your money on the things that are most important to you.

Why is Budgeting so Important?

Since budgeting allows you to create a spending plan for your money, it ensures that you will always
have enough money for the things you need and the things that are important to you. Following a
budget or spending plan will also keep you out of debt or help you work your way out of debt if you are
currently in debt.

What about Budget Forecasting and Planning?

Once you create your first budget, begin to use it and get a good feel for how it can keep your finances
on track, you may want to map out your spending plan or budget for 6 months to a year down the road.
By doing this you can easily forecast which months your finances may be tight and which ones you'll
have extra money. You can then look for ways to even out the highs and lows in your finances so that
things can be more manageable and pleasant.

Extending your budget out into the future also allows you to forecast how much money you will be able
to save for important things like your vacation, a new vehicle, your first home or home renovations, an
emergency savings account or your retirement. Using a realistic budget to forecast your spending for the
year can really help you with your long term financial planning. You can then make realistic assumptions
about your annual income and expense and plan for long term financial goals like starting your own
business, buying an investment or recreation property or retiring.

Learn how to budget and create a spending plan.

7 Steps to a Budget Made Easy

Are economic troubles causing you to consider your personal financial situation? You may be worried
about losing your job or how much debt you have. Avoid a potential personal financial crisis; get back to
basics with a budget you can stick to. Here’s how to start:

Step 1: Set Realistic Goals

Goals for your money will help you make smart spending choices. Ask yourself: What do I want my
finances to look like in one year? Decide what’s important to you and start there. More about this

Step 2: Identify your Income and Expenses

You probably know how much you earn each month – but do you also know where it all goes? Find out
by tracking what you’re spending. Spend as you normally would, but for a few weeks, jot down every
cent you spend. It’s easy and you might be amazed by what you find out. More info on this

Step 3: Separate Needs and Wants

Ask yourself: Do I want this or do I need it? Will spending this money get me closer to my financial goals
or further away? Can I live without it? Set clear priorities for yourself and the decisions become easier to
make. Learn more

Step 4: Design Your Budget

Make sure that you are not spending more than you make. Balance your budget to accommodate
everything you need to pay for. One easy way to do this is with our free, easy-to-use budget calculator
spreadsheet and worksheet that's built for Canadians. Learn more about crafting a budget

Step 5: Put Your Plan into Action

Match your spending to when you receive your income. Decide ahead of time what you’ll use each pay
cheque for. Ask yourself: Have I allocated money for my necessities (housing, food, utilities,
transportation, etc.)? Have I put money aside for my debt payments, unexpected expenses, savings and
the fun stuff? This will protect you from going into debt further because you won’t rely on credit to pay
for your living expenses. Learn more

Step 6: Seasonal Expenses

You know that things will “just come up” – school expenses, new shoes or an annual membership. Set
money aside to pay for these expenses so you can afford them without going into debt. More on this

Step 7: Look Ahead

Getting on track with a budget can take a month or two. You’ve lived all this time without a spending
plan, so give yourself time to adjust. Don’t be afraid to ask for help if things aren’t falling into place –
help is just a phone call away.

* This entire document and its related topics are available as a PDF download for printing and offline
reading.

Budgeting Percentage Guidelines for Living Expenses

Many people often wonder how much of their income they should spend on their home, vehicle,
groceries, clothes, etc. Below are some guidelines to give you a general idea and provide you with a
starting point for your budget. Based on your income, family circumstances, and the part of the country
you live in, your allocations may be very different.

To use these budgeting guidelines, start by developing your budget with the money you have available
after government deductions from your pay cheque, but before voluntary deductions like RRSPs,
pensions or other savings. If you have expenses such as high debt payments, childcare, school expenses
or giving, you will need to reduce your spending in other areas to accommodate these higher expenses.

Breakdown of Cost of Living Budgeting Categories

Food: 10 – 20%
groceries / personal care / baby needs
Clothing: 3 – 5%
for all members of the family
Transportation: 15 – 20%
bus / taxi / fuel / insurance / maintenance / parking
Housing: 35%
mortgage / taxes / strata / rent/ insurance / hydro
Utilities: 5%
phone / cell phone / gas / cable / internet
Medical: 3%
health care premiums / specialists / over-the-counter
Debt Payments: 5 – 15%
Many people find that their budget is quite tight because their monthly debt payments are closer to
25% of their net income.
Savings: 5 – 10%
Plan to save money for expenses that don’t occur every month, as well as for your future. Then you’ll
have a little extra available when you need it.
Personal & Discretionary: 5 – 10%
entertainment / recreation / tobacco/alcohol / eating out / gaming / hair cuts / hobbies

How to View These Budgeting Guidelines

These guidelines are designed for someone who really needs to put together a tight budget. If finances
aren't strained in your household, you can choose to be more relaxed and exceed the guidelines in areas
as long as you're doing two things: 1) you're not spending more than you earn, and 2) you're allocating
some money towards savings (savings are absolutely necessary for life's many unexpected expenses.
Don't rely on credit for these unexpected expenses. Rely on money you've saved).

The category in these guidelines that people will most commonly exceed is the Personal & Discretionary
expense category. The guidelines suggest you spend 5 - 10% of your income in this category. However, if
you have young children in daycare, take nice vacations, tithe, or have hobbies or recreational interests
that aren't cheap, you'll quickly exceed the suggested maximum for this category. Please know there is
nothing wrong with exceeding this limit as long as your budget balances (your expenses don't exceed
your income).

You may also notice that if you spend the maximum amount in every category, you'll exceed 100% of
your income. The guidelines are only recommended ranges. Life is all about choices, but you can't
choose the maximum amount in all spending categories. Spending more in one category may mean that
you'll have to cut back in another category to make your budget balance. If you live in Canada's far north
or in a city with extremely high home values, you may have to cut back more than an average Canadian
would in certain categories in order to afford your higher living costs. In these cases, you will most likely
exceed the suggested maximum guidelines for Food (if you live in the North) or Housing (if you live in
Toronto or Vancouver).