What is a Budget?

Explain its
importance with example of how you
use the budget yourself.
Budget is a nancial tool used by governments, businesses and
individuals to manage nancial resources effectively. According to the
Oxford Dictionary budget de nition is “ an estimate of income and
expenditure for a set period”. A budget is a comprehensive nancial plan
of projected earnings and foreseeable expenditures. It provides a
framework for nancial decision-making where a person knows earnings
and based on it prioritises expenditure and doesn’t do any extravagant
spending and helps in attaining scal discipline.

From big corporate houses to governments all need a proper budget for
proper functioning to know their sources of income and on which things
they have to spend money. For their survival and existence budget plays
a very crucial part. For individuals, a budget is also very necessary for
our daily expenses to our savings everything depends on our budgeting
skills.

A budget can be made for short-term use like daily expenses on the basis
of monthly salary and a budget can be used for making long-term goals
such as if you want to buy a car or house or want to save money for any
purpose you will always need the help of budget to do it.

Importance of Budget
One of the most important things for which we require a budget is to
know when, where on which thing we are spending money and how
much we are spending. Like if I have to take my example I earn around
800 CA$ monthly from which:-
400CA$ goes to rent
200CA$ goes to the grocery
100CA$ goes for my monthly expenses(gas and eateries)
100CA$ my savings
This is roughly what my Budget allocations look like for a month it
varies according to my salary.
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Another important factor is to achieve your goals( can be anything you
want to purchase in the near future). For which you can allocate a
minimum budget from your monthly salaries. In our houses, parents
usually plan the budget it they want to buy a car they will allocate a
minimum sum of money for it. So budget also helps us here without it
our estimates can go wrong we can have severe losses. On the one hand,
a budget helps to gain things on the other hand it helps us to curtail our
losses, and it does both jobs in one go.

Budgets help us in emergency situations we can not predict the future

and emergency funds help us protect us in such situations so this is also
another use of budget. If such a misfortunate event takes place then such
type of emergency funds help us a lot and can cover our whole expenses
and can smoothly ride us from distressing situations like this.
Emergency funds are essential nowadays.

Sometimes we come to know about our habits from our budget like any
spendthrift we are doing one can notice it through our budget. This is
my own example that starting when I don’t know about budgeting I
usually waste money on things I don’t need eating outside frequently
and then at month end get frustrated by my money-spending habits then
only I realise the real use of budget why person like me needed budget
to put a constraint on themselves so they have a speci c amount above
which they can not spend. So it helps in improving our habits of
spending money and makes our scal discipline and we come to know
about how to put really use our budget for our own welfare. In future
when if one loses a source of income budgeting skills help us to survive
such tough phases and provide us nically stability. Many times we hear
in the news that this bank went bankrupt and one of many reasons
behind that bankruptcy is not having a proper budget or assessment of
resources. Budget make us responsible also.

Budget also helps in identifying our real sources of income and we come
to know about our expenditures also on which things we are spending
our money. So for making a good budget one also needs to know how to
calculate a budget. How I calculate the Budget:
Step1: Identify your Total income
Step2: List of things on which you spend
Step3: Essential and non-essential costs
Step4: Reducing your discretionary expenses
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Step5:Save the funds left

By following these steps one can easily make a good budget it can vary
from one person to another and little modi cations can be done to it
according to one’s needs. We can say that budget has become an
essential part of our lifestyle, we need it to manage our resources in the
best to know where to use them and how much to use them. Not only
for immediate use but for long-term purposes budget helps us a lot. It
makes us nancially responsible one comes to know about restrains one
has to use while spending money. Another thing is budgeting helps to
make savings which we usually ignore but these savings become
essential to help us in the long run and also provide us nancial stability
in tough times. So budget is not only for big organisations or for
governments it is the best tool for every individual to make proper use of
their money. I depend a lot on my budgeting skills and try to make good
use of my money so in many daily expenses, it plays an essential role.
But one has to be more cautious while making a budget they should not
be too restrictive while making it there should be enough amount
allocated to essential uses. One should make a budget for which targets
are achievable if they are not achievable then they will be of no use. So
carefully frame your budget. It helps a lot with daily expenses and for
achieving long-term targets.
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