Picture this. Your salary gets credited at the beginning of the month. You go about spending merrily, and by mid-month you realise you’re broke and wonder where it all went. If you have experienced this, and that too frequently, you need to seriously consider budgeting to be in control of your expenses. In this article, we will discuss the concept of budgeting, why you need it, how to go about it, and the various methods of budgeting.
What is a budget?
A budget is a process of estimating your income and expenses, resulting in a neutral, surplus, or deficit financial position at the end of the budget period. The exercise is done regularly – on a monthly, quarterly, half-yearly, or yearly basis. Budgets are prepared at an individual level, by corporates, or by governments. In this article, we will focus only on the individual or personal budget.
In the case of salaried individuals, the income is usually fixed and known in advance. With the budget exercise, you attempt to manage your expenses. At the end of the period, the estimated expenses are compared with the actual expenses to see whether the results are on expected lines or whether the actual expenses are more or less than the estimates.
If the a...