Budget: Meaning, Types & Advantages!



What is a budget? Before combing deep into the types and kinds of budgeting, we should first understand the meaning of the simple word ‘Budget’.

The process to design a plan for spending the money is termed as Budget.

In order to prepare yourself on how to spend your money and when to spend it helps in being aware of their financial situation.

Preparing a budget, in simple words means to create a balance of one’s own income and their expenses. For making a budget plan, the basic requirements are to be aware of your income and expenses along with the remainder of their income.

Let us understand the details of making a budget plan. There are many pointers webbed together in a process which are as follows:

  • The very first step in makinga budget plan is to be aware of your net income.Without this step, there can be no standing plan.

  • The next step is to keep a note of your spending expenses.What amount comes in and what amount goes out becomes very important for this process making.

  • Setting goals for the future expenses is a must step in a budget plan.

  • You should have a plan on your dealings of the money in the future. That way you alway understand your standing in case of financial situations.

  • After making a plan, you see some adjustments to be made so that you can stick to your plan, be affirmative about this and make the required changes.

  • The last step is to keep a tab on the budget plan. Check the whereabouts every few days just to see if you are following the plan or not.

With the above description of a Budget, we will move forward to understand its types! There are three types of budgets namely, surplus budget, deficit budget and balanced budget. Balanced budget - A budget of the government is termed as balanced when the expected revenue equals the assumed expenditure. In Simple words, the receipts of the government and the expenditure of the government.

The government should make a plan in such a way that it’s expenditure is exercised within the amount available to them. Surplus budget - When the calculated receipt of the government is more than the expected expenditure of the government, this situation is termed as surplus budget. The main use of this type of budget is to decrease the public debt of the government or to hike the savings.


One important aspect of surplus budget is it must only be used when there is an inflationary gap, if used otherwise it will give birth to unemployment.


Deficit budget - A situation where calculated expenditure of the government is more than it’s receipts, is known as Deficit budget. Because of this type of budget, the liability of the government gets up and its reserves decline.


It seems useful when the situation of depression covers the country, resulting in a low level of economic activities. Every country breathing in the world decided a goal to ignore the deficit budget plan, a surplus budget is next to impossible to achieve making the countries follow the balanced budget plan.


After learning about the budget and its types, it’s time for knowing the advantages it holds with itself.


Advantages:

  • It is advantageous for making long term plans as it provides a definite path to follow. If you won’t keep account of what you are spending then when you actually want to buy something, you won’t have any money to make the purchase.

  • The most harmful attraction is buying with a credit card. You can stall the payment for a while but you have to pay after a certain time. Making a budget plan helps in controlling your shopaholic behaviour as you will always be aware of your income and you can spend your income accordingly.

  • The most important thing you should do with your current income is to save a few percent of it for your life after retirement. You shouldn’t be dependent on anyone and for that you need to start saving your money from the start. Budgetplan helps in saving your money as you are always aware of your income and expenditure.

  • Life doesn’t run the same everyday otherwise it can be so monotonous. It brings happy days and sad days without a warning or a knock. When there are rough times, some mishaps like an accident or any disease can cause financial havoc in your life. You need to be prepared for these scenarios by having a fund that you can use in such emergencies. Budget plan is suitable in creating these emergency funds out of your income.


So, these were the advantages or benefits of using a Budget in your day to day life. It provides discipline in your financial system and makes you ready for everything that may fall on you.

 

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