A budget is a type of list that clearly defines the profits and losses of a business or person. It is useful for helping a person or business manage money in terms of spending and saving. Many people make a budget for short-term goals, such as a vacation or a business forecast, while others may write budgets for more long-term spending and savings plans. The different categories included in budgets will vary according to the purpose of the document, as well as the overall goals of the person writing it.
A business budget is geared toward tracking how much the business has spent and how much it has profited. Many business decisions will be based off budgets, and the business owner may reduce or expand spending accordingly. A budget that is reporting large profits may, for example, allow a business owner to expand the business, stock more products, or do more advertising. If the business is reporting less income, a business owner may decide instead to cut spending, reduce stock, or even lay off employees, depending on how severe of a loss the business is enduring. A budget can also help a business owner stay organized during tax time, when profits and losses will need to be reported for tax purposes.
Individuals may draw up a home budget to determine how much money needs to be spent on bills, how much can be spent on recreation, and how much should be saved. The budget may be drawn up to accomplish short-term goals, such as paying off a car loan or saving up for a down payment on a home, or it may be a more long-term plan that allows the individual to track his or her spending habits and adjust them accordingly. Budgets can be changed, sometimes drastically, according to changes in a person's life; if a married couple, for example, has a child, budgets will need to be adjusted drastically to account for expenses associated with the child-rearing.
Budgets can also be drawn up for vacations or business trips, or other special events such as a party, wedding, and so on. These budgets are designed with the specific event or trip in mind, and the person can determine ahead of time how much money he or she intends to spend on different aspects of the trip or event. If he or she ends up spending more than they had budgeted, they are said to be over-budget.