What is a budget?

Kenyan notes Source: BBC.com

What is a budget? A budget is simply an approximation of what revenue and expenses will be for a given period. It is often prepared and evaluated for a specified period. Company may make monthly sales budgets or yearly expenditures. The government of Kenya also prepares a yearly budget, where it stipulates sources of income and their expenditure.

Budgets should be made by any entity or individual that makes money. It is even more important to prepare a persona budget so that you can manage your monthly expenses while also setting aside funds for events beyond your control. It is wrong to think that budgets are made by only struggling Kenyans. You can afford to pay to watch weekly games and travel to your dream destinations every month, but a budget will help you know how you spend you money

Understanding budgeting is a microeconomic concept. Budgets show what you exchanged for something else (supply and demand). Sometimes what you have is more than what your expenditures are, hence surplus budget. You may make a surplus budget when you anticipate for more incomes within the budgeting period. A balanced budget, which is rare, is when all your revenues exactly meet your expenses. A deficit budget happens when your expenses are too high than your revenue. In such cases, one may need to supplement their revenue by borrowing a loan. You should borrow money when it is absolutely necessary to do so.

Individuals and families need personal budgets. There are many benefits you may accrue by preparing budgets. Other than tracking your resources and how you utilize them, budgets can help you to set personal goals, measuring how you have achieved them, and aid in planning for emergencies. Families need budgets to effectively manage their finances both in the short term and long term.

Arguably, budgets are more important in your life than the investments and properties you have. It is the cash flow that you have that will let you pay (or not pay) for everything that you want or need.

Many people erroneously think that a budget is not for them when in actual sense it is a powerful tool for managing your finances. Without one, it is quite easy to land in a very bad financial situation since it is just a matter of time until you replenish your cash without knowing it.

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