Budgeting.
Definition
The process of creating a plan to manage income and expenses over a specific period. Budgeting helps individuals, businesses, and governments allocate resources, avoid overspending, and work toward financial goals.
How it works · 5 phases
Step by step.
- Calculate total income from all sources.
- List and categorize all expenses (fixed and variable).
- Subtract total expenses from total income to find the surplus or deficit.
- Adjust spending categories to meet savings goals or reduce debt.
- Track actual spending against the budget and revise as needed.
Examples
Real-world.
- 1 A student budgeting their part-time job income for gas, food, and savings
- 2 The federal government passes an annual budget through Congress
- 3 The 50/30/20 rule: 50% needs, 30% wants, 20% savings
Key Fact
The 50/30/20 budgeting rule allocates 50% to needs, 30% to wants, and 20% to savings/debt.