Budget Definition: Corporate & Personal Budgets

Both personal and corporate budgets are essential for both the short and long-term financial viability of a business or household. 

Table of Contents:

What is a budget?

What does budgeting mean?

What is a corporate budget?

What is the difference between a personal budget and a business budget?

How is corporate budgeting similar to personal budgeting?

Why are budgets useful in the planning process?              

What is an example of a personal budget?

What are the 3 types of budgets?

What is a budget and different types of budgets?

How do you set up a personal budget?

What is the difference between personal finance and business finance?

In what ways are personal and business financial activities similar?

What is a budget?

A budget contains calculations regarding the estimated earning and spending that you will have over a specific time period. Normally, budgets need to be re-evaluated as different aspects of your expenses or revenues get altered over time. A budget is normally used by individuals, businesses, and even the government. 

Having a set budget can help someone not only manage their monthly expenses more appropriately, but it can also give them the tool required to better financially plan their future. For example, by having a budget in place you can ensure that every month you will be setting aside a specific amount that will go towards your future taxes, insurance costs, or even your down payment. Normally, those aspects of a budget are known as sinking funds. 

Having a budget can give you much greater control over your finances and more importantly it can help you better prepare for your financial future. Whether you are planning on purchasing a home or just putting aside money for retirement, having a budget can help you take care of all of your future financial goals. 

• Budgets change as your revenue and expenses change
• A business, the government, or an individual can have a budget
• A personal budget refers to the budget made by an individual 
• A corporate budget is a budget created by a business 

What does budgeting mean?

A budget is an estimation of the revenue and the expenses that you will have within a specific time period. Within your budget, you will be able to allocate how your revenue will be distributed to cover all of your expenses. Budgeting refers exactly to that process of allocating a role to each one of your dollars. This financial plan that you will create through budgeting will allow you to purchase or pay for big-ticket items without worrying about going into debt. Budgeting will also assist you with looking at both the short-term and long-term future that you are setting up with your finances.

What is a corporate budget?

Much like a personal budget refers to the allocation of your revenue to cover your expenses, a corporate budget deals with the estimated revenue, profit, and expenses of a business within a fiscal year, half-year, quarter, or month. Most businesses will have both a short-term budget in place and a long-term financial plan in place. This is how they will be able to guarantee that in the long run, they can increase their profit margin. 

A budget is essential for the efficient running of a business. If a department does not have the necessary money to run properly then the overall business will suffer as they will make less profit and work less efficiently. This is why budgeting takes precedence over most other business decisions, as it is only through knowing the business corporate budget that executives can make decisions on the allocation of resources and the decisions, they can make based on the funds that they have available.

What is the difference between a personal budget and a business budget?

The biggest difference between a personal and a corporate budget is the scale of the two. While a personal budget will only cover household expenses, such as loan payments, bills, groceries, a corporate budget will need to allocate funds to each department and project appropriately. The correct allocation of these funds will allow the company to continue running smoothly without having to worry about certain departments not being able to do their work due to the budget constraints that they would have been facing if a proper financial plan was not in place. A business will usually need to budget for rent or property taxes, utilities, staff payments, insurance costs, department spending, etc. 

A corporate budget:

• Covers business expenses including staff costs, the allocation of funds to each department, costs of insurance for all employees
• Will examine ways in which you can save money and thus increase your profits
• Will assess the spending of previous fiscal periods to ensure that the funds used up were allocated properly 

A personal budget:

• Covers personal expenses including, insurance costs, rent, property taxes, bills. 
• Will allow you to allocate resources and funds to cover your future goals, such as putting money aside for retirement or a house payment
• You will be able to assess how much money you should allocate in each spending category and to know where every one of your dollars is going

How is corporate budgeting similar to personal budgeting?

Both corporate and personal budgeting deal with the same principle. That is how will the revenue one has been allocated in a way that will not only cover their expenses but also will allow them to plan for the future. Apart from dealing with essentially the same aspect of spending, both a corporate and a personal budget will need to be reassessed often and it will allow you to plan ahead for the long-term expenses that you may have. 

Why are budgets useful in the planning process?

If you are planning your future, or a move to a new home, or purchase a new home, having a budget is essential. While most people have a general idea of how much they are making, that general idea is often not an exact reflection of reality. The reason for this is that during our regular everyday life there are often expenses that we do not account for. This could mean that there are certain areas of your life that you are overspending or underspending in. When it comes to purchasing a home all of those small discrepancies that may have previously appeared to be unimportant, may be the difference between what property you think you can afford and what property you can afford. Putting all of this on paper will allow you to properly see your spending and budget your spending appropriately so that you can also pay your mortgage, bills, and other expenses while planning for the long-term future. 

What is an example of a personal budget?

Each budget will be slightly different, but the first step to every budget is knowing your exact income. Once you know that you will be able to categorize your spending. If someone spends $2,000 every month their budget could look like this: 

• Mortgage Payment: $750 
• Groceries: $250 
• Bills: $200
• Gas: $50
• Going out/ Take Away: $50 
• Savings: $300
• Insurance: $250
• Subscriptions: $50
• Car Payment: $100

This type of budget allocates every dollar that they make to a specific category and thus, there is no chance that money will be misused in the long run. 

What are the 3 types of budgets?

There are three types of budgets that one needs to be aware of: 

1. Balance budget

A balanced budget will mean that your expenses should always be covered by your income. A balanced budget does not allow overspending or getting in debt to pay for things that are not within your budget.

2. Surplus budget

A surplus budget shows that you are earning a higher amount than you are spending. The difference between your expenses and earnings could be used for savings or to pay off debt.

3. Deficit budget 

A deficit budget will mean that your expenses are larger than your income. This will result in debt or in draining your reserves if you had some savings. 

In general, when you are making a personal budget, you don’t ever want it to be a deficit budget. You always want to budget your expenses to be less than your revenues so that you can save some money each month. Especially, when purchasing a home, having a proper budget will allow you to always make the specified payment, and thus, you will not have to worry about your home possibly getting foreclosed on.

What is a budget and different types of budgets?

A budget is a comprehensive account of how your revenue will be allocated to cover your expenses. There are four main methods used for budgeting. All of them have people who advocate strongly about them. These include incremental, activity-based, value proposition, and zero-based budgeting. While all four of these options are regularly used by businesses the one that is usually applied by individuals is the zero-based budget. The theory of the zero-based budget is simple. Once all of your categories of spending and sinking funds are added up the amount that you will get should be the same amount as the one you are making. This means that there should not be a single dollar within your budget that does not fall into a specific category. 

How do you set up a personal budget?

To set up your budget you will need to follow the steps listed below. 

1. Write down your income and revenue. You should know what you earn on a yearly and monthly basis. If you are getting paid every couple of weeks then you can make your budget according to your payment schedule. 

2. Make a list of all essential expenses that need to be covered on a monthly basis. 

3. Make a list of all the things you would like to spend your money on each month. 

4. Make a list of your future financial goals. This could include the amount you want to be set aside for a trip or a down payment. It could also include setting some money aside each month to cover non-monthly expenses such as your insurance payment once a year or holiday expenses. 

5. Once you have all of your categories you will need to allocate the appropriate amount to each of the categories. Once you have completed this step you will have your first budget. This budget can be adapted as your needs change. 

What is the difference between personal finance and business finance?

Business finances will need to deal with the management of all business assets, expenditures, revenues, debts, department spending, and liabilities. Personal finances only have to do with your household’s financial decisions, these include your mortgage, rent, savings, retirement, and overall budget. 

In what ways are personal and business financial activities similar?

Personal and business financial activities and finances have some important similarities that need to be considered. 

1. They teach discipline

Having control of your finances requires discipline as oftentimes you will need to restrict your wants in favor of sticking to a budget or taking care of your financial responsibilities. 

2. Long-term financial planning

One of the most important similarities is that both personal and corporate financial activities deal with planning the future. This means that in both cases instead of exclusively focusing on the requirements that you may have today, you will also be called to focus on the aspects of your life that you would like to financially plan for. 

3. The importance of a budget

Both corporate and personal finances heavily rely on a budget. The existence of a budget is what allows you to make the most of your revenue and to make sure that you have the necessary amount of money each month. This is incredibly valuable as plan your financial future. 

Summary

For those looking to purchase a home having a budget is a crucial step as it allows them to save for a down payment while covering all of their expenses and even building their credit score. A budget is the only certain way of ensuring that you know where every single dollar that you have is going and thus, it can be the only way of ensuring that you do not live pay check to pay check in the long run.