Budgeting is the process of creating a financial plan that outlines the income and expenses of an organization or individual over a specific period, usually a month, quarter or year. This financial plan serves as a guide for managing resources, controlling costs and achieving financial goals. Effective budgeting is essential to ensure efficient allocation of resources, prevent overspending and help achieve long-term financial stability.
The budgeting process begins with revenue forecasting. For businesses, this involves estimating income from different sources, such as sales, investments or other income streams. Individuals can forecast their earnings from wages, investments or side income. Accurate income forecasting is critical because it lays the foundation for how much can be spent and saved during the budget period.