Budget
A plan that estimates income and allocates spending across categories over a set period.
What is Budget?
A budget is a financial plan that estimates expected income and allocates that income across spending categories — housing, food, transportation, savings, debt repayment — for a set period, typically monthly. Budgeting provides visibility into cash flow, identifies spending leaks, and creates a framework for achieving savings goals. Common budgeting approaches include the 50/30/20 rule, zero-based budgeting, envelope budgeting, and pay-yourself-first. Tracking actual spending against budget targets is essential — a budget is only useful if reviewed and adjusted regularly.
Example
A household with $6,000 monthly take-home pay builds a budget: $1,800 (30%) housing, $600 (10%) food, $600 (10%) transportation, $1,200 (20%) savings/debt, $1,800 (30%) discretionary. Tracking reveals eating out accounts for $400 of the "food" category.