Budget is at the crux of everything that is related to money and budget is not made by the government or big companies only rather it is made by every household; the only difference is of scale because in case of government and companies it is on big scale while in case of household it is on small scale. In order to understand it further let’s look at some of the important features of budget –
- Budget should be comprehensive in nature implying that it should include all possible variables in it so that no section goes missing, so for example in case of household if one includes all family members expenses but ignores or excludes children related expense like their tuition fees or their monthly pocket money then it will not be called comprehensive as it has excluded one section of household from it. Similarly in case of the government budget if the government spends too much on infrastructure, defense and social security but ignores education then it will not be called as comprehensive budget.
- The Budget should have provision for contingency because contingency does not come with a warning and it is always an uncertainty. In the case of a household that contingency can be in the form of accident, health related problem and so on. If the individual has not made any provision for such contingencies than it can derail the whole budget of the family, hence an ideal budget should always have provision for contingencies.
- The Budget should be made well in advance so that everyone connected with the budget has an idea about their role and responsibilities with respect to budget because a clearly laid budget does not leave any scope for ambiguity. In the above example if family has decided that budget for entertainment activity is $2000 per year and budget for food and other items is $5000 and so on then each family member has this responsibility that budget does not exceed the specified limit, same is the case with companies where every department like marketing, finance, sales is given fixed budget and it is their responsibility that budget does not exceed the specified limit.
- The Budget should be reasonable, in simple words it should not be too tough or harsh and it should not be too lenient or soft rather a fine balance is required where everyone should feel that they can complete the budget comfortably. A tough budget would result in dissent among family members in case of household, among employees in case of companies and among general public in case of government; in the same way a soft budget would result in unnecessary expenditure and pressure on the family budget or company budget or government budget next year as that unnecessary expenditure could have been used for next year budget.
- The Budget should be flexible and not rigid because some time situation is such that one cannot follow the budget strictly and budget has to be altered accordingly. Suppose in the case of household due to some reason television or air conditioner or other important household item breaks down then household budget should have that flexibility to accommodate additional expense of replacing the defective product.
As one can see from the above that budget is not as simple as it looks and it involves many deliberations and planning and also it is not a onetime activity rather budget needs constant supervision and control so that actual expenses does not go out of control and beyond the budget.