What is a budget?

A budget is fundamentally a financial plan that outlines expected income and expenses for a specified period, typically on a monthly or yearly basis. This planning tool helps individuals or organizations to allocate resources effectively, set financial goals, and track spending to avoid overspending.

By clearly outlining expected income—from sources such as salary, investments, and other earnings—and anticipated expenses—covering necessities like housing, food, transportation, and discretionary spending—a budget provides a structured approach to managing finances. It serves as a roadmap for financial decision-making, encouraging discipline and foresight in personal financial management.

While other choices may relate to finance, they do not accurately capture the essence of what a budget is or how it functions in day-to-day financial planning. A budget is not specifically focused on long-term investments, calculating net worth, or managing credit; instead, it is a comprehensive tool for understanding and balancing one’s financial situation over a defined period.