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Budget Types – Definition, Similarities and Difference

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What are the types of budget?

Budgets can be classified in various ways, because companies have different ones for various departments within the company, so, there are different methods for the development of budgets that can be used for each type.

Personal budgets can also come in various forms. Also, certain types of budgets work best in specific situations. In general, the choice of which type of budget to use is a matter of personal preference.

Know all information about budget

Budgets help businesses and families keep track of their finances. They allow people and employers to allocate funds to various areas where they are needed and keep expenses under control. Budgets are an advantage for businesses to predict the financial outcome over a period of time in undertaking a particular project or plan, which can make a very significant difference in decision making.

Classification of budgets

There are three main types of budgets that companies use and each has several subtypes.

An operating budget describes the total operating expenses and income of the organization, typically for the period of one fiscal year.

Capital budgets evaluate the investments and assets of the company, and a cash budget shows the expected cash flow into and out of the company over a period of time.

In addition to these main types, budgets can be created specifically for special events, for hiring and retaining new staff, and for managing advertising expenses and the company’s return on investment.

Budgets can be created for any specific purpose within an organization, so the possible types of budgets are unlimited.

The most common or best known types of budgets serve the operation of any business or enterprise, making them the most general in the world of accounting or the movement of money that a company receives.

The first one is the Cash Flow budget, which helps to determine if the business works and acquires enough income or not, so that it can be used to make decisions either about the internal organization or to establish an emerging change of line of business to guarantee the survival of the company.

This budget model can be established from time to time and consists of measuring the amount of income received by breaking down the exchange rate movements one by one. It can be used to measure daily customer flow and spending. However, companies prefer to use this tool every few days, such as every week and a half or every month, so as not to make the study of the company and its economic performance routine.

The second one is focused on sales and income, it can be almost the same as the one described above, however, this budget is more detailed for the accountants, who will be able to detect not only the flow of money but also the destination, allowing to make a general balance in a final way to determine the movement of money and to contrast with the other accounting data of the company, using this tool in communion with others of similar nature.

It is possible to make a statistical balance and determine the future economic movement of the company, data that can be vital to expand in business without taking many leaps of faith or decisions without research support on the numbers of the company.

The third is a more important budget modality, this is the production budget, which is accounting and one of the most used to determine the movements of purchase and sale of the articles that a store or company has.

This model details and separates the quantities needed in inputs, the purchase of machinery to work, the acquisition of tools, cost of labor by human resources among others, in order to acquire information on expenses.

This data is vital to detect problems of money leakage or expansion problems, in turn serves to determine in detail the projects that the company executives want to undertake to grow and impose themselves in the captured market, being essential to monitor the business operations that are usually massive or complex in the process.

Similarly, within the more general classifications of budgets for companies, is the master budget, it is called so by encompassing all sub models of budgets in a single database, becoming a massive list that will contain in detail all the movements of the company.

This model is present in the largest companies, whose organization is massive and needs global data to determine quick decisions based on the projection that this model of budget, which facilitates in the meetings of shareholders or directors of the same company, the management of funds, is also very present in the closings of operations and tax returns of annual character, for the coordination of taxes before the governing body of the country where the company is established.

On the other hand, the types of budgets that can serve in a more personal way, are those that are created not so much to take an economic control of a company or business, but rather to reach a specific goal, like the purchase of an asset, a trip or the initial investment for a business or exchange society.

There are three of these most common types, which are structured according to their flexibility, the specific departments or activities and the time required to achieve the final goal.

According to the flexibility, these are subdivided into adaptable or rigorous budgets. The first one is flexible, and it is a more risky budget so you must be careful to use it because you can easily lose control of expenses if you do not think calmly about the strategies when using it.

In this case, an initial budget plan should be established that, with time, can be adapted to the circumstances that may occur throughout the life of the company. This model of economic hypothesis in turn implies more expenditure, affecting the criteria for savings and establishing a longer time than expected if you want to reach a specific goal.

Therefore, this model works for survival and at the same time to stimulate the dynamics that the company uses to get out of problems that require the figure of money to be solved.

On the contrary, the rigid budget establishes a static discipline, sticking to the initial budget plan, no matter what problems the company has, the plan goes on regardless of the unexpected, not establishing differences or making unscheduled expenses.

The company should have patience and not panic, because the rigid budget is intended for a proposed goal, either the construction of a project or the development of a department that needs this plan to be formed or the realization of an economic goal in a given time without the possibility of change.

Within the budget models there are generally those aimed at specific projects, those proposed in specific time periods or deadlines.

The most common are those created in the medium or short term, this model is established to consolidate the monitoring of the commercial movement of the company to maintain control or meet a goal in a near time, this model is the most used to address the problems of inflation in some countries.

Long term budgets are established for companies that perceive a sufficient or massive amount of profits, in order to develop projects of great expansion or creation.

This model of budget is used by governments, which will have a control each long tract of time to determine municipal projects, like construction of highways or buildings of public or sanitary character, as well as the great companies handle the same or even more quantity than a state or country, adopt these models for the creation of massive projects with the purpose of stimulating thousands of jobs under their control.

Budgets for more specific activities, such as those consolidated for administrative human resources, are usually separate from business plans or projects, being an exchange tool to establish control over personnel income and ensure the constant operation of the same.

The reason why it is created in an austere way is because this budget should not affect the projects within the company in such a way that the project is not slowed down to satisfy the personnel costs and that, the same one is not affected by diverting funds to the projects. Therefore, these separate budgets are important when detailing the strategies needed to grow as a company.

What are the types of budget

Family or personal budget

In addition, there are simpler models of budgets, used by a single person or families, which involve a more generic or simple strategy to determine their finances and personal or family economic movement.

These budget models are used to keep detailed control over income from work and expenses resulting from the payment of services, acquisition of goods or approaches to family projects, such as holidays or insurance for the family.

In turn, this tool will allow you to know your capacity to save so that you can estimate the expenses that you will have to pay

do to keep their family’s quality of life stable.

There are several methods to correctly manage a family budget depending on the standard of living and what you want to do and acquire. Firstly, you should take into account the infrastructure that exists in society and the economic model, determining its inflationary character and the established purchasing power.

All the present factors help to establish a precise plan, in order to fulfill the economic goal that is posed according to the level of perceived income, being able to diminish a little the quality of life to fulfill an economic project, as it is it to save for a vacation, the establishment of a business or the purchase of a good, as it is it a house or a vehicle. It all depends on the family burden in contrast to their personal expenses and the income obtained from the work activity.

If you are a couple, you can organize your budget in such a way that each member of the couple covers certain expenses. You can also establish a single budget where the couple always covers the expenses as a team, in order to achieve a financial goal; everything depends on the personal criteria that each person has about money and their expenses.

If only one person works within the family group, the budget helps to keep the money flowing well to support the couple while they find a new job or establish a personal project that will help them earn money from the activity.

This family budget is proposed for the acquisition of a movable or immovable property, being able to restrict some expenses to begin to save, and if they live in a country whose economy is inflationary they can acquire a more stable currency and keep it little by little until obtaining the desired amount for the acquisition of the good.

If you are going to program a budget to acquire a car, you need to estimate the cost of it, whether it is a new or used one. Weighing also the amount of fuel it consumes and if it has the design for easy access to the place where you live, estimating the possibility of damage, in case you live in rural areas whose roads can easily deteriorate the same, among other factors that must be taken into account when acquiring the car for which the budget is being planned.