What is budget? Definition and meaning

The word budget, which can be a verb, noun or adjective, has several possible meanings. It may refer to an estimate of the overall costs of a project, a forecast of expenses and revenues over a specific period, or how much money I have for a project, product or my department.

When it refers to the estimation of revenues and expenses over a given future period it is compiled and re-evaluated regularly. In this sense, it does not having the same meaning as forecasting.

A surplus budget is good news – it means sales are predicted to exceed expenses and a profit is forecast. A deficit budget means expenses are expected to exceed income, while a balanced one means that revenues and expenses will be the same.

Budget for the next quarterA budget may be a plan expressed in money. It is prepared and approved before the budget period and typically shows income and expenditure, and sometimes the capital to be employed.

A budget is not only made for a company – it can also be made for a country, government, multinational organization, or a private individual; in fact just about any entity that makes/receives and spends money. It is a microeconomic concept that shows the trade-off made when one good or service is exchanged for another.

Money available to spend

The term can also mean how much money is available to spend over a given period, on a certain product or purchase.

If you are buying a car and the sales person shows you one that is more than you had planned to spend, you might say “Lovely car, but I am afraid it exceeds my budget. What do you have with these features, but at a lower price?” this means that the car you were offered exceeds how much you have available to spend on one.

My budgetIn this image, the woman’s budget is how much money she has put aside to buy a car, i.e. how much she can afford.

When it is a verb

The word can also be used as a verb with the same meaning, as in: “That car is really nice, but I had not budgeted for that amount.”

If a company needs to tighten its belt, it may decide to reduce the amount of funds that are channeled to various departments. For example, if it has decided to cut how much the advertising department gets by 10%, the advertising manager may be told or receive an email saying: “The money that was budgeted for the advertising department will be reduced by ten percent.”

When it is an adjective: if you go on a ‘budget vacation’ it means a cheap vacation. If a customer at a car rental sales room says: “I’d like to rent a budget car,” it means he or she wants a cheap one.

The Budget: UK

Every year in the United Kingdom in the month of March, the government explains how it will spend the nation’s money for the next 12 months. It also announces how it will collect enough funds to be able to spend what it says it will. This announcement is called The Budget.

The budget UKThe last four Chancellors holding the famous leather briefcase on Budget Day. (Top left) George Osborne 2016. (Bottom Left) Alastair Darling 2010. (Top Right) Gordon Brown 1999. (Bottom Right) Norman Lamont 1993.

The amounts are worked out by the Chancellor of the Exchequer (Chancellor), with help from his or her office, the Treasury. The equivalent of the British Chancellor in other countries is ‘Minister of Finance’.

The UK Government, like all others across the world, gets its money through taxes. The Chancellor explains what changes there will be in taxes over the next 12 months. Most Britons, like in any country, are interested mainly in things that affect them directly, such as the price of gasoline (UK: petrol), both alcoholic and soft drinks, their vacations abroad, inheritance tax, taxes on buying-selling their home, income tax, VAT (value added tax – like sales tax in the USA), etc.

Etymology of the word ‘budget’

Etymologists (people who study the origin of words) say the English word appears in the early fifteenth century meaning a ‘leather pouch’. It came from the Middle French word bougette, the diminutive of Old French bouge, meaning a ‘pouch, wallet or leather bag’.

The French word originated from the Latin bulga, meaning a ‘leather bag’.

Quote with David Cameron former PM of UKDavid Cameron, who was UK Prime Minister from 2010 to 2016, once said: “In a global race, can we really justify the huge number of expensive peripheral European institutions? Can we justify a commission that gets ever larger? Can we carry on with an organisation that has a multibillion pound budget but not enough focus on controlling spending and shutting down programmes that haven’t worked?” (Image: twitter.com/david_cameron)

It was not until 1733 that budget assumed its modern financial meaning. The Treasury Minister used to keep his fiscal plans in a leather wallet.

According to the Financial Times ft.com/lexicon, a budget is:

“An estimate on the overall costs of a project, as in “advertising budget”; or, in the context of company or government finances, a forecast of expenses and revenues over a particular period.”

“The amount by which government expenses exceed income is the budget or fiscal deficit. If income exceeds spending, the government has a budget or fiscal surplus. A balanced budget is one in which spending equals revenue.”

Video – What is a budget

This Vernon Davis video explains in simple terms what a budget is.