What is a budget?
A budget is a projection (forecast) of financial outcomes on the basis of certain events, strategies and decision made. This is something we all do from time to time.
For example, if you plan to buy a new car with a bank loan (the decision), you may calculate whether you will be able to pay the loan repayment instalments (one of the financial outcomes). Another example might be if a Recreation organisation runs a particular event will there be any resultant profit? These questions cannot be answered unless someone does some financial calculations. These calculations will involve working out our likely revenues (income) and our likely expenditures. By comparing revenues and expenditures the answer to the question "Can I afford the car?" or "Will we make a profit from the event?" will be answered.
Budgets are more than just a few calculations that we throw away when the questions are answered. In a business context, a budget, once constructed, becomes an essential tool for the financial management of the business. In fact operating a business without a budget is very bad management. In order to make sound financial decisions it is necessary to review the budget to determine whether a proposed course of action fits within our planned financial strategies or not. If the answer is in the affirmative, i.e. the item is "budgeted", then there is a great deal of confidence about continuing to pursue the strategy, provided the item is kept "within budget". If the answer is in the negative, then there is an understanding that continuing to pursue that strategy has a higher degree of risk. That does not mean, however, that any departure from the set budget is inadvisable. It may be that "unbudgeted" strategy or event has obvious financial benefits. Furthermore it may also be the case that the budget itself was incomplete.