There are various types of budgets, such as personal, start-up, financial, operating, and project. Distinguishing budgets by type is a bit of a hollow exercise. The only real basis for differentiation is in the way a budget is used in practical contexts.
A budget is a written list of projected expenses offset by income over a period of time. It forms the basis of a financial plan, since the exercise of comparing expected income to expenses allows a person to make adjustments if it seems the end of a period will result in a deficit of funds. Budgets also enable financial management. At the end of a period, a budget can be compared to the financial record to analyze what happened to cause any discrepancy between the projected scenario and what occurred in reality.
One of the more common types of budgets is the personal budget. This type of budget is used by an individual to manage his own finances or the finances of his household. It will list all expected sources of income in one section and the expected outlays of cash for expenses in another, typically by month or over the course of a year. Expenses will be subtracted from income to determine if the person is overspending. Categorizing outlays of cash can also be used for planning purposes, to see how much excess cash is available to go into savings, or which expense categories can be decreased to achieve savings.
Other types of budgets are typical in business settings. New businesses prepare start-up budgets to help determine capital needs and to secure financing. A start-up budget will include the same comparison of expected income against expenses but might forcast a best case, worst case, and mid-case scenario. Mature businesses produce an annual operating budget that anticipates cash flow and serves as a tool of financial control for employees that have functional spending authority over specific budget lines, such as the budget line for supplies.
Larger companies typically produce a budget for every department and then fold all of the departmental budgets into a master budget. These types of budgets can cover an entire fiscal year but are reviewed periodically, such as every quarter, and budget modifications are implemented to accommodate changing circumstances. At the end of the year, the different departments are evaluated based on management's ability to operate to budget.
