Purpose of Budgeting
1. Allocation of Resources: Budgeting ensures that individuals and entities allocate their resources efficiently by utilizing their income wisely to meet financial objectives.
2. Tracking Expenses: Maintaining a budget helps to track the expenses and identify areas where spending can be optimized. Budgeting provides an outline to spend the money efficiently.
3. Saving: Individuals usually prepare a budget to allocate their limited resources in a systematic manner which eventually leads them towards saving a portion of their income.
4. Systematic Approach: Budgeting provides individuals and businesses with a systematic and organised approach to managing their finances.
5. Decision Making: It helps to make informed decisions according to the end goal of the business. Entities will sometimes be faced with large decisions that will impact their inflow and outflow of cash. With a budget, it would be easy to make better decisions.
6. Financial Stability: Preparing a well-planned budget helps in better planning and contributes to the overall financial stability of the business. A structured budget suggests a strategy to spend the money which reduces the financial stress of the business and provides a sense of security.