Understanding Budget Finance

Want to retire in 10, 20 or 30 years? How you manage your finances can help you reach your retirement goals. Budget finance gives you the tools and concepts necessary to understand financial items, as well as how to use tax planning and financial knowledge to invest effectively. Budget finance topics run the gamut from accounting and investment analysis to expense tracking, financial reporting and fiscal planning.


A budget is a financial summary that lists a person’s expenses and revenues. Businesses also use operating budgets to set spending limits that employees must follow. Setting and following a proper budget can help you track your expenses.


Revenues are income a firm generates through sales. A person with a labor contract earns wages based on contractual agreements. He also can reap profits through investment activities, such as stock or bond sales.


Expenses are charges that a person incurs in daily activities. Examples include groceries, rent, mortgage payments, travel and insurance. Businesses also incur general and administrative expenses, such as salaries and depreciation, as well as manufacturing costs. Depreciation means spreading the cost of a long-term asset, such as machinery, over many years.


If you draw up a budget, it can be useful to list your assets in a separate section. By doing so, you’ll have a better view of your finances and where the money will come from to pay for expenses. Assets are what a person or company owns. Examples include cash, equipment and fully paid real estate.


A liability is a debt a borrower must repay. Indicating personal debts in a budget can help an individual evaluate what portion of revenues goes to interest payments. Liabilities include mortgage loans and student loans.


Equity, or net worth, is what you have left after you pay your debts. It equals total assets minus total liabilities.

Income Statement

An important element of budget finance, an income statement tells a company or person whether operating activities or lifestyle decisions are bearing fruit, financially speaking. This accounting report lists revenues, expenses and net income -- or loss, if expenses exceed revenues.

Cash-Flow Report

A cash-flow report, or liquidity statement, indicates whether a company is generating enough money to cover its operating expenses. Individuals also can use this report to make sure they will have sufficient funds to live and meet retirement goals.

Statement of Financial Condition

Also known as a balance sheet, a statement of financial condition tells a tale about a person’s or company’s economic soundness. In other words, it says whether the individual or business is solvent. A balance sheet indicates assets, liabilities and net worth.

Budget Finance Software

You can use computer software to prepare your personal budget. This can prove especially useful if you have various expenses and want to automate cost tracking.

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