Budget Analysis

This week is indeed very important because we learn about a very significant and useful financial tool that will help us make better financial decisions. This week we talk about budgets. Like any project or business has a financial plan, making budgets for our personal earnings and expenditures is also necessary. Like a journey with a map, budgets increase the chances to reach our goals and succeed in life.

Making a budget is very similar to making a financial plan. It involves the identification, creation, and verification of goals, expectations, the budget itself, and outcomes. In other words, we identify and describe what we have, what we want in future, how we reach it, and after some time we check if our calculations were correct. Generally

It consists of the operating budget and capital budget. This separation is needed in order to highlight the short-term and long-term goals. For example, the operating budget deals with living expenses (like food, car expenses, connection, treatments, utilities and so on) and incomes from wages, interests, and dividends. These incomes and expenses are recurring and that's their main difference from the capital budget elements. The capital budget shows nonrecurring event, ones that are related to long-term goals. For example, buying an apartment is a once-in-a-life event, or winning a lottery doesn't happen so regularly to describe it as an operating budget income.

Both the capital budget and the operating budget are influenced by micro factors (such as family structure, health, career choice, and age) and macro factors (such as economic cycles, unemployment, and inflation/deflation). However, there are factors particular for each of the budget. This way, the operating budget is also influenced by the person's financial history, while the capital budget is also influenced by the time value of money. When creating these budgets, making conclusions and reports all these factors should be taken into consideration in order to make truthful, reliable