What is a Budget?
A budget is a plan for your money. It answers two simple questions: How much money do I expect to receive? How much do I plan to spend?
Think of a budget like a travel plan. Before a journey, you decide where you are going, how you will get there, and how much it will cost. You do not just set off and hope for the best.
Money works the same way. Without a plan, you will likely end up somewhere you did not want to be—often with an empty wallet.
Income vs Expenses
A budget has two sides:
Income (Money Coming In)
For a person, this is your salary, wages, or any money you receive. For a business, this is revenue from sales. You need to estimate this honestly—not what you hope to earn, but what you realistically expect.
Expenses (Money Going Out)
All the money you spend. For a family: rent, food, bills, transport. For a business: supplies, wages, rent, utilities. List everything— small expenses add up quickly.
The golden rule: Income should be greater than expenses.If it is not, you need to either earn more or spend less. There is no third option.
The Timing Problem: Cash Flow
Here is a puzzle. A business makes a profit of £10,000 this year. But it cannot pay its bills this month. How is that possible?
The answer is cash flow—the timing of when money moves in and out.
Imagine a builder who finishes a big job in January. The customer will pay £20,000, but not until March. Meanwhile, the builder must pay their workers in January, buy materials in February, and pay rent every month.
The builder is profitable—they will make money on the job. But they might run out of cash before the payment arrives. This is the cash flow problem.
The Real Reason Businesses Fail
Most businesses do not fail because they are unprofitable. They fail because they run out of cash.
Cash flow problems happen when:
- •Customers pay slowly but suppliers want payment quickly
- •A big expense comes before you expected it
- •You grow too fast and cannot afford to buy more stock
- •A major customer does not pay what they owe
This is why experienced business owners say: "Revenue is vanity, profit is sanity, but cash is king." You can have great sales and good profit margins, but if you cannot pay this week's bills, your business is in trouble.
Personal Budgeting: Where to Start
The same principles apply to your personal finances. Here is a simple approach:
- •Track everything: For one month, write down every penny you spend. You will be surprised where your money goes.
- •Separate needs from wants: Rent and food are needs. The latest phone or eating out are wants.
- •Pay yourself first: Save something before spending on wants. Even a small amount builds up.
- •Build a buffer: Keep some money aside for unexpected expenses. Aim for one to three months of expenses.
Budgeting is not about denying yourself. It is about being intentional— spending on what truly matters to you and cutting what does not.
Ancient Wisdom: Planning and Foresight
Chanakya was emphatic about the importance of planning ahead:
"Before you start any work, always ask yourself: Why am I doing this? What might the results be? Will I succeed? Only when you think deeply and find satisfactory answers should you proceed."
In modern terms: Do not spend money without a plan. Think through what you are trying to achieve, what it will cost, and whether it is worth it.
The Thirukkural, the ancient Tamil text, also speaks to this:
"Weigh well your income and expenses, then live within your means. This is the wisdom that protects all other wisdom."
In modern terms: Financial discipline is foundational. Without it, nothing else you achieve will last.
Key Takeaways
- ✓A budget is a plan for your money—not a restriction, but a direction
- ✓Income must be greater than expenses—there is no other path to stability
- ✓Cash flow is about timing—you can be profitable and still run out of money
- ✓Most businesses fail from cash problems, not profit problems
- ✓Track, plan, and build a buffer—these habits protect everything else
Reflection Question
Do you know where your money goes each month? If you had to list your top five expenses right now, could you? What might change if you tracked every expense for a month?
Many people find that simply being aware of their spending changes their behaviour—without any extra effort.