What is the primary purpose of a budget?

The primary purpose of a budget is to track spending and set financial goals. A budget serves as a financial blueprint that helps individuals and households understand their income and expenditures, enabling them to allocate their resources effectively. By tracking spending, individuals can identify areas where they might be overspending or where they could save money. This awareness is crucial for setting realistic financial goals, such as saving for emergencies, planning for major purchases, or preparing for retirement.

While forecasting future income and expenses is an important aspect of budgeting, the essence of a budget lies more in the management of current resources and expenditures. Limiting income to reduce taxes and managing investment portfolios are not fundamental purposes of a budget and do not encompass the holistic view of financial management that a budget aims to provide.