Budget control is a term that is used to describe the process of managing individual line items within a household or business budget so that expenditures over and above the allocated amounts do not take place. This type of control is necessary in order to make sure that operational expenses do not exceed the projected revenue for the period, creating a net loss. There are several elements that go into the task of budget control, including the preparation of a realistic budget, monitoring income levels, and engaging in comparison shopping before actually executing any purchases.
The first step in effective budget control is the creation of a budget that is based on factual information regarding the revenue needed to operate the household or business effectively. This means using information obtained from consumer markets regarding the prices of different goods and services that will be consumed each month. As part of the process, budget control involves making sure that fixed costs are accurately reflected within the budget, and any items that are considered flexible or floating are covered with a budget amount that reflects the standard and usual usage of the operation.
Once the workable budget is in place, the process of budget control focuses on making sure that expenditures for any particular line item remain within the budgetary amount that applies. At times, this may mean reducing consumption in order to prevent going over the budget on a particular line item. For example, if a household has a monthly budget of $500 US dollars (USD) for food and has consumed $300 USD by the second week of that monthly period, budget control will require that the household find ways to spend no more than $200 USD on food for the remainder of the month. This may mean adjusting the consumption of different foods, substituting higher priced purchases with other foods that are less costly.
It is important to note that budget control usually involves attempts to not only keep within the budget, but to also save money when and as possible. Here, the goal is to purchase the items covered in the budget for as little money as possible, creating a small amount of surplus each month. In order to accomplish this, managers will compare prices on similar goods and services, eventually choosing the one that offers the best price while still providing an acceptable level of quality and service. For instance, a household may choose to migrate to a prepaid cellular provider that works out to half the cost of a current provider, based on the fact that the household only consumes a certain number of minutes per month. Assuming the prepaid provider offers the same quality of service as the previous carrier, this budget control strategy reduces the cost for that budget line item for the month, making it possible to either allocate those savings to another line item, place the surplus into an interest-bearing account, or even enjoy a treat that is outside the scope of the monthly budget.