An income budget is a specific type of budget that only shows how and where money is earned. This type of budget can be used for professional purposes in a business or can be used for personal reasons, if a single person has various streams of income. The income budget is used to make financial plans and pinpoint which stream of income is the most lucrative at any given time.
Purpose of Income Budget
The income budget provides a detailed description of where the money is coming from in both a professional and personal scenario. The income budget will not only describe the various streams of income, but will also provide great detail about each stream. For example, if a company earns most of its income from existing products, the income budget will outline each product and show how much the company is earning from each product on a monthly basis. This type of budget allows business executives to plan ahead and make changes to the existing products or services to bring in a larger income.
A company may have a couple of income streams that a personal budget does not have. For example, a company may earn money from its products and services, several streams of passive income and a portfolio income. Other companies may have additional income from investors and shareholders, while some businesses will earn money from membership fees.
Personal streams of income may include wages from working, Social Security, interest or dividends, child support, alimony, pensions and passive income, for example. Even though a person is working full-time with a reputable company, he may have written a book in his spare time that is bringing in a stream of passive income.
Role in Master Budget
An income budget is just a smaller budget in any business or organization. The income budget only covers how much the business is earning from various routes, but does not cover how much is spent to operate the business or how much is spent on product development, for example. The income budget is simply just a fraction of the entire master budget. The income budget shows in detail how much is coming into the business and where it is coming from, while the master budget shows the entire operation of the business. In other words, the master budget shows how the money from the income budget is being spent within the business. A person may not develop a master budget for personal use, but may use the income budget to create an expense budget, which is a smaller version of the master budget.