A budget is an agreed target for income and an agreed target for expenses. So what happens if your income is less than your expenses?

If you talk about income vs expenses, then the obvious question will be, “how are we going to lower our expenses to match income?”

But if you talk about budgeted (or target) income vs budgeted (or targeted) expenses, it slightly changes the game.

Yes, many people won’t be aware of the difference, in which case you should make it clear. The income didn’t fall below expenses, it fell below our agreed income target (budget). The expenses didn’t creep above our income, it crept about out agreed expenses target (budget).

That way, the right question gets asked… Did we set the budget to low or too high? How will we set the target next year? What did we agree on, and what should we agree on going forward?