Context Budgeting & Dynamic Token Allocation is an engineering resource management framework that strategically partitions and dynamically compresses Prompt components under fixed LLM context limits (8k/32k/128k tokens) and quadratic attention compute costs; the Budget Allocator enforces quota governance: 1) System Instructions & Guardrails (fixed reserve
∼10%); 2) Multi-turn Conversation History (sliding window + summarized checkpoints
∼25%); 3) Retrieved RAG Chunks (dynamic priority pruning by relevance score
∼45%); 4) Generation Headroom (pre-allocated completion token capacity
∼20%); paired with 'Lost in the Middle' aware placement, the highest-relevance chunks are positioned at the absolute beginning and end of the context window.