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Budapest has an extensive public transportation system consisting of a metro, buses and trams. A single ticket is about 1.15 (a set of 10 tickets is about EUR 9.90). After you buy your ticket, you have to validate it. There are red machines on buses and trams that punch a hole in a different place on your ticket each day, which is how they determine if you validated your ticket that day (or at least not the day before...).
Inspections on buses and trams are rare except for the most popular lines (e.g. buses 7, 7E, 173 and 173E and trams 2 (very frequent), 4, 5 and 6). Rush hours are usually safe when the trams/buses are too crowded for the inspectors to walk through the vehicles. If you want to be safe, hang around the machine and if you see an inspector coming, punch your ticket immediately. You can usually also get off the carriage when you see inspectors getting on as usually at least some of them will wear uniforms.
'''Be careful: the system has changed, and the controllers are often escorted with a public area inspector who has the right to stop you and demand for your ID cards.''' Its better to buy a day ticket for such EUR 3. In the metro there are inspectors posted at the entrance to the platforms during all operational hours who will demand to see your ticket. Most of the time they check those who are entering and don't bother with people who are leaving the platform (Keleti railway station is one notable exception), so if you see no conductors at the entrance then you are fine. Either you take your chance that there will be no checking at the exit, or take the bus/tram, you can get pretty much everywhere without the metro. Oftentimes you can also just walk past these inspectors at the entrance or flash them a used ticket without stopping. Be careful changing lines at Deák Ferenc tér, usually there are controllers on stations of Line 2 and 3.
If you get caught without a valid ticket, the official fine on the spot is HUF 8,000, which is about EUR 27. Do not let yourself be fooled with another amount, it is HUF 8,000, and the received paper is valid for travelling that day. But if you are cool enough you can get away without paying at all. On the trams and buses the inspectors legally aren't allowed to touch you. Avoid speaking English or German to the controllers. Instead, pick the most obscure language you know and keep them busy until the next stop. When the doors open, simply exit the tram and walk away. Never give the controllers your ID or passport. Maybe try searching for it or your ticket until the next stop, then get off the tram/bus then. Some of the controllers will try to take you to a cash machine if you say you have no money. Same system applies - simply walk away from the controller. I've also heard of people stalling the controller for so long that the controller gets bored and walks away.
