‘Money doesn’t grow on trees’. We all know that. But it’s said that wants are unlimited. With our limited resources we can’t buy everything we want. We therefore have to prioritize our wants and plan our expenditure accordingly.
Whether we like it or not, it’s important to have a household budget so that both ends meet and ideally with something left for savings and investments.
There are three types of budgets:
Surplus: where income exceeds expenditure
Balanced: where income is the same as expenditure
Deficit: where expenditure exceeds income
It is but common sense that you need to aim at achieving a surplus budget.
Steps involved in making a household budget:
The three basic steps in making a budget are: making an estimate of the income, an estimate of the expenditures, and bringing the expected expenditures and incomes in line.
- Make a list of the commodities and services required by family members throughout the proposed budget period.
- Calculate a realistic estimate of the costs of the desired items.
- Group the items on the purchase list together under different categories like food, income tax, housing, transportation, electricity, telephone, clothing, medical bills, education etc.
It’s crucial to involve all family members including children while making a budget. New Delhi-based writer Swati Chopra agrees, stating, “I feel children must value and respect money and so should be encouraged to make their own budgets.”
“It teaches money management, and may be a good exercise if done with parents to instil the values of using rather than consuming (i.e. buying what you really need and not because you can).”
“It can also be an opportunity to talk about economically sustainable lifestyle choices, such as buying cotton rather than synthetic clothes, how to limit paper consumption, electricity consumption, and so on, and telling children the value of each of these choices.”
“I don’t think it is necessary to involve young children in the family budget but they can be included once they are mature enough to understand what is going on.”
In the Indian joint family setup, expenditures on dependent family members should be taken into account. Each family member should be reasonable in determining the amount to be paid of them and be generous enough to allocate more funds to a family member who really needs it (for medical treatment or education).
Family members must also be objective while chalking out the budget taking the welfare of the whole family into consideration, rather than personal interests only. Prioritise expenditures according to needs, and eliminate unnecessary expenditures that don’t fit into your budget.
Mrs. Ramanathan, while budgeting categorises household expenditures and spends prudently, “The sum total of expenses include fixed and variable expenses. Fixed are essential costs, which can’t usually be reduced or minimised, like food, repayment of housing loan, flat maintenance charges, school fees.”
“Variables are essential expenses like phone, electricity, clothing but they can be under our control. The number of calls or their duration can be reduced if planned, and the use of the AC, geyser and microwave can be moderated.”
Every budget must pass through a reality check. It makes little sense to keep the expenditures ridiculously low, compared to what is actually required.
A budget needs to be checked on whether the needs of the family members have been met, the ability to pay bills or debts have been assured and inflation rates have been taken into consideration. Also keep aside an amount for emergency funds.
How to monitor your budget:
Keep a reality check on your budget. Check if your monthly spending is going as planned at the end of each week and fortnight. Have you been spending beyond your means?
Have unforeseen expenditures cropped up? If you’ve overspent in a week try to curtail expenditures the forthcoming week to adhere to your budget. Brainstorm your family for ideas to cut down on expenses.
Swati suggests, “Try to come up with ideas for alternative ways of meeting needs that may be healthier and ecologically more viable. For example, using envelopes and the reverse of old notepads to save paper, organizing car pools to school or work to minimize petrol costs, walking wherever one can instead of taking autos or cars, using the cell phone only when necessary, and so on. Cultivating an attitude of contentment and simplicity greatly helps too.”
Why it’s smart to budget:
The word budget may give the impression of an unfavourable restriction to the layman. In reality budgeting only has positives. A budget ensures that you are not controlled by money, but rather it is you who controls your money with the aim of purposeful spending and judicious saving.
It chalks out a plan so that the family can enjoy itself to the best of its ability within whatever resources it may have. It helps to prevent the family from being extravagant and falling into debt.
When the money saved by successful budgeting is used later to buy your dream house or plan a tour of your lifetime- you’ll be glad that you did take the efforts to make budgets and stick to it through out the years.
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