What purpose a household budget serve? Is it important for us to create a family budget or we can do without it?
I personally know many people who used to earn a handsome income but failed to build up a nest egg. Interestingly, some of my friends are in high-paying jobs but seem to have failed miserably if it comes to optimizing satisfaction subject to their income. I have tried to understand if there is any common thread in their behavioural pattern from the viewpoint of finance. Not surprisingly, lack of having a proper budget has led to doomsday or dissatisfaction. Frankly speaking, family budgeting should be a priority for every working person.
A family budget helps you spend smartly
I have already stated some people earn well but fail to save whereas others don’t know how to maximize satisfaction. A budget gives you a clear idea about where and how your income is distributed. Without it, you feel puzzled to figure out where your income actually goes. In a word, a household budget helps you make a smart spending plan. It encourages you to make a balance between your income and expenditure, thereby helping you fulfil your financial goals more easily and efficiently.
Prepare your household budget
Preparing a budget is not like doing mental math. You need a pen and paper to write down your earning from different sources and the possible categories of expenditure. The budget will have two primary headings – income and expenditure. Under every category, you need to write sub-categories and make entries. Make sure to include everything from the grocery bill, rent, electricity bill to fuel expenses, EMI of your car. You can also prepare a monthly family budget on computer spreadsheet and save it.
Set limits for categories
Importance of having a budget is not limited to keeping a track of monthly income and expenditure but extended to setting an upper bar for every category under the head ‘expenditure’. The upper limit varies from one individual to another, one section to another and even one country to another. For example, in the case of poor people, a larger share of their income goes to food consumption whereas the affluent class is more focused on saving and investment. Evaluate your present needs and futures plans while preparing a family budget and setting a limit on every sub-category of expenditure. Try to speculate correctly on the upcoming market trend for more successful budget planning.
Make it flexible
The best budget plans must not be too much rigid. Allow it to be flexible. For example, you can easily spend leftover from one category on another one in case there is a shortfall. The single most exception to this kind of flexibility should be what you have set aside for investment. Until it is an emergency, you must not disturb the fund earmarked for investing. The practice will also discourage you to overspend.
There are multiple benefits of creating a family budget. First of all, you can handle your expenses more smartly. It helps you identify the areas where you have been overspending so long. A budget encourages you to focus more on saving and investment while living a comfortable life. In a nutshell, it keeps your finance on track and helps you meet your long-term financial goals.