What is a household budget ?
Many people wonder whether there is any need for this since you earn a fixed salary and you spend that on your essentials, so how does a budget help us?
A household budget is actually helpful much more than you think because it combines everything - your income and your expenditure and gives you a fair idea as to how your earning is being utilised. It also gives you an insight as to whether you can curtail your expenditure and divert it to some other essentials.
More importantly there are some households where the householder is not able to stretch the salary earned to meet all the monthly expenses, which make them borrow money month after month. I know of many such holds where there is constant financial pressure on the person/couple. In such cases it is all the more essential to have a budget and steam line one's expenditure
So, when you consider all these facts a household budget takes on a new meaning altogether.
How to go about it ?
Once you decide to go ahead with your household budget you need to consider a few essential facts. First of all you have to make a list of your income. Here make sure to include everything including the interest you may be getting from an FD or a rental income etc.. Unless you consider all sources of your income, your budget will not be complete.
Similarly now make a list of all your expenditures on a monthly basis. This will normally include house rent, electricity, telephone/internet ,tv cable bills, food, entertainment, fees for children's school, travel charges, medical/health care items, loan repayment if any and other household items. Make sure that you are realistic while making your list. I have known couple adding on imaginary bonus in their income and earning list which never materialised and their budget went haywire.
After making the two lists, the next month onwards sincerely make a list of all your day today expenses . Make sure that the entire family joins in and keeps an account of every little expense that is incurred. You may have to do this exercise for at least two or more number of months before you get a clear picture about your expenses .
Now you have a fair idea as to whether you are spending on requirements or whether you have been spending too much on certain things which could be curtailed like for example - ordering take away meals frequently, shopping for clothes or accessories that may not be needed, gadgets that may never be used etc etc..
When your expenses and income balance out you need not worry, and when you have a surplus of cash at the end of the month it means you have spare money that can be saved and later invested. However , when you have a deficit it means that you are overspending and need to take steps to curtail any unnecessary expenditure.
Balance your budget
The next step is to balance your budget so that you get the maximum benefit out of your earning. It is not difficult at all since you already have a fair idea where your money is going and where you can pull back and where you need to focus.
Food is essential but not ordering food from take away and restaurants frequently. If you have been ordering once a week, make it once a fortnight and see the difference it makes to your budget. Similarly cut down on all unnecessary expenditure that you have been indulging in like impulsive buying and spending money on things that you don't really need.
This in itself makes you richer by a few hundred rupees at least. Once you know that there is some extra cash, put it away into another account which you should keep exclusively for saving. Once there is sufficient balance, open a fixed deposit so that the money grows and also out of your way so that you don't get tempted to spend it.
There is one more consideration that needs to be taken into account while making your budget - long term financial plans. This will have to include any long term plans you have for an investment , buying some household essentials, buying a new fridge or a TV or a vehicle ,buying an apartment or building a house if you already have a house site or expenditure towards your children's higher education, marriage expenditure, medical insurance and so on...
You have to make a list of all these long term expenditure plans. You may have to curtail certain expenses and trim your budget some more to include these. Once you are already mentally aware and are committed to take care of these essentials, you will find a way to make it a reality. All that is required is to be steady in your plans.
One of the major disadvantages of a household budget is not being regular and consistent. If you neglect it even for a few days or even for a day or two for that matter , it can throw you off track and you may be going round in circles trying to get it on track. Budgeting may also require you to make some changes in your routine like if you plan to pack lunch for the family so that you save money, you will have to wake up earlier and put in some extra effort. However, it helps to make sure that you include all the members of your family while doing this since a budget is for the entire household.
A household budget does not necessarily mean that you are going to have a boring life with no eating out, entertainment or holidays. Instead it actually means that everything would be planned and you can enjoy your outings without any feeling of guilt since you have already made provision for it in your budget.