You will read about:
- What is a family budget?
- Why is a family budget required?
- Is preparing family budget a cumbersome process?
- What should be the frequency of preparing a family budget?
Family budget
In every phase of life, there are many necessities, challenges and unforeseen circumstances. A family must be financially sound to overcome these as smoothly as possible.
Different members of family have different goals in life. In order to harmonize these goals, it is important to plan your finances. One person might want to spend on travelling the world, one might want to own a house, one might want to go to a foreign university to study, etc. Preparing a budget is crucial for knowing your financial strength.
When we can plan our career, our family, our life, then how can we not plan our finances, which is one of the most important attribute for a comfortable life?
What is a family budget?
A family budget, also known as household budget, is any document which helps you in analyzing and forecasting the future income and expenses of the whole family, and ensuring a stable financial position.
Usually, discussing financial affairs and decisions with family members are regarded as unimportant and unnecessary, but it has umpteen benefits if you involve all the family members in finance matters.
It helps the family to have an organized way of looking at the incomes and expenses.
Why is a family budget required?
There are many benefits of preparing a family budget.
- Making a family budget is of extreme importance because it helps you to know your estimated financial position well in advance. This helps a family to ensure smooth lifestyle ahead and incase any change is required to manage the finances, it can be thought of in the present time itself.
- A well made family budget can have a great impact on the financial life of the family. Thus, it helps in reducing the finance related stress, which can also affect other aspects of our life, if ignored.
- A family budget is all the more important in this consumer era because it teaches members of the family the worth of money. This helps younger generation to limit their unnecessary and avoidable expenses. It is, indeed, an important cog in the wheel that runs a house. Surprisingly you might get amazing ideas to manage your finances from the member you expect the least to have finance knowledge.
- It helps to identify areas of your family spending and take corrective actions i.e. curtail unnecessary expense areas, if necessary. Household expenses usually spiral out of control due to unawareness of the area where we spend our hard earned money. Therefore, family budget helps in bringing expenses under control by continuous monitoring.
- Family budget makes the family aware of any cash flow crisis they may have to face in future and be watchful about it. Necessary measures can be taken by family to avoid that phase by either seeking financial aid like loans or overdrafts, or else by deferring the possible expense to the extent possible. For example: If planning house renovation is leading to finance deficit, if possible it can be planned later or else, funded by some bank in form of loan etc.
- A family budget can also motivate you to find new ways of earnings. When you list down the inflow and outflow of finance of your family, and realize that in future, you might not be able to cut down on any expense, considering all listed expenses are unavoidable, you may think of either seeking increment or looking for a new job or finding new source of income by starting new side business etc.
- Another importance that a family budget holds is that it helps you know the affordable credit limit of your family. In this scenario, it is very common to make purchases on credit via credit cards, without even thinking about the payment sources. It helps a family avoid the debt trap, which one might fall in, in absence of a family budget.
- When you are making an addition to your family, for instance: getting married or having a child, a family budget can help you prepare for the financial impact these additions will have, and also help in easier transition. In fact, it will help in creating a financial security for the family in the long run.
- Family budget also helps to plan your savings. Savings are very crucial in life and must be made on a regular basis. Unforeseen circumstances can hit a family anytime, without a knock at the door. Dealing with that phase of life becomes easy if you are financially sound. When you prepare a budget, you can very well plan to put a definite part of your income to savings every month, which will prepare a cumulative fund for your family, and also buying insurances for meeting the untimely expense requirements.
- Family budget helps you to plan your retirement savings. Members of the family must develop a plan to ensure you are contributing enough to the retirement funds to ensure the life you want during your golden years.
- When you make a family budget, and involve everyone, then it becomes a team effort to manage the finances and work towards achieving the common goal of the family. Instead of putting a stop at the extra expenses of children, it’s always better to make them understand need of doing so. It makes children more disciplined towards making irrelevant expenses, and understand the situations of life in a better way.
Is preparing family budget a cumbersome process?
Many people believe that preparing a budget is not an easy task and not everyone can do it. But contrary to this belief, preparing a family budget is not a complicated process at all. It is just listing down all the reliable & fixed incomes of all the family members and also the estimated expenses of the family members. Subtracting the expense total from the income total will give you the surplus/ deficit of the finance you’ll be having at the end of a particular period. The budget needs to be monitored regularly and updated as and when the need arises.
Also there is a wrong notion that when a family makes a budget, it will eventually lead to cutting down all the fun in life. Just knowing your expense areas and making few adjustments at times, to improve your family’s financial health doesn’t mean losing all fun in life. It must be construed as a positive indicator of your finance position and help you lead a stress free life.
How frequent should a family budget be prepared?
Budgets can also be short term, for handling the month-on-month inflows and outflows of the family. It will help the family know the financial position at the end of every month.
Budgets can be long term, involving all the long-term goals of family members, and creating cumulative funds.
Additionally, an annual family budget can also be prepared if one is planning some major financial expenditure in near future like child’ education expense or marriage expense or buying a house or a car etc.
Preparing family budgets are important. Having a budget helps you manage your money, control your spending, save more money, pay off debt, or stay out of debt. If you haven’t done yet, start today and lead a stress free life. If you already have it, it’s time to monitor it and make necessary changes.
