When managing a household, or any other work for that matter, planning is required. A major part of that planning includes coming up with a budget. It was William Shakespeare who said, "If you fail to plan, you are planning to fail." Budgeting is a vital part of running any household.
The word "budget" comes from the French word "bougette," which means a purse. Budget is defined as a financial or quantitative statement prepared before a defined period of time for the purpose of attaining a given objective. Generally, this term refers to managing a plan of costs and income made by any person or household.
In most cases, a budget is made before the actual starting of any project, and care is taken to ensure that the costs remain within the budget. Budgeting is a very important concept, and when staying within a budget, your household will certainly run more smoothly.
There are several different types of budgets with regard to personal finance. Fixed budgets are made for track fixed expenses such as mortgage payments, auto loans, Internet service, garbage and other utilities. There are also flexible budgets that are designed to change with the fluctuations in the level of activity in your household, including cell phone usage, power/electric bills and water bills. A flexible budget is more elastic and therefore more practical.
A master budget is prepared after all the different functional budgets are prepared and coordinated with each other. Most software programs or online tools combine your individual budgets separately and then put them into one master budget. This is the easiest way to run your household while keeping track of various expenses.
There a few factors to take into consideration when budgeting for your household. Make certain that your budget is realistic. For instance, do not budget $10 per week for lunch if you eat out every day. The key to a successful budget is to be realistic and to make your numbers or budgeting goals achievable.
Generally, it is a good idea to review your household budget at least once per year or any time that your financial situation changes. Overbudgeting and underbudgeting are always reasons to review a budget. Staying within your budget will allow you to stretch a dollar and truly get the most out of your money. Proper budgeting will also help you to save money.
Budgeting allows you to save for retirement, plan a vacation or to buy the home of your dreams.
Very often, creating a budget for your household or family is an eye opener for most people. When you start a budget, it becomes much easier to see where every dollar is spent. For example, $4 for a latte does not seem like a lot of money. However, someone who gets a latte on the way to work every day spends $80 per month, or $960 per year, just on coffee. That number is much more sobering and can definitely have an effect on your budget.