Whether it’s the start of the calendar year or the beginning of financial year (March- April), financial planning is an important matter for families and individuals alike.
While it doesn’t require an intensive research on the subject of finance and accountancy, there are some basic facts that a family needs to keep in mind while preparing the budget.
Prepare the Income and Expense Sheet
The first and foremost thing in the preparation of a family budget is a calculation of the monthly income. This includes the net take home salary for working professionals, profits in case of businessmen and entrepreneurs and earnings from other sources, such as rent proceeds or investment returns. This income then forms the basis for calculating all expenses and savings.
Identify the Major Expense Areas
Every family has some basic expenses. While some of them are incurred annually, most of them are monthly outlays. They can be broadly categorized as:
Housing – Rent, maintenance and repairs, mortgage, insurance Loan – Monthly installments towards housing, vehicle, personal, property loans Utilities – Electricity, water, gas, cable and groceries Transportation – Car/vehicle fuel, maintenance, Insurance Children – School fees and other charges, uniform, clothing, medical, nanny/day care Personal Care – Clothing, grooming, accessories, club memberships Pets – Medical, grooming, food, maintenance Entertainment – Outings, movies, family celebrations, religious ceremonies Taxes – Annual contributions towards financing the government expenditure Savings and Investments – compulsory savings and investments towards children’s growth funds, pension schemes, shares, bonds and financial securities Emergency Funds – Medical urgencies, unplanned travel, loaning money to a relative or close family friend
Involve Family Members in Formulating the Budget
It is necessary to involve the spouse and children while putting together the family budget. Every member of the family needs to understand the importance of financial planning and make the desired contributions. Children need to be aware of their family income so as to avoid wasteful expenditures.
Outline Measures to Curtail Expenditure
Once the household budget has been broadly outlined, the couple needs to identify measures to cut down on unnecessary expenditure. Some expenses can be postponed to the next month while some can be completely avoided.
Find Out Additional Sources of Revenue and Earnings
A property that is laying vacant can be given on lease or rent for commercial or residential usage. The paychecks from this source can add to the family income. Households where both partners are educated but only the husband is contributing towards the family income can add to their earnings with the wife taking up some part time-work work or working from home. There are many such opportunities available on the internet today. A person just needs to evaluate the options carefully before making a choice.
Add the Savings Sheet
A budget is incomplete without a summary of the savings and investment schemes. Once the expenses have been chalked out, the next step is to prepare a savings plan. A family can decide on the various saving options like bank fixed deposits, pension plan, or investments in bonds, securities, mutual funds, etc.
Once the income sources and expense items have been identified, it becomes imperative to prepare a budget planner. There are many budget planning programs that can be downloaded from the internet for making a budget. The essentials of a planner are to include every income, saving and expense item in detail.
Track the Planner
Lastly, track the planner on a monthly basis to check the progress and correct deviations if any. Modify the planner so that it is in line with the current situations and requirements of the family. Make room for exigencies like medical emergencies, unexpected arrival of guests, unplanned family occasions and travel.
Financial planning goes a long way in helping individuals to keep a tap on their expenses and spending within feasible limits. Family budgets are a helpful tool in facilitating a balance between the year round spending of the family unit and its source of income. A family that maintains and updates the budget on a regular basis can surely avoid financial hiccups in the long run and can make modest additions to their family savings kit.