Earning money is an important aspect of life, but spending it wisely is even more important. Importance of making a family budget is a part of financial planning that cannot be overemphasized. If you and your family want financial security, following a budget is the only answer.
A family budget is a financial plan that outlines how much money a family has coming in and going out each month. It is a tool that helps families manage their money more effectively, by identifying where their money is going and making adjustments as needed. Having a family budget is important for several reasons.
In this post we will try to understand the important aspect of having a family budget:
1) Budget helps us prioritize the spending: When creating a budget, we must decide what expenses are essential, such as rent, food, and utility bills, and which are non-essential, such as dining out or entertainment. This helps in making sure that we are spending our money on the things that are most important, rather than on things that we don't really need.
2) Budget helps us in saving the money for future goals: By identifying how much money is coming in and going out each month, we can see where we can cut back on spending and put that money into savings. A budget can also help in setting financial goals, such as saving for a down payment on a house or for a child's education.
3) Budget helps in avoiding thrift spending: In the age of plastic money where we can simply swipe a credit card & buy whatever we want without worrying about whether we can repay that money in time, having a budget in place ensures that you don’t spend the money that you don’t have. When we don't have a budget, we may be more likely to overspend and end up in debt. A budget allows us to see where the money is going and to make adjustments as needed, so we can avoid a debt trap.
4) Budget helps in preparing for emergencies: One single unexpected adverse event can create a havoc in families running without having a budget for emergency corpus. An emergency could arise due to reasons like job loss, medical emergency, death in the family etc. All of these could lead to serious financial issues. Budgeting helps in planning for such events by creating an emergency corpus that could be used to sail through in difficult times.
5) Budget helps in planning for retirement years: After retirement, one does not have a regular income. This is the stage where you will have to take care of your expenses by withdrawing money from the retirement corpus that you would have created by saving money during the years when you had active income. A budget helps you in determining the amount of money that needs to be saved for your future years.
6) Budget helps families communicate better about money: When families don't have a budget, it can be difficult for them to talk about money and to make sure that everyone is on the same page. A budget can help families to have open and honest conversations about money, so that everyone knows where the family stands financially.
To conclude, having a family budget is important for several reasons. It helps families to prioritise their spending, save money, avoid debt, plan for the future and communicate about money.
A budget is a simple and effective tool that can help families to manage their money more effectively and to achieve their financial goals. It might be daunting to start creating the budget for the first time as you might not know about all the expenses or it may throw up some surprises about your spending & savings habits but it is easy to create a budget. One can use online tools too to create a budget. You can also consult an advisor who can assist you in creating the budget. However, keep in mind that creating a budget is not the final task. The most important thing is to be consistent in tracking the spending and regularly reviewing the budget & making changes wherever necessary.
Rohit Gyanchandani is Managing Director at Nandi Nivesh Private Limited