Why Should I Create a Household Budget?

The family budget is a plan for the family's income and expenditure for a certain period of time in the future. Time can be day, month, quarter and year. The family budget table is very similar to the annual statistics.

Family budget

If you have completed the household income statement described earlier, or started bookkeeping for more than a month, it is easier to make a family budget statement. Based on past income and expenditures, use this as a basis for each income per month / quarter or year,

Manage expenses. The budget provides criteria for comparing actual expenditures to planned expenditures. When you regularly compare the actual and budget of each expenditure (such as the end of the month, the end of the quarter, and the end of the year), you can find out which expenditure items have exceeded the standard and which expenditures have balances. In this way, adjustments can be made to expenditures and budgets for the next period. If you cut a certain expenditure to meet your budget goals, or if you find that the budget may be too strict, you need to adjust the budget to achieve viability.

Check fluidity. We introduced the concept of liquidity when introducing liquid assets. The so-called liquidity is the ability to cope with emergency payments or investment opportunities in a timely manner. In simple terms, how much liquidity you have (cash, demand deposits, etc.). If we find that households lack liquidity, we can use the budget (especially short-term such as monthly) to monitor the outflow of funds. At this time, it may be necessary to reduce or postpone certain expenses to ensure sufficient liquidity to pay the payable items.

Goal plan. The budget focuses on household financial goals because most goals are related to accumulating funds. We introduced the proposal for setting financial goals and actual goals. In fact, we know how much money we need to save each year (or monthly) (of course, it also includes the investment income of the previous balance of funds). At this point, the family budget is used to monitor the realization of the remaining funds. Without this budget plan, it would be difficult to achieve the financial goals that were set up, whether long-term or short-term.