MAKING A BUDGET
Def: of a budget
It is a detailed plan of expenditure for a certain period of time
also means money management
Importance of budgeting
- A budget promotes wise purchasing priorities are drawn and one knows what to buy and what to spend within a certain period of time.
- prevent impulse buying because essential items are given priority
- families/individuals are able to live within their means only by what they afford,
- the family is able to set priorities on their present and future need and their importance at each stage of family life
- one is able to save
- provides a basis of analyzing family needs
- family members are psychologically satisfied because their needs are catered for to their satisfaction.
- A family is able to estimate all their financial needs and look for other methods of supplementing income
STEPS IN PREPARING A BUDGET
There is no specific formula for making a budget because different individual family needs are unique and specific.
N/B:- The best budget is one that meets the individuals family’s financial goals, in order of priority.
Gridlines/steps to follow
- Family financial goals (present and future)
estimate short term and long term goals of the family in order of importance
N/B:- short term goals are items/services needed after a short period of time week/month e.g clothes and household items e.g utensils, sofa set etc.
Long term are those needed over a long period of time year/several years e.g car, house, university education for children
- Available cash income
Estimate available income from various sources over a given time e.g month.
- List all expense, fixed and flexible
- these are the committed and unchangeable ones e.g car loan repayment, mortgage, house rent, hire purchase or debt payment.
- Flexible ones are varied and sometimes include day to day requirements.
e.gs of fixed expenses
- Bills (water, electricity, telephone)
- Loan repayment
- School fees
- Medical cover
e.g of flexible ones
- Household supplies
- Estimate money to be spent on listed items
N/B:- Available records can be used/approximate an appropriate figure.
- Set some money aside for emergency
- Set aside money for future no matter how little e.g through
- savings account
- premium bonds
- investing in a co-operative society
Factors that affect a well made budget
- Loss of income; makes a family live on credit/savings
- increase income makes a family accomplish needs comfortably and leads to adjustment of a budget
- goals changing (personal/family goals)
- not being committed/following the budget
- inflation; it reduces purchasing power of a family by increasing monetary value of goods and services.