Family Budget
There are two ways to manage a family budget: "Money controls me" and "I manage money." The second way is much more difficult, it requires clear planning and accounting of income and expenses.
A family budget is a plan for a family's spending and income.
Every family should be able to plan their income and expenses.
Family budget planning begins with setting goals.
Financial goals are usually divided into strategic and tactical depending on the time it takes to achieve them.
Example:
A strategic financial goal of a family can be the purchase of a house, apartment, or car.
A family's tactical financial goal can be the purchase of household appliances, a bicycle, a computer, a smartphone, etc.
The budget should be planned for both the short and long term, that is, the family should have both a short-term (for a month, two, three, a year) and a long-term (for \(5\)–\(10\) years)
financial plan
.Financial plan
In its simplest form, a family's financial plan can be presented in the form of a table consisting of two columns:
- In the first column, enter all family income (salary, social benefits, scholarship, income from renting out an apartment, income from entrepreneurial activities, etc.).
- In the second column, family expenses are entered, and first of all, mandatory expenses, that is, those expenses that cannot be dispensed with: food, housing, housing and communal services, communication services, clothing, and transport.
At the end of each column, it is necessary to summarize: the total amount of income and the total amount of mandatory expenses of the family.
Note!
If the amount of expenses is less than the amount of income, then the remaining amount can be used for savings or to save money for a large purchase, or it can be spent on needs that are not necessary, such as leisure.
A family's financial plan, drawn up for several years, should be reviewed and amended.
The reason for the need to make adjustments is possible unplanned changes in both income (e.g. salary increases due to the transition to a new job) and family expenses (e.g. due to the birth of a child).
In the event that the changes are significant, it may be necessary to develop a new financial plan.
If you approach financial planning deliberately, make a financial plan for the whole family, include the formation of a financial resource of security, do not deviate from the plan and do not make unplanned purchases, then this will ensure financial stability for the family.
Family Budget Deficit and Surplus
The main rule of any budget is the equality of income and expenditure.
If the amount of revenues is greater than the amount of expenditures, then the budget is formed with a surplus.
If the amount of income is less than the amount of expenditures, then the budget is formed with a deficit.
Budget deficits lead to the accumulation of debts.
A budget surplus allows you to form savings.
Family Assets and Liabilities
Financial planning involves establishing a relationship between a family's assets and liabilities.
At least once a year, it is necessary to compare assets and liabilities (compare, draw up a balance sheet).
Liabilities are all the debt obligations of the family: loans, debts, mandatory payments, for example, rent, etc. Assets are everything that the family owns: a house, an apartment, a deposit in a bank, a car, etc.
Assets are divided into consumer and investment assets. Consumer assets are essential in everyday life and quickly lose their value. A new car, leaving the showroom, already loses up to 10% of its value, and in a year - 20%. Some assets can have both consumer and investment properties, for example, an apartment in which a family lives, but which can be sold to generate income.
Consumer assets are assets that are aimed at maintaining a standard of living (car, TV, furniture, etc.), they do not generate income and require expenses to maintain them.
Example:
The car requires petrol, repairs, the TV consumes electricity.
Investment assets are assets that aim to generate profit and income by increasing their value over time.
Example:
Such assets include jewelry, works of art, marketable securities, real estate, foreign currency, deposits in banks, units in mutual investment funds.
Asset Characteristics
Assets have three main characteristics:
- Profitability;
- Liquidity;
- Reliability.
Profitability, in general, should be thought of as the ability to change its value over time.
Profitability depends on liquidity and reliability. Less liquid and riskier assets must generate a lot of income, otherwise they will not be bought.
Liquidity is the ability of an asset to be quickly sold and converted into cash.
The most liquid asset is cash. Bank deposits are also liquid, since the bank is obliged to return it on demand, but this takes time.
Example:
A car or apartment is less liquid as it can take quite a long time to sell.
The reliability of an asset is its ability to withstand risks; The more reliable the asset, the lower the risk, but also the lower the profitability.
The reliability of any asset changes over time and depends on the phase of economic development.
Note!
When the economy is booming, there are a lot of reliable assets, when the economy is falling, there are few, and during a crisis, there are practically none.
Example:
In a crisis, even the most reliable assets acquire low reliability.
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