Making a household budget

We all know that the Union government, state governments and local bodies draw up their own budgets every year. These budgets provide the estimated revenue and expenditure of the respective governments and local bodies for the next financial year.

Just as governments and local bodies need to plan their income and expenditure for the next financial year, individuals too need to plan their income and expenses for the year ahead. Drawing up a household budget is a useful exercise as it gives you an idea of your projected finances and the expenses you are likely to incur in the forthcoming year. Some may think that the exercise is tedious and time-consuming, but contrary to this perception, the exercise is simple and easy to carry out and the benefits can be counted in terms of savings.

You can get started by keeping track of all the recurrent expenses incurred every month under different heads of expenses such as house rent, electricity, groceries, EMIs, conveyance expenses, school/college fees, phone bills, LPG bill, petrol/diesel expenses, clothing, insurance premiums, etc. Other expenses such as car/air-conditioner maintenance and repairs, medical expenses, weddings, birthdays, etc. are contingent expenses, which are additional expenses one needs to provide for and incur as and when they arise.

Once you get an idea of the average monthly expenses, you can then look at various sources of your income, which could be salary, professional fees, profit from the business, interest/dividend received on your investments in debt, equity and mutual fund investments, etc.

The total of all the sources of your income and the total of all the expenses will give you a fair idea of the savings you have made during the year.Based on this data, you can create your own household budget for the next financial year. You can review your budget on a weekly or monthly basis and, if necessary, realign your expenses in line with your income.