A Family Budget

The family prepares a budget to obtain maximum satisfactions from use of income by providing first for the most important expenditures. A budget also serves to balance outgoing expenses with income and to develop family cooperation on money matters.

Families budget their incomes to provide for daily necessities, costs of emergencies, periods of reduced income, and daily comforts and luxuries. They also budget for large pleasurable expenditures such as vacations, for advanced schooling, for support of the heads of the household in their old age, and for sharing with others outside the household. Repayment of debts or accumulation of assets may also be goals.

Without careful budgeting, a family can dissipate a good income so that there is not money for larger items of furnishings, a down payment on a home, special schooling for the children, or the needs of the parents in their old age.

A budget starts with a written plan for weekly or monthly spending for a definite period of time, most often a year. This plan is made by estimating the amount of income that will be received and estimating short-term and long-term expenses that must be covered by that income. The second step in keeping a budget is to set up a written record of money actually spent. The final step is to compare the planned budget with actual spending.

Everyone has a number of immediate financial responsibilities and certain financial objectives. In planning a budget, a person should keep both his immediate and his long-range objectives in focus. Before a budget is written up, the following questions should be asked:

1. What personal traits and abilities are likely to influence my earning, spending, and saving? (For example, a person with a good salary may lack the self-discipline to save for the future.)

2. What earnings can I anticipate for the future?

3. What are my financial assets and liabilities?

4. What are my long-term financial objectives? Retirement? Home ownership? College education for my children? A trip to Europe?

5. What insurances do I need?

6. How much money should I save from current income to take care of future needs?

Before constructing its budget for the next period, the family needs to develop long-term plans for raising a family, educating the children, and supporting itself, as well as plans for the way of living, savings and investments, and contributions to others through the family life cycle. Consideration is given to which goals are most important and which are less important. Some goals are for next year, some for 5 years, and some for 20 years.

In preparing the budget for the next period, the first step is to estimate income month by month from all earners and sources. The next step is to list required deductions from income such as taxes and job expenses, as well as contractual obligations for debt repayment and insurance. The remaining income is then budgeted for savings and investments, gifts and contributions, and, most importantly, for spending on food, shelter, transportation, clothing, and other items.

When expenses for living exceed available income, the family may try to reduce some expenses. Additional members may take full-time or part-time jobs. Or it may be necessary to decrease gifts and contributions, savings and investments, or monthly payments on the home and other indebtedness. In old age or emergencies the family may have to draw on its accumulation of savings. The family may make purchases on time payments to level out expenditures over a longer period.

Some of the reasons why so few families operate on budgets are that results are hard to see, the effort seems too great, members of the family do not wish to record what they spend, or family income is irregular and hard to predict. Also many people believe that a pay raise is the only way to increase the amount one has to spend. A man can quickly see $100 a week added to his $900 pay, but it requires budgeting experience to see that $900 might go much further through proper budgeting.

After a year's expenses have been estimated in advance, the annual budget items are divided by 52 and provided for by putting aside the cash necessary for each item each week. The money is placed in marked envelopes. As the cash in the envelope is used, receipted bills or slips noting what the cash was used for are put into the envelopes.