Budgeting | Meaning, Uses & Terminology Associated with Budgeting

Budgeting involves preparing a financial plan, and a household budget specifically outlines future expenditures for a given household. The process of budgeting ensures that an individual can manage their net income effectively to avoid financial embarrassment before the next income arrives. Budgeting entails listing all expenses and determining their costs. Effective budgeting leads to prudent […]

Budgeting involves preparing a financial plan, and a household budget specifically outlines future expenditures for a given household. The process of budgeting ensures that an individual can manage their net income effectively to avoid financial embarrassment before the next income arrives.

Budgeting entails listing all expenses and determining their costs. Effective budgeting leads to prudent management of a family’s income, while poor budgeting results in wasteful spending.

 

Terminology Associated with Budgeting:

  1. Family Income: The overall economic resources available to a family.
  2. Money Income: The total amount of money a family possesses at a given time, representing its purchasing power.
  3. Gross Income: The total income before deductions.
  4. Net Income: The remaining amount after deducting taxes, water rates, and levies.
  5. Budget: A plan detailing how a family intends to spend its income.
  6. Expenditure: The money spent on necessary goods and services.
  7. Needs: Categorized into primary needs (essential, cannot be postponed) and secondary needs (non-essential, can be deferred).

The importance of family budgeting includes making wise expenditure decisions, spending on essential needs, preventing wasteful spending, gaining insights into spending patterns, avoiding impulsive purchases, and teaching children about money management.

Factors to consider when preparing a budget include net income, family needs, planned capital expenditure, family preferences, family size, and the season of the year.

Food budgeting involves planning and allocating money for food expenses. Factors to consider in food budgeting include the allocated amount, family members’ preferences, nutritional requirements, seasonal availability of food items, substitutes, storage facilities, relative prices in different markets, and the keeping quality of foodstuffs.

Bulk purchasing, the practice of buying goods in large quantities for home storage, has advantages such as economy, time and energy savings, seasonal buying, and ensuring a constant food supply. However, disadvantages include potential financial strain, monotony in the family diet, the risk of wastage, and the possibility of poor-quality items spoiling in storage.

Wise buying practices include creating a comprehensive shopping list, sticking to the list, ensuring adequate storage, buying seasonal foods, assessing food quality and value, making bulk purchases when feasible, and comparing prices across different stores.

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