Budgeting and control

Income management is planning, controlling and evaluating the use of income. Two families with the same income will still have different needs and wishes, so each needs its own plan. To manage well, a family must first see all the resources it has.

A budget is a plan for future spending. It is the first step in managing money. The word comes from the old French 'bougette', a small leather bag for carrying money. A family budget lists all income and all spending for a month or a year, under headings such as food, clothing, housing, travel, education, health and savings. A budget works when it is:

• realistic and flexible;
• suited to the family it is made for;
• followed by good control and evaluation.

Five steps in making a budget:

• List the goods and services the family will need, grouped: food, housing, household operations (fuel, electricity, water), education, transport, clothing, income tax, medical, personal allowances, miscellaneous (recreation, furnishings) and provision for the future (saving, retirement).
• Estimate the cost of each group and of the whole. Watch market trends: if prices are rising, leave a margin.
• Estimate expected income, under two headings: assured income (sure to come) and possible income (may come). Necessities should come from assured income; 'nice but not necessary' things from possible income.
• Balance income and spending. If spending is more, either earn more (extra work) or spend less (fewer outings, a simpler festival).
• Check the plan: are the family's needs met? Is there money for emergencies (a joint emergency fund)? Is solvency assured, meaning the family can pay bills and debts when they fall due? Have wider conditions, like a recession, been considered? Are long-term goals included?

Why plan a budget? It gives an overview of how income is used, shows each heading as a share of total income, puts the most important goals first, prevents wastage, and helps members make rational decisions instead of being swayed by every attractive offer.

Control comes after planning. It has two parts: checking how the plan is going, and adjusting where needed.

• Mental checks: picture clearly what an amount must cover. Rs 2,000 may seem a lot, until you remember it must pay for a school bag, a pair of sandals and a birthday gift in the same week.
• Mechanical checks: keep a fixed amount of cash aside for one purpose, such as a separate purse or envelope for the month's food money. If it empties fast, spending is too quick.
• Records and accounts: from a simple daily note and saved receipts to detailed accounts. They let the family compare what was spent with what was planned, show which headings are too high or too low (helping next month's budget), and keep proof of payment in case a product or service is faulty and a complaint is needed.
• The single-sheet method is a simple, flexible record: one sheet, with each heading's amount allocated and amount spent, pinned up with a pencil nearby.
• Adjusting keeps the plan on track when planning was poor, an emergency struck, someone went on an unplanned shopping trip, or checking was too weak to show the gap in time.

Evaluation is the final step. A budget is judged by the satisfaction it brought, getting fair value for money, paying bills on time, providing for the future and improving the family's economic position.

Example (new): The Khans allot Rs 1,500 a month for travel. By the 12th, bus and auto fares have used Rs 1,100. Their record shows this early; they switch two auto trips a week to walking or a shared ride, so the rest lasts the month.