There are two approaches to preparing a family budget, which are income-focused and expense-focused. Preparing it from disposable income would be the most prudent approach. That is, to formulate the budget from the income of the family unit, clearly knowing the resources available throughout the year, and necessarily adjusting the expenses to that income (budgetary restriction).
Approach from disposable income
- First of all, to know the financial situation at the end of the previous year, that is, what the available assets are and what the associated income to those assets is.
- It is important to be able to specify the value of the assets, and if they are liquid assets, that is, if there is the possibility of selling them under normal conditions, according to the price or reference value, without incurring large losses. In this way, it will be possible to know if there is a chance of using all or part of the accumulated funds, in the case of assets that can be disposed of.
- Next, list the expected net money inflows by dates throughout the year, indicating the date of effective collection in each case: Salary, interest on deposits, stock dividends, social benefits, etc.
- Finally, the total available resources should be calculated.
Once every source of income is known and taken into account, the expenses are adjusted, seeking a budgetary balance.
Approach from necessary expenses
Another approach is to calculate the expenses that are unavoidable or necessary, for which there is no choice, (if income is less than expenses), but to adjust the income of the family unit, either by looking for new sources of income or by borrowing money.
This approach unfolds as follows:
- Compute payments derived from pending obligations.
- Quantification of unavoidable current expenses.
- Inclusion of other possible disbursements.
- Determination of total expenditure.
Once all expenses are known and taken into account, income has to be adjusted, seeking a budgetary balance. If the income is not enough, it may be necessary to look for new sources of income or even resort to borrowing.
