What Households Can Learn From The Union Budget

By | February 10, 2017

What Households Can Learn From The Union Budget

Did you know that all budgets are the same? Be it your household budget or our nation’s Union Budget, a budget requires careful planning and adherence to guidelines. And if you keenly observe how our nation plans the yearly budget, you’ll realise that it is pretty much like planning your household budget.

Additional Reading: Union Budget 2017: What You Need To Know

Union Budget vs Household Budget – The Similarities

Take a deep look at the planning and execution of our nation’s budget and you’ll see that it is pretty much like a household budget.

For starters, let’s learn more about how the Union Budget is prepared. When it comes to planning the budget, our Ministry of Finance has to first consider the revenue and expenses that would be incurred throughout the year. The aim of the budget will be to match the expenses with the revenue, so that our country doesn’t spend beyond its means.

The different revenue streams for our nation are direct taxes, indirect taxes and other non-tax revenues such as fees on services provided, dividends on investments, etc. Most of our country’s expenses will be the investments made in different sectors like defence, sports, railways, social programmes, education, science, agriculture, etc.

On similar lines, when planning your household budget, you’ll first have to concentrate on your income and expenditure. Common income sources for an individual are income from salary or business, dividends from investments like Mutual Funds or shares, for example, income from other sources such as rent, freelance projects, etc. Household expenses are mostly related to rent, basic necessities such as food, clothing, utilities, conveyance, education, and other similar day-to-day stuff.

For every household budget, just like the Union Budget, it’s necessary to strike a balance between the total income and total expenses. Every household should strive to stick to their budget, thereby trying to meet their expenses while staying within their income.

Additional Reading: How To Balance Your Income And Expenditure

Issues Faced By Budgets

The ultimate goal of any budget, be it your household budget or the nation’s budget, is to strike a balance between income/revenue and expenses. Basically, there needs to be a balance between the two. The three scenarios that arise while trying to balance the revenue/income and expenses are:

  • Balanced Budget – When the expenses and income/revenue match, then it is a balanced budget.
  • Deficit – When the expenses exceed the income/revenue, then it’s a deficit.
  • Surplus – When there is more than enough income/revenue left after taking care of all the expenses, it’s a surplus situation.

Out of the above three scenarios, deficits are the most common. Whether it’s a country’s budget or a household budget, it is often seen that the expenses exceed the income, which leads to a deficit of funds. However, there are different ways to meet this deficit.

Individuals can meet their budget shortfalls by approaching any financial institution and availing their products. You must try your best to rein in your expenses. However, you can use a Credit Card or a Personal Loan to quickly meet the deficit if it goes out of hand. But get these only if it is really necessary.

Are Deficits Harmful For The Budget?

Although there are ways to cater to deficits, it is not really good news for a budget. Rather it’s a sign that the individual or nation is unable to live within their means.

If one’s deficit is manageable and reduces with time, then it poses a lesser threat than if the deficit increases over time. If deficits keep piling up even after resorting to loans, it reflects poorly on the individual’s finances. And if they start to default on their loans, then banks will lose their trust and never lend to these individuals anymore.

What’s The Key Learning?

We have learned quite a few key lessons from how our country creates and sticks to its yearly budgets. So, the next time you create your household budget, make sure that you adhere to these four rules of budgeting:

  • Do not forget the thumb rule – expenses should never exceed your income.
  • Deficits aren’t acceptable. You may think that a small deficit won’t make a difference, however deficits are more likely to worsen over time.
  • If your expense goes way beyond your income, it means that you’re spending on unnecessary things. Cut down on these unwanted expenditures if you want to live within your means.
  • Do not borrow unnecessarily. It makes sense to take a Personal Loan to clear your debts, but it doesn’t make sense to take one if you’re planning to buy a laptop or smartphone with it. Remember, a Personal Loan will help only if the rate for that loan is much lower than that of the loans that you are planning to close.

Do you feel confident enough to create a foolproof household budget now? We’re sure you do. Good luck!

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