Family Budget – JSS3 Home Economics Lesson Note (First Term)

A family budget is a plan of how a family will spend its income over a given period.

Behavioural objectives

By the end of the lesson, students should be able to:

1. define a household budget and explain the main budgeting terms;
2. list the sources of family income;
3. state the importance of a family budget;
4. list the factors to consider when preparing a budget;
5. describe the steps in preparing a family budget.

What is a household budget?

A household budget is a plan for the future expenditure of a given household.

• Budgeting: the process of preparing a budget.
• Basis: the budget is normally prepared from the net income, which is the money left after deductions such as tax.
• Good budgeting: leads to wise management and use of the family income.
• Poor budgeting: leads to wasteful spending of the family income.

What are the common budgeting terms?

There are six common budgeting terms: family income, money income, gross income, net income, budget and expenditure.

• Family income: the money and other economic resources available to the family for meeting their needs.
• Money income: the total amount of money that the family has at a given period. It is the purchasing or buying power of the family at that period.
• Gross income: the total amount of money a person earns before any deductions are made.
• Net income: the amount of money that remains after deductions such as tax, water rate and levies.
• Budget: the plan of how to spend the family income. It is normally prepared from the net income.
• Expenditure: the amount of money spent on the goods and services which the family needs.

What is the difference between gross income and net income?

Gross income is the total earnings before deductions. Net income is what remains after deductions are taken out.

What are the sources of family income?

Families get their income from salaries, wages, gifts, and assets or investments that yield returns.

• Salaries: fixed pay given to workers, usually monthly, as with a teacher or a nurse.
• Wages: pay given for work done by the hour, day or week, as with a bricklayer or a market porter.
• Gifts: money given to the family by relatives and friends.
• Rents: money paid to the family for the use of its house, room or land.
• Dividends: a share of company profit paid to people who own shares in that company.
• Interest: money paid on savings or investments, for example in a bank.

Why is a family budget important?

A family budget helps a family control its money so that needs are met first.

• Wise decisions: it helps the family to make wise decisions about expenditure.
• Spending on needs: it helps the family to spend money on what they need.
• No waste: it prevents wasteful spending of family money.
• Clear records: it helps the family to see how they spend their money.
• No impulsive buying: it stops the family from buying things they did not plan for.
• Training for children: it helps to train children on the use of money.

What factors should be considered when preparing a budget?

Seven factors affect a family budget: income, needs, family size, values, season, locality and inflation.

• The family income: the amount available sets the limit of spending.
• Family needs: food, shelter, clothing, health and education come first.
• Family size: a larger family needs more food, clothing and other items.
• Family values: what the family considers important, such as education or religion, shapes how money is shared.
• The season of the year: some periods need extra spending, such as school fees at the start of a term and festive periods.
• Locality: prices and costs differ between towns, cities and villages.
• Inflation: a general rise in prices means the same money buys less.

What are the types of budget?

There are three types of budget: balanced, surplus and deficit.

• Balanced budget: expenditure is equal to income.
• Surplus budget: income is more than expenditure, so money is left over for savings.
• Deficit budget: expenditure is more than income, so the family must borrow or cut spending.

How is a family budget prepared?

A family budget is prepared in six steps, from listing needs to reviewing the plan.

1. List all the goods and services needed by the family throughout the proposed budget period.
2. Place them in order of priority or importance to the family.
3. Estimate the cost of each need.
4. Estimate the total expected income for the planned period.
5. Bring expected income and expenditure into balance. Expenditure should not be more than income.
6. Review the budget to ensure that it is likely to work.

What is an example of a family budget?

The table below is a budget for an imaginary family of three persons with a monthly income of Ten Thousand naira (₦10,000.00).

How are the amounts worked out?

1. Take the percentage set for the need.
2. Multiply it by the total income and divide by 100.
3. Example: food is 30/100 × ₦10,000 = ₦3,000.
4. Add all the amounts. The total must equal the income, which is ₦10,000.

Evaluation

1. What is a household budget?
2. State the difference between gross income and net income.
3. List four sources of family income.
4. Mention five factors to consider when preparing a budget.
5. Outline the steps in preparing a family budget.

Assignment

Prepare a family budget for a family of six that earns ₦30,000.00 every month. Show the percentage and amount for each need, and make the total equal ₦30,000.00.