Tips to get your household budget basics right

Plan expenditure, fiscal deficit and revenue expenditure are some of the terms that one will hear in the Union budget. While this may be completely new territory for most, one can understand this with reference to the household budget. Any budget is supposed to be an estimate of receipts and expenditure. The question that arises is whether the Union budget is grossly different from household budgets that you work on every month? The answer is not quite, other than the fact that the Union budget is an annual event and household budget is generally a monthly affair. The major reason for this is of course that income receipts for a household is monthly. The other and most important difference is the massive scale of government budgets, which run into thousands of crores of rupees. We start the comparison from the receipts side. The receipts of the central government are broadly categorised as revenue receipts and capital receipts. The revenue receipts of the government consist of tax revenue and non-tax revenue. Since a typical household does not earn its income from taxes, the household budget equivalent of tax revenue would be salary or income from business. The non-tax revenue counterpart is, however, just the same. As a salaried person, one is likely to have investments in shares and bonds. The dividend and interest income from these instruments is essentially equivalent to the non-tax revenue of the government, which has shares in the various PSUs. Interest income of the Centre is typically from loans given to state governments. Important components of the capital receipts include borrowing from the market for financing its growing expenditure. A household's capital receipts would be personal loans from banks to finance consumption beyond means of income. As banks are getting aggressive to tap the personal loans market, the overspending trend is fast catching up with the Indian public. One significant part of borrowings is used by the central government to repay old debt. With personal loans being offered to repay credit card debt, things are not much different in the household either. The external assistance component in capital receipts is self-explanatory. In the context of household budgets, this field is usually absent. The much-discussed disinvestment receipts are an important source of income for the Centre and also comes under the capital receipts head. The proceeds are once again used to finance expenditure beyond the means of income. Households do take recourse to this at times of severe distress. Selling a part of jewellery and other precious items to fund consumption is the household equivalent to the government's disinvestment programme. Coming to the expenditure side, all expenditure is categorised as plan expenditure and non-Plan. Plan and non-Plan expenditure are further classified as revenue expenditure and capital expenditure. Plan expenditure is typically developmental expenditure especially on social sectors, viz education and health. In the context of a household, Plan expenditure would typically be expenditure on children's education, weekend recreation, household items and expenditure on clothing and grooming. So what could be the capital and revenue expenditure components? Capital expenditure indicates expenditure, which leads to the creation of tangible assets and gives returns in the future. Books, automobiles and white goods are typical examples of capital expenditure in a household. A book can be read over and over again, while a car can be used for years. Both have use and resale values. In the context of education, revenue expenditure would include expenditure on school fees, private tuition fees and school conveyance expenses. Non-Plan expenditure in the central government budget is essentially non-developmental expenditure. It typically includes defence expenditure, debt servicing payments, subsidies and grants to states and union territories. Non-Plan expenditure also contains a capital expenditure component, which includes capital expenditure for defence and loans to public sector enterprises. Non-Plan (or non-developmental) expenditure in the context of a household budget is a slightly dodgy issue. Typical expenditures of the non-Plan type would be expenditure on loan repayments, pocket money for children and expenditure on medical treatments. Pocket money for children would typically include a capital expenditure part. Thus we see that family budgeting at the basic level is no different than the Union budget. Unlike the central government, however, it would be advisable not to run deficits. Banks are always willing to lend to the government, which is the sovereign. A typical household doesn't enjoy the same status.

Tips to get your household budget basics right

Plan expenditure, fiscal deficit and revenue expenditure are some of the terms that one will hear in the Union budget.

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