how does the rise in prices affect a household budget?

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stolperia eNotes educator| Certified Educator

A household budget is based on two figures. One is the amount of income for the household, the other is the amount of expenses. Based on the amount of money that can be predicted to be brought into the household's finances on a regular basis (salary or wages, tips, dividends from investments, rental payments made to the household owner, alimony, etc.), the amount of money that can be spent can be predicted. Fixed expenses (housing payment, utilities, transportation expenses, insurance, loan payments, etc.) are easier to predict than variable expenses (food costs, entertainment, clothing costs, etc.), but they all need to be included.

When the budget is based on certain amounts of money for certain items and the prices of those items increases, there may not be enough funds to cover the extra costs. When the costs of food and gasoline and clothing all go up, adjustments will need to be made to pay those increased amounts. Either the amounts spent in some other areas will need to be reduced, or the household will need to find some way to bring in more income.