Economists know that consumers base their practices on cost trade-off . Here I will explain how to make a budget line , which indicates the possible combination of the elements that a consumer can buy remaining in the expenditure ceiling fixed . It therefore reveals a simple way to show how different choices affect your financial budget. You’ll need just a sheet, a pencil and a line.

Make a graph of the two items you wish to compare. For example, if the two elements in question have a cup of coffee and the gas consumed to get it, marked “drink” on the y axis (vertical) and “amount of methane consumed” on the x axis (horizontal). Subdivide each axis in individual segments, using numbers in sequential order (1,2,3 … etc.). Find the amount of money that the consumer spends weekly for these two elements and the average cost of each item. If you suppose that you spend 5 euro a week for them, if he will find that a cup will cost 0.50 cents and gas consumption amounted to 4.50 euro per week.

budget-line

Determine the points of intersection. Put the first between the value of x 1 and y 0.50. This shows that a small cup costs 0.50 cents. Label the value “A”. Yields the second intersection and Label it with “B”. Proceed in the same way to the threshold of money that you are interested in evaluating. Mark the end point of the maximum planned expenditure and mark it with “K”. Obviously this is a simple example. Keep in mind that the budget line can also be used to get a better idea of their investments.

Now that the table has been completely built, you have to connect all of the dots by drawing a straight line through them that this will be called AK”. Use this valuable tool to determine how changes in affect purchases You will know which expenses budget so it is best to amortize and instead came as revenues for the evaluation of finances rather conspicuous, update every month there is a function in Excel graphics, which can help you in this task and to transform data into practical histograms Keep in mind that , even if the instrument is very precise and effective, can not accurately calculate the percentage of risk is therefore good to keep an amount of money set aside for unexpected expenses and useful to balance the budget in times of stalling or loss.