How To Explain the Concept to Your Children:
Budgeting is the process of estimating future income and expenses for a period of time. This practice can be very important families who want to make sure they will have enough money to spend on critical expenses such as electricity or a cell phone plan.
The budgeting process often begins with a family determining their goals for a budget. Is there something you would like to save up for like a car/appliance repair or can you foresee a change in income, which may require adjustments. Many budgets look at an upcoming month, but depending on the financial visibility you have, budgets can be weekly or annually as well.
The budget begins with the amount of income you might expect for the month. This could be wages, salary, gifts from friends. This then gets balanced with some expected expenses or costs such as rent/mortgage expense, utilities (e.g., electricity, heat, cell phone), food/groceries, insurance, etc. The key is being honest.
While a budget can be a helpful tool, it is just an estimation. Real life can present itself in ways very different than what you've planned for, so an effective budget leaves room for surprise costs. To make things easier, there are free budgeting tools online to help you get started.
How to Teach Your Children:
Since you can view budgeting like making a plan, helping your children understand budgeting can be as quick as taking them with you to the grocery store. If you know what you're going to roughly spend, you can make a plan on what you will purchase at the store. Each time purchased can represent different items that might be on your own budget.