While this form of budgeting can get complicated as companies weigh the return on investment and other criteria, there are components of this type of budgeting that individuals and families can benefit from.
For example, if your refrigerator is on the blink and you are contemplating purchasing a new one, there are several factors you may want to consider.
You may want to consider whether you will be paying cash for a new refrigerator or charging it, which will add interest to the amount of the appliance.
You may also want to consider how much you can afford to spend for a new refrigerator and whether or not one of the newer, energy efficient models will help to save on electricity costs.
You may also consider buying a used refrigerator with the available cash you have on hand.
As you can see, there are many variables attached to these kinds of decisions.
It may be a new or used car that you are considering and by employing capital budgeting, you will look at the long term implications of spending your capital in this way.
Sometimes, purchasing a new item has the potential to actually save you money instead of costing any money at all.
Say you are spending $20 per week at the laundry mat doing your family's laundry.
You then get to thinking that if you were to purchase a new washer and dryer that you may save money because the payment for the new appliances would only be $60 per month.
Not only would you save money immediately, but you would have ownership of new appliances that you could use for years.
Of course, you would also need to consider that by using more water and more electricity that your utility bills would rise but most people consider this to be a worthwhile investment.
The same is true for housing costs.
While it is not always true that it is cheaper to own a house than to rent one, it is certainly worth doing the math to figure out which makes more sense for your situation.
While budgeting won't immediately solve all of your financial problems, the wise management of your money will serve you well for years.
Capital budgeting is just one method you may want to use when considering the best use of your finances.