1Y: Household Expenditure

Question 1

What is Fixed Expenditure?

Answer 1

Fixed Expenditure involves the same amount of money being spent on a regular basis and is not dependent upon usage.

Examples of fixed expenditure include:

• mortgage repayments,
• rent,
• car tax,
• tv licence
• and insurance premiums.

Question 2

What is Irregular Expenditure?

Answer 2

Irregular Expenditure takes place on a less regular basis and the amounts involved also tend to vary with usage. Since it is less predictable it is more difficult to plan for irregular spending.

Examples of irregular expenditure include:

• groceries,
• clothing,
• fuel,
• light and heat,
• telephone bills,
• education costs
• and repairs.

Question 3

What is Discretionary Expenditure?

Answer 3

Discretionary Expenditure is the non-essential items which we choose to buy. Spending of this type tries to satisfy our wants rather than our needs.

Examples of discretionary expenditure include:

• entertainment,
• holidays,
• gifts and
• upgrades to expensive items such as cars, furniture and household electronics.

Question 4

What is Current Expenditure?

Answer 4

Current Expenditure takes place on a continuous basis, week after week and month after month.

Examples include spending on;

• groceries,
• utilities (gas, electricity etc.),
• rent,
• education
• and travel.

Question 5

What is Capital Expenditure?

Answer 5

Capital Expenditure is long term or once-off spending.

For example a household may purchase a new dishwasher for their home. This is not something they will buy every week and the dishwasher is expected to last for several years.

Other examples of capital expenditure include the;

• purchase of a new car,
• furniture,
• a laptop
• or TV.

Question 6

What are the guidelines for effective spending? (5)

Answer 6

1. Prioritise Expenditure: Buy essentials first. Needs get priority over wants.
2. Avoid Impulse buying: No ‘spur of the moment’ purchases
3. Beware of False Economies: Is this really good value?
4. Consider Opportunity Cost: Look at the alternatives
5. Check Bills/Invoices: Are they correct? When are they due?

Question 7

What is Impulse Buying?

Answer 7

Impulse Buying is the buying of goods without planning to do so in advance, as a result of a sudden whim or impulse.

Question 8

What is a False Economy?

Answer 8

A False Economy describes a purchase which appears to be good value for money but in the longer term turns out to be more expensive.

Question 9

What are the solutions to Overspending? (6)

Answer 9

1. Cut Back On Spending: This is an obvious solution and applies particularly to irregular and discretionary expenditure.
2. Spread Large Payments Out Over Longer Time Periods: This will reduce the weekly/monthly payments.
3. Postpone Or Delay Non-essential Spending: Buy the essentials first.
4. Use Savings From Previous Month(s): Use surplus money to match the planned overspend.
5. Generate Extra Income: Extra income should allow for extra spending. Live within your means!
6. Borrow Money: The last resort. This is a short term and expensive solution which will have to be repaid with interest.