4.2 - Monitoring Your Financial Plans Flashcards
Why is it important to monitor financial plans once they are established?
To check how closely real life matches your income and expenditure forecasts
Budget variance definition
Difference between expected and actual figures
What is the simplest way to monitor your budget?
Keep receipts of all purchases and use them along with bank statements to keep a written record of income and expenditure
Popular software, online websites and apps for managing budgets include:
- Free online planning tools e.g. free budget planner offered by MAS
- Paid-for online planning websites and apps e.g. Moneydance
What happens in the envelope method of budgeting?
The individuals will set aside a number of envelopes, write the name of a the bill along with average monthly payment on each one - money is taken out to pay for the bills when the time comes
What is surplus used for in the envelope method?
To cover pocket money spending and unexpected bills
Aim of zero-based budgeting
To ensure that every penny of your income is spent purposefully and wisely
What happens in the zero-based budgeting method?
A detailed cash-flow forecast is drawn allocating every single penny of your expected income to a different envelope.
How do people deal with bills that only occur once a year or once every three months in zero-based budgeting?
They are ‘chopped up’ into monthly deposits into separate envelopes, so that there is enough money to pay them when the time comes
Advantages of zero-based budgeting
- Forces you to be aware of where your money goes
- Forces you to prioritise every item of expenditure
Opportunity cost definition
The value of what you have to give up to consume something else
