9. Budgets And Forecasts Flashcards
What is a budget?
- a plan of expenditure + income for a period of time e..g month, weekly usually
What is income/ how is it earned?
- income is money received from all sources
- wages, salaries, bonus payments, commission, overtime
- interest from saving, profit from running a business, rent for a landowner/landlord
Why do people draw up a budget?
- to see how much they have to spend
- so they can take control over their finances
- so they can priorities on what they want to spend
- they can also form a plan if they are spending more than they are receiving
Difference of income
- self employed incomes is often less predictable
- employed income is usually the same/very similar each month or week
Give examples of unearned income?
- benefits
- pensions
- interest on savings
- dividends from shares
- allowances paid by family members
- gifts
- windfalls - one off payment e,g, winning the lottery
What is a mandatory expenditure?
- payment that is required by law
- e.g. council tax, to licence for owner of TV
What is essential expenditure?
- expenditure on needs
- e.g. food, shelter (rent/mortgage), water, gas and electricity, basic clothing, travel cost to work
What is discretionary expenditure?
- voluntary spending on goods and services
- e.g. cinema tickets, eating out
What is a budget surplus?
a positive balance - income is greater than expenditure for the period
What is a budget deficit
negative balance - expenditure is greater than income for the period
What is balanced budget?
When expenditure - income = 0
How should an individual deal with a budget deficit?
- short term - borrow money
- they may cut back on expenditure e.g. discretionary spending
- use cash for spending that is withdrawn at the start of the week and don’t use any other money
- earn more income - e.g. overtime
How can individual track expenditure?
- via statements online/ on paper for the current account, credit card
- keep receipts
- check account balances at ATM
What is cash flow forecasts?
- predicts cash flows in and cash flows out over a series of time period e..g over a period of 6 months
Why do individuals do a cash flow forecast?
- so they can see if they are short of funds
- they can see what times they may have larger inflow s of cash or smaller inflows of cash
- they can plan for away to finance short term deficits e.g. overdraft
Who are cash flow forecast useful for?
For those who are self-employed who may earn different amounts each month
What is meant by inflation?
Inflation is a sustained increase in the general price level
How is inflation measured?
- Consumer Price Index or Retsil Price Index
- calculate it using a basket of goods that the average household may use
- these days it’s possible for people to calculate their own inflation rate using tools online based on the goods that individual buys
Examples of essential goods that have seen an increase in price
- housing costs - rent and mortgages
- fuel costs
- food costs
Why do people find it hard moving from renting a house to buying one?
- wages are static or falling in real terms
- essential expenses are rising
- saving interest rates are very low
- prospective home buyers need large deposits before they can borrow money on a mortgage + providers are lending less money then they used to
Why has fuel costs risen?
- cost of crude oil has risen
- cost of oil has magnified for the UK because it is traded in dollars and the pound has weakened against the dollar, so one pound buys fewer dollars
Why has food costs risen?
- reduced supply because changing global weather patterns have caused poor growing conditions, such as droughts and floods
