Budget - Chapter 10

Question 1

What is Budget?

Answer 1

Budget is a financial plan that sets out expected future income and expenditure.

Question 2

What are the 4 reasons to prepare a budget.

Answer 2

1. Helps a household to live their means.
2. Encourages people to think about their spending.
3. Allows people to plan and save for large items of future expenditure.
4. Identify months where there are a lot of bills and expenses.

Question 3

What is fixed expenditure?

Answer 3

This is a set amount of money that must be paid on a regular basis e.g. mortgage.

Question 4

What is irregular expenditure?

Answer 4

The amount and timing of this type of spending changes depending on how much or how little we use e.g. electricity.

Question 5

What is discretionary expenditure?

Answer 5

This is money that is spent on non-essential items and should only be spent after fixed and irregular items have been paid for e.g. holiday

Question 6

What is a balanced budget?

Answer 6

Occurs when income exactly equals expenditure.

Question 7

What is a budget surplus?

Answer 7

Occurs when income is greater than expenditure.

Question 8

What is budget deficit?

Answer 8

Occurs when expenditure is greater than income

Question 9

How do you deal with a budget deficit?

Answer 9

1. Increase income : take on extra income (e.g. overtime).
2. Decrease expenditure: reduce discretionary expenditure e.g. postpone holiday.
3. Avail credit : borrow money if you can afford to pay it back e.g. loan

Question 10

What to do with a budget surplus?

Answer 10

1. Buy necessities that you had done without previously.
2. Invest your surplus to try earn more income.
3. Save the surplus in case of unexpected events.