Chapter 10- Budget Flashcards
What is a budget?
A financial plan that sets out expected future income and expenditure.
It is an estimate of future income and expenditure.
Give four reasons why you should prepare a budget?
Helps a household live within their means, e.g. limit for months spending.
Encourages people to think of spending, e.g. consider type, timing, amount.
Allows people to plan and save for large item of future expenditure, e.g. holiday.
Identifies months with a lot of bills and expenses, people can spread out payments or borrow if necessary.
Give 4 examples of fixed expenditure:
Rent, morgatage, bin charges, health insurance.
Give 4 examples of irregular expenditure:
Food, electricity bills, car fuel, phone bill.
Give 4 examples of discretionary expenditure:
Shopping spree, treats, new phone, holidays.
What is net cash?
The difference between planned income and expenditure in any given period of time.
What is opening cash?
Amount of money household (plans to) has/have at start of month.
What is closing cash?
Amount of money household (plans to) has/have at end of month.
Net cash + Opening cash=
Closing cash.
Closing cash for one month is opening cash for next
Balanced budget:
Occurs when income = expenditure.
Budget surplus:
Occurs when income > expenditure.
Budget deficit:
Occurs when expenditure > income.
How to deal with a budget deficit:
Increase income (extra hours/ job). Decrease expenditure (reduce discretionary, shop around). Avail of credit (borrow money if you can afford to pay back, shop around for lowest cost of credit).
What to do with a budget surplus?
Buy necessities you had done without previously.
Invest surplus to earn more income.
Save surplus in case of unexpected events.
