MODULE 2 Flashcards
Budget Meaning
A budget refers to an estimation of income and expenses that’s made for a specified future period
of time. (Ganti, 2024)
Budgeting Meaning
Budgeting refers to process of crafting plan for income generation and where to spend their
income covering a specific period of time.
Having a budget helps a person and household in managing their finances.
Income
Income refers to the expected money that you will receive in a specific period
of time.
Expenses
Expenses refers to the money that you spend over a specific period of time
Net Cash Flow
Net Cash Flow refers to the result when you subtract your expenses to your income. If the result is positive it means that you have more income generated
compared to the expenses that you have incurred. If the result is negative it
means that you incur more expenses that your income.
The result of the subtraction will provide a good basis if you need to adjust on
your activities especially on your spending
Active Income
Money received in exchange for providing a service
Ex: compensation, allowance, scholarship stipend
Passive Income
Money received on a consistent basis with minimal effort
Ex: stocks and bonds
savings
Fixed Expenses
Same cost every month regardless of the situation
Ex: water expense
Variable Expenses
A cost that varies according to the situation
Ex: Food allocation, Transportation
Mixed Cost
in a company, a portion is fixed and a portion is variable cost
Ex: utilities have maximum cubic meter, if the consumption exceeds that limit, the additional payment will be the variable cost which will be added to fixed cost
Net Cash Flow Formula
Total Income- Total Expenditure
Negative Net Cash Flow
Undesirable in long term
What to do if you have negative cash flow
- Increase active income (part time work)
- Eliminate lifestyle expenses (subscription service)
- Control variable expenses (opt for substitute goods)
Positive Net Cashflow
achieve your financial goals
What to do if you have a positive net cash flow?
- Build an emergency fund (3-6 months expenses)
- Create a well-defined financial plan
- Review goals and sustainability (are you taking on too much risk?)
Common Steps in Budgeting
Estimate income, or what you expect to receive;
2. Estimate the present and future spending;
3. Deduct the estimated expenses to the income and determine the net cash
flow.
Types of Budget Plan
Envelope Method
Zero- Based Budgeting
50-30-20 Method
Pay yourself first
Values Based Budget
Envelope Method
This method categorize the main expenses. The money is placed inside an
envelope. The envelope contains the maximum amount of money that you can
spend for each of the category of your expenses. You cannot more than the
amount in the envelope. If you will have an amount of money you cannot move
the funds for other expenses. If there is money left you can put it into savings and
do not use it next month.
Zero- Based Budgeting
The assumption in the allocation is that there will be no penny that will be left all of it
is already assigned to specific expense or purpose.
After determining the income, allocate every single penny to various purpose.
50-30-20 Method
The allocation is 50% of income goes to “needs“; the 30% is for the “wants” and 20%
will be for the savings and paying of debts if there are any.
Pay yourself first
The first thing that you do is to allocate for savings— it means that you pay yourself.
After this, you can now employ 20/50/30 budget. The 20 is now for savings and the
50 will be for needs and 30 for wants or you can use envelopes; or you can allocate
all other revenue to other expenses after you have already allocated for savings.
Values Based Budget
The allocation will first consider the essentials or your needs. Then the
allocation will now be allocated to the items that are deemed
important to you such as charity, family, friends, education etc. You
can use the other methods based on the values that determines
your needs and wants. But always remember to include your future
to meet your personal and financial goals.
A+B= C Model
A- Activating Event Triggers emotions
B- Belief how the A makes you feel
C- Consequences refers to the response
If the C is positive, ____
If the C is negative, ____
If the C is positive try to replicate
If C is negative then try to analyze what are you doing; the goal is to control your
emotions and response that would decrease negative consequences in the future.
Think about your money and how you spend your money.
Bolton (2021) Model
Recognize- Analyze- Think- Plan- Commit- Improve
11 Budgeting Myths
- I Don’t Need to Budget
- I’m Not Great at Math
- My Job is Secure
- Unemployment Insurance will tide me over
- I Don’t Want to Deprive Myself
- I Don’t Want Anything Big
- I wont Qualify for Student Financial Aid
- I’m Debt- Free
- I always Get a Raise or Tax Refund
- I Just Don’t Have the Discipline
11.It’s Luxury When I barely Have Enough for the Essentials
