topic 4

Question 1

What is the final step of drawing up a budget?

Answer 1

calculate the total income and total expenditure for each time period

Question 2

The key to effective monitoring is to

Answer 2

analyse the cause of the variance

Question 3

The Money Saving Expert budget planner is a

Answer 3

free online planning tool

Question 4

An example of a paid-for online planning tool is:

Answer 4

Moneydance

Question 5

In relation to keeping accurate records of their financial plans, organised people tend to

Answer 5

keep receipts and other documents, and keep records of how much they earn and spend

Question 6

the aim of zero-based budgeting is …

Answer 6

ensure that every single penny of your income is spent purposefully and wisely

Question 7

is it useful to base the length of a short-term plan on ..l.

Answer 7

10 years

Question 8

Popular length for long-term planning

Answer 8

10 years

Question 9

The difference between the expected and actual figures in a financial plan is known as the budget variance. TRUE OR FALSE

Answer 9

TRUE

Question 10

Envelope budgeting should stop individuals from spending money they will need to pay their bills. TRUE OR FALSE

Answer 10

TRUE

Question 11

Budget

Answer 11

A plan of expected incomings and outgoings over a set time period such as a month. The Budget is also the term given to the government’s annual spending plan, which the Chancellor of the Exchequer sets out in the House of Commons each year.

Question 12

Budget balance

Answer 12

Total income minus total expenditure: a person’s net financial
situation.

Question 13

Budget deficit

Answer 13

A situation in which outgoings exceed income

Question 14

Budget surplus

Answer 14

A sum of money available once all the essential expenditure in a given
period, eg a month, has been made

Question 15

Budget variance

Answer 15

The difference between the expected and actual figures in relation to income and expenditure.

Question 16

Cash-flow forecast

Answer 16

A plan of expected incomings and outgoings over several time periods, such as the next three months or a year.

Question 17

Contingency plan

Answer 17

A plan to deal with unexpected changes in income or expenditure

Question 18

Discretionary expenditure

Answer 18

Spending on products and services that people want now, and savings towards items they aspire to buy in the future; it is spending or saving that people can choose to do or not.

Question 19

Envelope budgeting method

Answer 19

a method of budgeting where on a regular basis, a certain amount of money set aside or a specific purpose in an envelope marked for that purpose.

Question 20

Essential expenditure

Answer 20

Spending on items required to live, eg rent or mortgage repayments, food and drink, water supplier, gas and electricity.

Question 21

Flexible financial planning

Answer 21

Making financial plans to cover wants, needs and aspirations over the medium to long term, which make allowance for unexpected expenses and changes in circumstance (eg by including saving and insurance).

Question 22

Interlocking time periods

Answer 22

Overlapping time periods, eg the time periods over which short-, medium- and long-term budgets are drawn up.

Question 23

Life cycle

Answer 23

The stages through which people pass between birth and death, including childhood, teenage years, young adult, mature adult and old age. Not everyone passes through all stages (for instance they might die at an early stage) and not everyone passes through the stages at the same age.

Question 24

Loan to value

Answer 24

The ratio of the size of the loan to the value of the property

Question 25

Long-term financial planning

Answer 25

Financial planning for, typically, a period of more than ten years

Question 26

Mandatory expenditure

Answer 26

Compulsory outgoings; they do not necessarily apply to everyone but if they do apply, they must be paid

Question 27

Medium-term financial planning

Answer 27

Financial planning for, typically, up to ten years

Question 28

Online budget planner

Answer 28

An online tool that allows the user to easily monitor actual income and spending and compare the figures with their plans on a daily basis

Question 29

Opportunity cost

Answer 29

The value of what has to be given up in order to consume something else. For example, if a person can afford either to buy a new car or go on holiday and decides to buy the car, the opportunity cost of the car is the holiday.

Question 30

Remortgage

Answer 30

The replacement of an existing mortgage with a new one, either to save money with a lower rate or to borrow an additional sum

Question 31

Short-term financial planning

Answer 31

Financial planning for, typically, a few weeks to a few months.

Question 32

Unknown variables

Answer 32

Events and changes that people cannot plan for with certainty, as they do not know when or if events/changes will take place and how they will be affected. Such events/changes can be personal (eg marriage, redundancy) or related to wider economic or social factors (eg changes
in interest rates, new laws).