topic 4 Flashcards
What is the final step of drawing up a budget?
calculate the total income and total expenditure for each time period
The key to effective monitoring is to
analyse the cause of the variance
The Money Saving Expert budget planner is a
free online planning tool
An example of a paid-for online planning tool is:
Moneydance
In relation to keeping accurate records of their financial plans, organised people tend to
keep receipts and other documents, and keep records of how much they earn and spend
the aim of zero-based budgeting is …
ensure that every single penny of your income is spent purposefully and wisely
is it useful to base the length of a short-term plan on ..l.
10 years
Popular length for long-term planning
10 years
The difference between the expected and actual figures in a financial plan is known as the budget variance. TRUE OR FALSE
TRUE
Envelope budgeting should stop individuals from spending money they will need to pay their bills. TRUE OR FALSE
TRUE
Budget
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.
Budget balance
Total income minus total expenditure: a person’s net financial
situation.
Budget deficit
A situation in which outgoings exceed income
Budget surplus
A sum of money available once all the essential expenditure in a given
period, eg a month, has been made
Budget variance
The difference between the expected and actual figures in relation to income and expenditure.
Cash-flow forecast
A plan of expected incomings and outgoings over several time periods, such as the next three months or a year.
Contingency plan
A plan to deal with unexpected changes in income or expenditure
Discretionary expenditure
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.
Envelope budgeting method
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.
Essential expenditure
Spending on items required to live, eg rent or mortgage repayments, food and drink, water supplier, gas and electricity.
Flexible financial planning
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).
Interlocking time periods
Overlapping time periods, eg the time periods over which short-, medium- and long-term budgets are drawn up.
Life cycle
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.
Loan to value
The ratio of the size of the loan to the value of the property
Long-term financial planning
Financial planning for, typically, a period of more than ten years
Mandatory expenditure
Compulsory outgoings; they do not necessarily apply to everyone but if they do apply, they must be paid
Medium-term financial planning
Financial planning for, typically, up to ten years
Online budget planner
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
Opportunity cost
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.
Remortgage
The replacement of an existing mortgage with a new one, either to save money with a lower rate or to borrow an additional sum
Short-term financial planning
Financial planning for, typically, a few weeks to a few months.
Unknown variables
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).
