Topic 4 Key Terms

Question 1

Budget

Answer 1

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 2

Budget balance

Answer 2

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

Question 3

Budget deficit

Answer 3

A situation in which outgoings exceed income.

Question 4

Budget surplus

Answer 4

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

Question 5

Budget variance

Answer 5

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

Question 6

Cash-flow forecast / plan

Answer 6

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

Question 7

Contingency plan

Answer 7

A plan to deal with unexpected changes in income or expenditure.

Question 8

Discretionary expenditure

Answer 8

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 9

Envelope budgeting method

Answer 9

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

Question 10

Essential expenditure

Answer 10

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

Question 11

Flexible financial planning

Answer 11

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 12

Interlocking time periods

Answer 12

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

Question 13

Life cycle

Answer 13

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 14

Loan to value

Answer 14

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

Question 15

Long-Term financial planning

Answer 15

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

Question 16

Mandatory expenditure

Answer 16

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

Question 17

Medium-term financial planning

Answer 17

Financial planning for, typically, up to ten years.

Question 18

Online budget planner

Answer 18

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 19

Opportunity cost

Answer 19

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 20

Remortgage

Answer 20

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 21

Short-term financial planning

Answer 21

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

Question 22

Unknown variables

Answer 22

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)

Question 23

Zero-based budgets

Answer 23

A method of budgeting where every penny of income is allocated to different categories including bills, spending and savings.