Topic 4 Key Terms Flashcards
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 / plan
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 is set aside for 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)
Zero-based budgets
A method of budgeting where every penny of income is allocated to different categories including bills, spending and savings.
