Topic 9 - Budgets + Forecasts Flashcards
What are the main tools ppl use to manage their finances?
- budgets
- cash flow forecasts
- records of actual income + expenditure + any diff. between planned + actual figures
What is a budget?
- a plan of income + spending for a period of time
How does budgeting enable ppl to take control of their finances?
- see what they can afford to spend/repay/save
- see their financial goals + priorities
- see what to do if they spend > they receive
What work is earned income from?
- employed
- self-employed
Diff. between employed + self-employed income
- employed = income usually same/similar each month/week
- self-employed = income often less predictable
E.g. of unearned income
- benefits
- state + private pension
- interest on savings
- returns on investments: dividends
- allowances paid by family members
- gifts (e.g. bday money)
- windfalls: one-off payments
What are the 3 broad categories of expenditure?
- mandatory
- essential
- discretionary
What is a mandatory expenditure?
- payments required by law (compulsory)
E.g. of mandatory expenditure
- income tax + NI contributions
- council tax
- TV licence
What is essential expenditure?
- spending on needs
E.g. of essential expenditure
- rent/mortgage
- food + water
- gas + electricity
- basic clothing
- travel costs to work
What is discretionary expenditure?
- voluntary spending on goods + services
E.g. of discretionary expenditure
- fashion items
- cinema tickets
- meal at restaurants
- gifts
What is budget balance?
total income - total expenditure
What is a balanced budget?
- balance is 0
What is a budget surplus + budget deficit?
BS/positive balance = income > expenditure
BD/negative balance = income < expenditure
What may u need to do to deal w a budget deficit?
- borrow money
- cut back on discretionary spending
- use cash only withdrawn from start of week
- earn more income (e.g. overtime)
How to monitor incomings + outgoings
- monitor actual spending + income against budget
- can track by viewing statements online/on paper for current accounts + credit card, keeping receipts
What is cash flow forecasting?
- predicting incomings + outgoings over several time periods
Why individuals do a cash flow forecast
- see it they’re short of funds
- see when unusually large payments must be made
- plan how to finance short term deficits
- useful when irregular income will be receive (e.g. self employed)
3 e.g. of essential goods that have seen an inc. in price
- housing
- fuel
- food
What is fuel price mainly made up of?
Fuel duty + VAT
