9. Budgets And Forecasts

Question 1

What is a budget?

Answer 1

• a plan of expenditure + income for a period of time e..g month, weekly usually

Question 2

What is income/ how is it earned?

Answer 2

• income is money received from all sources
• wages, salaries, bonus payments, commission, overtime
• interest from saving, profit from running a business, rent for a landowner/landlord

Question 3

Why do people draw up a budget?

Answer 3

• to see how much they have to spend
• so they can take control over their finances
• so they can priorities on what they want to spend
• they can also form a plan if they are spending more than they are receiving

Question 4

Difference of income

Answer 4

• self employed incomes is often less predictable
• employed income is usually the same/very similar each month or week

Question 5

Give examples of unearned income?

Answer 5

• benefits
• pensions
• interest on savings
• dividends from shares
• allowances paid by family members
• gifts
• windfalls - one off payment e,g, winning the lottery

Question 6

What is a mandatory expenditure?

Answer 6

• payment that is required by law
• e.g. council tax, to licence for owner of TV

Question 7

What is essential expenditure?

Answer 7

• expenditure on needs
• e.g. food, shelter (rent/mortgage), water, gas and electricity, basic clothing, travel cost to work

Question 8

What is discretionary expenditure?

Answer 8

• voluntary spending on goods and services
• e.g. cinema tickets, eating out

Question 9

What is a budget surplus?

Answer 9

a positive balance - income is greater than expenditure for the period

Question 10

What is a budget deficit

Answer 10

negative balance - expenditure is greater than income for the period

Question 11

What is balanced budget?

Answer 11

When expenditure - income = 0

Question 12

How should an individual deal with a budget deficit?

Answer 12

• short term - borrow money
• they may cut back on expenditure e.g. discretionary spending
• use cash for spending that is withdrawn at the start of the week and don’t use any other money
• earn more income - e.g. overtime

Question 13

How can individual track expenditure?

Answer 13

• via statements online/ on paper for the current account, credit card
• keep receipts
• check account balances at ATM

Question 14

What is cash flow forecasts?

Answer 14

• predicts cash flows in and cash flows out over a series of time period e..g over a period of 6 months

Question 15

Why do individuals do a cash flow forecast?

Answer 15

• so they can see if they are short of funds
• they can see what times they may have larger inflow s of cash or smaller inflows of cash
• they can plan for away to finance short term deficits e.g. overdraft

Question 16

Who are cash flow forecast useful for?

Answer 16

For those who are self-employed who may earn different amounts each month

Question 17

What is meant by inflation?

Answer 17

Inflation is a sustained increase in the general price level

Question 18

How is inflation measured?

Answer 18

• Consumer Price Index or Retsil Price Index
• calculate it using a basket of goods that the average household may use
• these days it’s possible for people to calculate their own inflation rate using tools online based on the goods that individual buys

Question 19

Examples of essential goods that have seen an increase in price

Answer 19

• housing costs - rent and mortgages
• fuel costs
• food costs

Question 20

Why do people find it hard moving from renting a house to buying one?

Answer 20

• wages are static or falling in real terms
• essential expenses are rising
• saving interest rates are very low
• prospective home buyers need large deposits before they can borrow money on a mortgage + providers are lending less money then they used to

Question 21

Why has fuel costs risen?

Answer 21

• cost of crude oil has risen
• cost of oil has magnified for the UK because it is traded in dollars and the pound has weakened against the dollar, so one pound buys fewer dollars

Question 22

Why has food costs risen?

Answer 22

• reduced supply because changing global weather patterns have caused poor growing conditions, such as droughts and floods