Budgeting Flashcards
(42 cards)
Define the term budgeting
Budgeting is the process of deciding how much to spend on different things to prevent over-spending and ensure all essential items are obtained.
Budgeting is necessary for families, businesses, and governments.
What is income?
Income is the money you make from working (salary, wages, or commission) and/or money received from rentals, profits, or interest on savings and investments.
What are expenses/expenditure?
Expenses/expenditure is the money you spend, e.g., to pay rent or buy food.
What are the advantages of budgeting?
- You are in control of your finances
- You can see where and how you are spending
- It helps decide what is affordable (needs vs wants)
- It prevents impulse spending
- It helps plan for the future and unforeseen events
- It prevents ending up in debt
What is personal financial planning?
Personal financial planning is the process of earning and saving enough money during working years to provide for retirement.
List the factors that make personal financial planning difficult.
- Economic conditions
- Adverts tempting the consumer
- Inflation, reducing purchasing power
- Conflicting financial advice
What does inflation refer to?
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
What are the SMART criteria for setting goals?
- Specific
- Measurable
- Attainable
- Relevant
- Time-related
What are fixed expenses?
Fixed expenses are amounts that have to be paid, e.g., rent or mortgage, insurances, car payments, school fees.
What are variable expenses?
Variable expenses can change from time to time due to price increases or different needs, e.g., electricity, groceries, entertainment.
What are optional expenses?
Optional expenses are amounts you choose to spend on non-essential items, e.g., clothes, entertainment, travel.
What are emergency expenses?
Emergency expenses are unplanned and unexpected costs, e.g., car repairs or medical procedures not covered by medical aid.
What should you evaluate in your budget?
You should calculate the difference between income and expenditure and make any necessary adjustments.
What are the five basic principles of financial planning?
- Assess your needs and set goals
- List your income
- Estimate expenses
- Calculate the differences (Income vs. expenses)
- Evaluate your budget (Track, trim, and target!)
What is the aim of budgeting?
- Accept limitations of income
- Objective about financial affairs
- Gain better insight into needs and objectives
- Eliminate wasteful spending
- Plan for the future and invest wisely
- Pinpoint faults in spending patterns
What are good reasons for getting into debt?
- Item is a real bargain
- Prices rise every month
- Repair is costly – cheaper to replace
What are bad reasons for getting into debt?
- Impress people
- Compete with friends
- Cannot control spending
- Fashion
Fill in the blank: A budget must balance income = _______
expenses
What are some consumer habits worth acquiring to save money?
- Compare unit prices
- Avoid quick or convenient products
- Make stews and soups from unprocessed ingredients
- Negotiate insurance premiums
- Check for unauthorized debit orders
True or False: It’s advisable to eliminate all insurance policies to save money.
False
What should you do if your income is too low to meet expenses?
Cut costs by reducing certain expenses, postponing expenses, or finding additional income sources.
What is a budget?
A detailed financial plan for the future – showing all income & planned expenses for a specific period.
Why is budgeting important?
Helps manage financial resources by:
* Reducing expenses
* Setting personal and family goals
* Ensuring savings for unexpected expenses
* Preventing serious debt
* Controlling spending
* Teaching the value of money
* Prioritizing important expenses
* Assessing credit affordability
What are the benefits of knowing your available money?
Avoids over-spending and enables future planning.
