Topic 9- Budgets And Forcasts Flashcards
(42 cards)
What are the main tools people use to manage their finances?
Budgets
Cash flow forecasts
Records of actual income and expenditure
What is a budget?
A plan of expenditure and income for a period of time.
Why do people draw up a budget? (4)
- to see how much they have to spend
- so they can take control over their finances
- so they can prioritise on what they want to spend
- they can also form a a plan if they are spending more than they are receiving
What is income?
Means money received
- included money coming in from all sources both earned and unearned
What’s the difference between the income of self employed and those who are employed?
- Self employed income is often less predictable
- Employed income is usually the same/very similar each month or week
What is earned income?
From work on either employed or a self employed bases.
What are examples of unearned income? (2 examples)
- benefits
- pensions
-interest on savings - dividends from shares
- allowances paid by family members
- gifts, birthday money
- windfalls ( one off payments), winning the lottery
What is expenditure?
Outgoings, including money used to make payments to repay borrowing +/ to save.
What are the three broad categories of expenditure?
Mandatory
Essential
Discretionary
What is mandatory expenditure?
Mandatory expense payment required by law.
- don’t apply to everyone but if they do apply, must be paid.
What are 4 examples of mandatory expenditure?
- income tax and national insurance (NI) contributions
- council tax
- tv licence
- motor insurance, road tax and an MOT
What is council tax?
Payment to the local authority towards the cost of local services.
Each council sets its own charges for each valuation band.
- this is based in two or more adults living in a houshold
- those who live alone get a discount
What is a TV licence?
One TV licence covers all the devices in a home.
- if they watch live TV or record to as it is being broadcast must use a TV licence
What is motor insurance, road tax and an MOT?
Legal requirements for everyone who drives on public roads.
- third party insurance is the minimum level required
What does MOT stand for?
Ministry of transport
What is essential expenditure?
Spending on items that people need to live.
What are examples of essential expenditure?
- rent or mortgage repayments on a home
- food and drink
- water supplier
- gas and electricity suppliers
- basic clothing
- travel that enables people to earn their income
- loan repayments to maintain creditworthiness
What is discretionary expenditure?
Voluntary spending on products and services that people want now, and saving towards items that they aspire to buy in the future.
What is the equation for budget balance?
Total income - total expenditure = persons net financial situation = budget balance
What does it mean if the balance is 0?
The budget is balances
- all income is assigned to be used on making payments, repaying borrowing or saving
What does it mean if the balance is positive?
The budget is in surplus and there is money available to increase spending, make larger debt repayments, if applicable or to save.
It is called living within your means if your balance is in surplus
What does it mean if a balance is negative?
The budget is in deficit.
If people calculate their budget and discover that outgoings are greater than incomings. They can choose to increase income, decrease spending or borrow.
People with budget deficit are described as living beyond their means.
How would you deal with a budget deficit?
- May need to borrow money in the short term.
- May cut back on expenditure
- Use cash for spending that is withdrawn at the start of the weakest don’t use any other money (discretionary spending.
- Earn more income, by doing overtime
What must individuals do once designing their budget?
Adjust it by monitoring their actual spending and income against the budget.
