Topic 9 - Budgets and forecasts

Question 1

What is earned income?

Answer 1

• money received from work on an employed or self employed basis

Question 2

what is unearned income?

Answer 2

• benefits
• state/private pensions
• interest in savings
• return on investments
• allowances paid by family members
• financial gifts received on birthdays
• inheritance
• loans

Question 3

Define mandatory expenditure

Answer 3

expenditure that is compulsory

Question 4

Examples of mandatory expenditure

Answer 4

• income tax / NI contributions
• council tax
• TV licence
• motor insurance, road tax, MOT

Question 5

Define essential expenditure

Answer 5

Expenditure on items people need to survive

Question 6

Examples of essential expenditure

Answer 6

• rent/mortgage
• food and drink
• water supplier
• gas and electricity suppliers
• basic clothing
• travel that enables people to earn their income

Question 7

Define discretionary expenditure

Answer 7

• voluntary spending on products and services that people desire

Question 8

How to calculate budget balance

Answer 8

Total income - total expenditure

Question 9

What is cash flow forecasting?

Answer 9

A way of predicting incomings and outgoings over several time periods

Question 10

What can cash flow forecasting be used to identify?

Answer 10

• when irregular income will be received
• when unusually large payments must be made
• options for how to finance short term deficits
• when there might be surpluses

Question 11

Why do people find it difficult to move from renting a home to buying one?

Answer 11

• wages are static or falling in real terms
• essential expenditure is rising
• saving interest rates are low
• prospective home buyers need large deposits before borrowing money