Topic 9 - Budgets + Forecasts

Question 1

What are the main tools ppl use to manage their finances?

Answer 1

• budgets
• cash flow forecasts
• records of actual income + expenditure + any diff. between planned + actual figures

Question 2

What is a budget?

Answer 2

• a plan of income + spending for a period of time

Question 3

How does budgeting enable ppl to take control of their finances?

Answer 3

• see what they can afford to spend/repay/save
• see their financial goals + priorities
• see what to do if they spend > they receive

Question 4

What work is earned income from?

Answer 4

• employed
• self-employed

Question 5

Diff. between employed + self-employed income

Answer 5

• employed = income usually same/similar each month/week
• self-employed = income often less predictable

Question 6

E.g. of unearned income

Answer 6

• 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

Question 7

What are the 3 broad categories of expenditure?

Answer 7

• mandatory
• essential
• discretionary

Question 8

What is a mandatory expenditure?

Answer 8

• payments required by law (compulsory)

Question 9

E.g. of mandatory expenditure

Answer 9

• income tax + NI contributions
• council tax
• TV licence

Question 10

What is essential expenditure?

Answer 10

• spending on needs

Question 11

E.g. of essential expenditure

Answer 11

• rent/mortgage
• food + water
• gas + electricity
• basic clothing
• travel costs to work

Question 12

What is discretionary expenditure?

Answer 12

• voluntary spending on goods + services

Question 13

E.g. of discretionary expenditure

Answer 13

• fashion items
• cinema tickets
• meal at restaurants
• gifts

Question 14

What is budget balance?

Answer 14

total income - total expenditure

Question 15

What is a balanced budget?

Answer 15

• balance is 0

Question 16

What is a budget surplus + budget deficit?

Answer 16

BS/positive balance = income > expenditure
BD/negative balance = income < expenditure

Question 17

What may u need to do to deal w a budget deficit?

Answer 17

• borrow money
• cut back on discretionary spending
• use cash only withdrawn from start of week
• earn more income (e.g. overtime)

Question 18

How to monitor incomings + outgoings

Answer 18

• monitor actual spending + income against budget
• can track by viewing statements online/on paper for current accounts + credit card, keeping receipts

Question 19

What is cash flow forecasting?

Answer 19

• predicting incomings + outgoings over several time periods

Question 20

Why individuals do a cash flow forecast

Answer 20

• 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)

Question 21

3 e.g. of essential goods that have seen an inc. in price

Answer 21

• housing
• fuel
• food

Question 22

What is fuel price mainly made up of?

Answer 22

Fuel duty + VAT