1. How should we manage our personal finances? In chapters 4, 7 and 8 we learned about the importance of smart shopping,
saving and borrowing wisely. This is all about spending only what we can afford and not getting into debt. This requires careful budgeting.
A personal or household budget is a plan that matches expected spending with expected income over a period of time.
While income and expenditure records give us a pattern of past income and expenditure, a budget is a plan of expected future income and expenditure. If we know there will be changes in our income or expenditure, we can adjust the budget accordingly.
Tips for effective budgeting 1. Be realistic about your income. Only include income that you are sure you will receive. You should not rely on income you may or may not receive.
2. Make sure that you include all of your essential spending needs. These are the essential items that you must purchase regularly.
3. Avoid impulse buying. This is unplanned and usually wastes money. 4. Identify the timing of your bills. Some bills may need to be paid every two months (e.g. electricity bills), others may be payable once a year (e.g. motor tax). Remember that you may also have to spend extra money at certain times of the year like Christmas, summer holidays or for important birthdays.
5. Allow for unforeseeable events. Unexpected expenses can arise at any time. The family car could break down or an illness could mean extra, unexpected spending. Everyone should save money for unexpected financial events.
LO 1.1 1.2 1.12
2. How can we prepare a budget?
Budget Example 1: A simple budget for the Foley family
On the next page there is a simple budget for the Foley family. Both Fiona and Frank Foley work and have an income. Fiona’s income is regular but Frank’s can be irregular, as it depends on the profitability of his business. The budget also shows the total figures for the four months from January to April.
