Guide to Preparing a Budget Follow these steps to prepare a budget:
1. Fill in all income (regular and irregular).
2. List all planned expenditure and divide it into fixed, irregular and discretionary. Remember: only plan for discretionary expenditure when all necessary expenditure has been included.
3. Add the three expenditure subtotals together to get the total expenditure.
4. Calculate net cash by subtracting the total expenditure from the total income.
5. Insert the opening cash in month one and in the total column. 6. Add the opening cash and net cash together to find the closing cash.
My budget A
Go to page 25 of your Activities and Accounts Book to complete your personal or family budget for the next four weeks.
A
Go to page 26 of your Activities and Accounts Book to practise completing budgets. Preparing budgets
BUDGET DEFICIT
If an overall budget deficit is shown in the closing cash figures, a household will need to review its budget.
Effects of a Budget Deficit A budget deficit is not good for an individual or family, for the following reasons:
We will learn more about credit cards and bank overdrafts in chapter 6
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• They will not have enough money to cover all their expenses. • They will have to reduce their expenditure, such as how much they spend on groceries. • Their savings will be reduced as money will be used to cover the deficit.
GO
• They are more likely to borrow money using credit cards and bank overdrafts. These options have advantages, but they can work out costly as the money borrowed has to be paid back with interest.
