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Aims : S tudents should be able to do the following: Explain the need for budgeting

Aims : S tudents should be able to do the following: Explain the need for budgeting Explain the difference between deficit and surplus Set priorities in expenditure Identify shortfalls in income Compare the budget with the actual expenditure. Why do households need to Budget?

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Aims : S tudents should be able to do the following: Explain the need for budgeting

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  1. Aims: Students should be able to do the following: • Explain the need for budgeting • Explain the difference between deficit and surplus • Set priorities in expenditure • Identify shortfalls in income • Compare the budget with the actual expenditure

  2. Why do households need to Budget? To make sure that they do not spend more than what they earn.

  3. What is Household Budgeting? Household budgeting is the planning of how our money will be allocated. The figures are only ESTIMATES of the actual figures involved.

  4. If we spend more than we earn, we end up with a Budget Deficit. • Expenditure is Greater than Income • If we spend less than we earn, we end up with a Budget Surplus. • Income is Greater than Expenditure

  5. To find out if we have a Deficit or a Surplus SUBTRACT Total Expenditure from Total Income to get NET CASH. Total Income – Total Expenditure = Net Cash • If Net Cash is Positive Surplus • If Net Cash is Negative Deficit

  6. A deficit is shown in brackets ( ). In this example we can see that the Smith family had a budget deficit in January and a budget surplus in February and March. Can you give an explanation for the deficit in January?

  7. Comparing Budget to Actual figures. • This is done to see where the actual are different from the budgeted. • We can see where the shortfalls in income are. • Allows us to be able to make whatever changes are necessary when drawing up the next budget.

  8. What to do if there is a deficit: • Prioritise your expenditure by • Cutting back on discretionary expenditure. • Find cheaper alternatives to some items. • Try to earn extra income. • Try pay bills in instalments. • Borrow for CAPITAL EXPENDITURE only if we can afford repayments.

  9. CAPITAL EXPENDITURE: • Is spending on items that should last a long time. e.g. Washing machine, fridge, cooker. • It is acceptable to borrow to pay for Capital Expenditure but not Current Expenditure

  10. CURRENT EXPENDITURE: • Is spending on items necessary to run the house on a daily basis, e.g. food, clothing, petrol, entertainment.

  11. Students will now be able to do the following: • Explain the need for budgeting • Explain the difference between deficit and surplus • Set priorities in expenditure • Identify shortfalls in income • Compare the budget with the actual expenditure

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