Aims : Students should be able to do the following:  Explain the need for budgeting  Explain the difference between deficit and surplus  Set priorities.

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Presentation transcript:

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

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

 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.

 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

 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

The Smith Family JanFebMarch Total income€2660€2800€2660 Total Expenditure €2700€2200€2600 Net Cash(€40)€600€60 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?

 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.

 What to do if there is a deficit: 1.Prioritise your expenditure by  Cutting back on discretionary expenditure.  Find cheaper alternatives to some items. 2.Try to earn extra income. 3.Try pay bills in instalments. 4.Borrow for CAPITAL EXPENDITURE only if we can afford repayments.

 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

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

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