finance unit three- topic four

what are the steps in drawing up a budget?
identify and list all sources of income and expenditure, decide on the time period to use and fill in the figures for all the various income sources and types of expenditure
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what is a budget variance?
the difference between the expected and actual figures in relation to income and expenditure
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what cuases variance?
if someone has overestimated income or underestimated expenditure and it could be caused by an external factor e.g. higher inflation or lower interest rates paid on savings
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what are the methods of monitoring a budget?
written records with bank statements, spreadsheets on Excel, free online planning tools such as Money Dashboard and paid websites and apps such as You Need a Budget
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what is the envelope method of budgeting?
a method of budgeting where on a regular basis, a certain amount of moeny is set aside for a specific purpose in an envelope marked with that purpose
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how can Money Dashboard help with monitoring budget easily and quickly?
you put in all your basic info, then any details of current/savings accounts and credit cards. this can help to see how much of your income is spent and can help to cut down and sort spending into categories
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what was the problem with traditional budgeting that zero based addresses?
it forces you to be aware of how your money is being spent and to prioritise every item of spending. it makes you consider the opportunity cost of your spending
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how does ZBB ensure every penny of your income is spent wisely
your monthly budget plan won't be complete until every penny of your incoem is allocated to a spending or saving envelope- leaving a zero balance
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what is opportunity cost?
the value of what has to be given up in order to consume something else
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how does ZBB consider opportunity cost?
it prompts you to consider what items of expenditure are most important e.g. whether an extra TV channel is more important than saving for a summer holiday
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Other cards in this set

Card 2

Front

what is a budget variance?

Back

the difference between the expected and actual figures in relation to income and expenditure

Card 3

Front

what cuases variance?

Back

Preview of the front of card 3

Card 4

Front

what are the methods of monitoring a budget?

Back

Preview of the front of card 4

Card 5

Front

what is the envelope method of budgeting?

Back

Preview of the front of card 5
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