22.2.2
Budgeting
A common short-term financial goal is to save money so that you can buy something expensive in the near future. Having a regular source of money is ideal but won’t last long unless you make wise choices as to what you do with it. This is why it is important to keep track of your money — how much you receive and how much you spend, so you can make your money work for you. You may not realise it, but saving money is quite easy. By putting aside even a small amount on a regular basis, you will be amazed at how soon you can build up your savings. Then you will have more cash available to buy those things you really want.
FIGURE2 Working out your current financial position is important.
To save the money you need to buy a new gaming console, for example, you will need a budget . A budget is a plan which considers the amount of money that you have coming in compared to the money that you have going out. Preparing a budget means that you can plan your finances to ensure that you have enough money to meet your future needs. Most people prepare a budget to manage their personal finances. Families, businesses and governments also use budgets. The aim is always the same: planning to ensure that expected income (estimated cash in) will match or hopefully exceed expected expenses (estimated cash out). Assessing your current financial position With a bit of planning, you can start to budget. However, the first stage is to realistically examine your current financial position . Here are three questions that you can ask yourself: • What income do you have (money coming in)? • What are your regular expenses (money going out)?
• Do you have any money left over after covering your expenses? You can start your planning by following the steps illustrated in FIGURE3 .
SkillBuilder discussion Evaluating, concluding and decision making 1. Based on what you know already, what are the major sources of income for young people? 2. What are the major expenses for young people? How does this differ from adults? 3. Do you think that the above method of saving is realistic? Give reasons for your response.
FIGURE3 If you extend these steps to cover several months of income and expenses, you will gain a more complete picture of your spending and saving habits.
STEP 1 Calculate your monthly income. This includes income you receive from all sources such as pocket money, odd jobs or a part-time job.
INCOME
STEP 2 Calculate your total monthly expenses. Expenses include all the money you spend on items such as entertainment and food.
EXPENSES
INCOME MINUS EXPENSES
STEP 3 Subtract your monthly expenses from your monthly income.
STEP 4 Assess your cash position by comparing your total income with your total expenses.
CASH REMAINING
TOPIC22 Financial goals and decision-making 629
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