Financial Literacy: Understanding Budgets

• Financial literacy relates to budgets

Budgets

• A budget is an estimate or plan for how you will receive and spend money over a specific time period
• A budget is an essential planning tool
• Budgets help controls finances to plan, set financial goals and to save

Household Budget

• A household budget is a plan for how a household will spend and save their income
• It should include total monthly income, planned expenses, and savings

Important Budget Points

• A budget helps maintain control of finances by showing how much has been spent vs needs to be spent
• Budgets ensures to stay out of debt and spend money wisely.
• A budget is used to save money
• Budgets helps identify areas where spending is excessive
• Budgets assists decisions on the importance and timing of purchases, like prioritizing money for food over clothing and luxury items
• A budget needs to adapt based on changes in income, needs, wants, and priorities

Purpose of a Budget

• Budgets are prepared by individuals, households, businesses, government and non-profit organizations
• Different types of budgets (for example a cash budget) are prepared for different groups

Budget Period

• The purpose and time period should be considered when preparing a budget
• Personal budgets are generally planned for every month.
• Business budgets usually span a few months or even years

Budget Characteristics

• A budget must be realistic; it must be neither too high nor too low.
• A budget must be adaptable and adjusted as needed

Income Types

• Learners' income can come from monthly pocket money with opportunities to earn extra, such as washing a car
• Household income comes from salaries or wages of the parents
• Business income from the money received for services rendered

Expenses vs Expenditure

• Expenses is a cost, something paid for, but it is not an asset
• Expenditure represents payment may be for purchasing either an asset or to cover an expense
• Household expenditure aligns with the household's income; the higher the income, the higher the expenditure, with needs prioritized
• Business expenditure concerns the money spent on things required to run the business, this is the operating expenses and money to pay out for acquiring of assets

Steps for Drawing Up a Budget:

• Determine the total amount of income received
• Consider all sources of income together
• Determine the total expected expenses
• Accurately assess all expenditures
• Consider revenue expenditures
• Savings represent remaining amounts for the month
• Store budget document in safe and accessible place for regular reviews

Personal Budget Example

• Xavier receives R500 pocket money monthly, plus R50 each time for washing cars(10 cars in a month)
• Monthly expenses includes: R200 mobile airtime, R300 clothes, R200 movies and entertainment, R150 transport
• Xavier's cash budget reflects: R500 in payments for pocket money, R500 car wash for father, totalling R1,000, data for cell phone 200, clothing 300, movies & entertainment 200, transport 150 totaling R850, and a surplus/deficit of R150