budgets
Budgets A budget is like a plan that you make before spending your money, about how you will spend it. Obviously it requires that you must know how much money you will have to spend, and usually we do our budgets each month, but businesses and the government also do annual budgets. In order to understand what a budget is, let’s take a look at a typical case study: Louise studies at a University that is not in her hometown, and she started her studies by moving into the hostel. She felt, however, that the environment in the hostel was not conducive to her studies, and she went to speak to her parents about the option of moving into a flat, with three of her close friends. The information that Louise prepared for her meeting with her parents are as follows: Hostel fees : R24 000 per year. According to her the food in the hostel is not healthy, and there is too much noise to be able to study properly. The flat in which they are interested in will cost R4 500 per month, and this will include water, electricty and rubbish removal. Because they will be four moving in, each one will only have to pay a quarter of the rent, which amounts to R1 125. She will be earning an additional income (R500 per month) as an assistant at the faculty, and Her parents can rather give her the R2 000 per month that they would’ve paid for the hostel fees. She received a bursary from the University for achieving good marks, and this will cover the expenses of her classes and books. Financial Mathematics
Louise’s dad, however, pointed out the following: She did not take into account any variable expenses, in other words expenses that will not be the same each month, such as groceries that will have to replace the hostel meals, and personal expenses. Other expenses, such as internet access, that was free at the hostel, are now no longer free, and will have to be paid, are also left out of her plan. Her dad then proposed that she compiles a budget, and that they can then plan from there. Complete the following table (Louise’s budget) by estimating realistic values where information is not provided Income items Pocket money Wage (part time work) Income
Expenses items 2 000 500 2 500 Deductions: Unemployment Insurance Fund (1%)
Nett income Rent Basic telephone service Internet access Groceries Personal items Telephone Cellphone Fuel Stationary Entertainment Surplus ? Shortfall
There are many variations on this table, but at least now you will have a good idea of what a budget is, and how to compile one for yourself Financial Mathematics
Louise’s dad, however, pointed out the following: She did not take into account any variable expenses, in other words expenses that will not be the same each month, such as groceries that will have to replace the hostel meals, and personal expenses. Other expenses, such as internet access, that was free at the hostel, are now no longer free, and will have to be paid, are also left out of her plan. Her dad then proposed that she compiles a budget, and that they can then plan from there. Complete the following table (Louise’s budget) by estimating realistic values where information is not provided Income items Pocket money Wage (part time work) Income
Expenses items 2 000 500 2 500 Deductions: Unemployment Insurance Fund (1%)
Nett income Rent Basic telephone service Internet access Groceries Personal items Telephone Cellphone Fuel Stationary Entertainment Surplus ? Shortfall
There are many variations on this table, but at least now you will have a good idea of what a budget is, and how to compile one for yourself Financial Mathematics
