# Budgeting

Chances are that you’ve created a budget sometime in your
life. If you’ve ever planned to save up to buy something, you probably created
a budget, even if it was only in your mind. A budget is basically a plan of *income*
– money that gets given to you, and *expenses* – money that you spend on
things.

Budgets can range from very simple to extremely complicated. You may come up with a simple budget to buy something by saving up pocket money or money from a part time job. On the other end of the scale there are budgets for huge multi-billion dollar companies which they rely on to avoid going bankrupt! Being able to come up with a useful budget is an absolute necessity for surviving in life.

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### Typical budget questions

A typical budget question will give you information about
the income of a family or person, and also about what they spend their money
on. You might get asked to work out how long it will take them to save up
enough money to buy a certain item. Or, the question might ask how much they have
to reduce their *expenditures* (the amount of money they spend on things)
in order to achieve a certain savings goal. Here’s an example of a typical
question:

Bob has finished school and wants to move into a share house with some of his friends. He’s got a part time job that earns him an average of $335 a week. The taxman takes about $2000 of this income every year. Bob’s got a nice new car, which he’s worked out costs him about $20 a week in fuel costs. Also, he needs to get it serviced twice a year, at $300 a service. Car registration is $650 a year. His car insurance is $1000 a year. His grocery costs work out to about $60 a week, and electricity, water and home phone bills are another $20 a week. His mobile phone plan costs $39 a month, and he never spends more than the $99 of calls included with his plan. He spends about $30 a week on his girlfriend. Going out with his friends to movies etc… he spends about another $30 a week. · Assuming Bob doesn’t need to save any money, how much a week can Bob afford to pay in rent? · Bob finally finds a place for $70 a week in rent. He wants to go on an overseas holiday, which he’s worked out he needs to save up $5000 for. Assuming he’s already got $3000 saved up, how long is it going to take him to save up for the trip? |
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Solution |
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Ok, so we’ve got two questions here. The first one is asking us to find an amount of money, and the second one is asking us to find a time length. The question gives us information about Bob’s income and expenses. For the first question, the only expense that it doesn’t give us is how much Bob pays in rent. The first question does however give us the key phrase, “assuming Bob doesn’t need to save any money.” When you’re not trying to save money, your income is the same as your expenses: Now, when you talk about income and expenses, you need to
choose a So what we can do is work out Bob’s income per week and his total expenses per week: Income: He earns $335 So Bob’s And that’s our income part worked out. Income is generally easier to calculate because there are usually only a couple of sources of income. Expenses on the other hand – there are lots of different things we spend money on. Expenses: We need to convert every single expense into a
So his total expenses per week add up to about $213.00. The only expense we don’t have in the list is the amount he can spend on rent a week. Because he doesn’t need to save any money, this means that the rest of his income that isn’t spent on already existing expenses can be spent on rent: This is a reasonable amount for a room in a share house in most cities in Australia, so chances are good for Bob that he can actually afford to live out of home. The second question is slightly different. It gives you
an exact amount for how much Bob is paying in rent. For this question, we
know So Bob will be saving about $14 a week. He needs $5000 total, of which he already has $3000. This is the sort of simple thing that can ruin the question for you – you might see the $5000 amount straight up and just sort of gloss over the fact that he’s already saved up $3000. Bob needs only $2000 more: So Bob’s going to need almost 3 years to save up the
money for his holiday. Note that because this is a |

Handy Hint #1 - Time measurement units – weeks and months

There are 365 days in a normal year, and 366 in a leap year which happens once every 4 years. Now, it’s generally accepted that there are 52 weeks in a year, with 7 days in a week. But what does 52 × 7 equal?

_{}

So there are actually slightly more
than 52 weeks in a year! In a normal year there are _{} weeks in a year, and in a
leap year it’s _{} weeks.
So if you wanted to be really, really accurate, when you’re given an overall
tax amount of $2000 like in the previous question, you’d divide it by _{} to get an
average weekly amount.

Generally speaking, it’s OK to just assume that there’s 52 weeks in a year. Some teachers are pedantic (meaning very picky) enough that they might take half a mark off your answer if you don’t use the exact amount. If you happen to have a teacher like this, you should be able to argue your way out of it by putting something on your question like:

I am using an approximate figure of 52
weeks in a year in my calculation, given that some of the expenses are most
likely estimations (for instance it’s unlikely a car service costs exactly $300
or insurance costs exactly $1000). Also, given that Bob could pick up new
expenses, or his income could change, we are only looking for a **reasonable **estimate
of how much money he’ll have to spend on rent.

This should protect you from those annoying picky teachers.