Aims: Students should be able to do the following:





Explain the need for budgeting
Explain the difference between deficit and surplus
Set priorities in expenditure
Identify shortfalls in income
Compare the budget with the actual expenditure

Why do households need to Budget?
To make sure that they do not spend
more than what they earn.

What is Household Budgeting?
Household budgeting is the planning of how
our money will be allocated.
The figures are only ESTIMATES of the actual
figures involved.

If we spend more than we earn, we end up
with a Budget Deficit.
◦ Expenditure is Greater than Income

If we spend less than we earn, we end up with
a Budget Surplus.
◦ Income is Greater than Expenditure

To find out if we have a Deficit or a Surplus
SUBTRACT Total Expenditure from Total Income
to get NET CASH.
Total Income – Total Expenditure = Net Cash

If Net Cash is Positive
Surplus

If Net Cash is Negative
Deficit
The Smith
Family
Jan
Feb
March
Total income
€2660
€2800
€2660
Total
Expenditure
€2700
€2200
€2600
Net Cash
(€40)
€600
€60
A deficit is shown in brackets ( ).
In this example we can see that the Smith family had a budget
deficit in January and a budget surplus in February and March.
Can you give an explanation for the deficit in January?

Comparing Budget to Actual figures.
◦ This is done to see where the actual are
different from the budgeted.
◦ We can see where the shortfalls in income are.
◦ Allows us to be able to make whatever
changes are necessary when drawing up the
next budget.

What to do if there is a deficit:
1.
Prioritise your expenditure by

Cutting back on discretionary expenditure.

Find cheaper alternatives to some items.
2.
Try to earn extra income.
3.
Try pay bills in instalments.
4.
Borrow for CAPITAL EXPENDITURE only if we can afford
repayments.

CAPITAL EXPENDITURE:
◦ Is spending on items that should last a long time.
e.g. Washing machine, fridge, cooker.
◦ It is acceptable to borrow to pay for Capital
Expenditure but not Current Expenditure

CURRENT EXPENDITURE:
◦ Is spending on items necessary to run the house on
a daily basis, e.g. food, clothing, petrol,
entertainment.
Students will now be able to do the following:





Explain the need for budgeting
Explain the difference between deficit and surplus
Set priorities in expenditure
Identify shortfalls in income
Compare the budget with the actual expenditure