Budgets, Bank Statements & Bills (WJEC GCSE Maths & Numeracy (Double Award)): Revision Note

Budgets & Bank Statements

What is a budget?

• A budget is an estimation of someone's financial incomes and outgoings

• Budgeting helps to plan and forecast how much money you have

• This is useful when you're aiming to save money over time

  • Knowing your monthly income and outgoings will reveal how much you can aim to save each month

  • A budget will help highlight areas that are fixed outgoings, and areas which could be cut back to help save money

• A budget can help individuals be more objective about their finances

  • E.g. They may "feel" they are spending a sensible amount of their earnings on new clothes and shoes

  • But when a budget is created and they see the true amount and proportion of their income, they may feel differently!

Using a bank statement to budget

• Below is a simplified version of a bank statement for a current account for one month

  • A current account is a bank account for managing day-to-day expenditures

  • A bank statement is a document from your bank showing money going in and out of an account, usually in a table

• It includes some common codes you may see on a bank statement

  • DD - Direct Debit

    • This is an automatic payment system, often used for bills

    • It is not fixed, it changes depending on how much you owe

  • DEB - Debit card spending

  • CPT - Cash point withdrawal

  • TFR - A transfer of money between two bank accounts

  • SO - Standing Order

    • This is a recurring fixed payment

    • E.g. regularly putting money into your savings account

• Credit means money coming in to your account

• Debit means money leaving your account

• Balance is the running total of money available in your account

• By categorising the incomes and expenditures across the month, and finding the total for each, the statement can be used to create a budget

• Income

  • Salary: £1900

  • Total in: £1900

• Outgoings

  • Housing (rent and council tax): £850

  • Groceries and shopping: £370

  • Utilities (gas, electric, water): £160

  • Loan repayment: £120

  • Transport & fuel: £60

  • Cash withdrawals: £50

  • Internet & phone: £48

  • Entertainment & social: £24

  • Moved to savings: £200

    • This is obviously a "good outgoing"!

  • Total out: £1882

• It is important to also consider longer term costs, or costs which don't appear each month, for example:

  • An annual car service

  • Insurance which renews yearly

  • Buying presents for Christmas or other celebrations

• Once the budget is formed, it can be used to highlight where savings could be made

• Some credits and debits are fixed, whilst some are variable

  • Your food shopping or spending on luxuries is considered variable

  • Whereas council tax or your rent or mortgage would be considered fixed

    • They could still change, but over a longer term

Bills

What types of bills are there?

• Bills are regular payments for products or services, for example:

  • Utility bills (gas, electric)

  • Mobile phone

  • Internet service

  • Streaming subscriptions

  • TV license

  • Council tax

  • Insurance

• Bills may change depending on your usage (e.g. electricity usage)

  • Or they may be fixed with a cap on usage (e.g. mobile phone data)

• Some bills may just need to be paid once, like paying a tradesman for a job

  • You should receive an invoice detailing what needs to be paid

What is insurance?

• Insurance protects you against losing money if something unexpected happens

  • E.g. a car accident or a house fire

• You pay a regular fee (a premium) to an insurance company

• If something goes wrong, the insurer pays most of the cost, though you usually pay a small amount called the excess

• Car insurance is a legal requirement in the UK

  • It covers damage to other people’s cars, and with extra cover, your own too

• Other common types of insurance include:

  • Home insurance

    • In case of damage to your home

  • Life insurance

    • In case of injury, illness or death

  • Health insurance

    • To help pay for private medical treatment

  • Travel insurance

    • To recover costs from cancellations or medical expenses

  • Gadget insurance

    • E.g. If your phone is damaged or stolen

• People buy insurance when the cost of possible damage is much higher than the cost of the premium, even if the chance of it happening is small

How is a utility bill calculated?

• Utility bills, e.g. for gas, electric, or water, comprise of several parts:

  • A standing charge

    • This is fixed for the period, no matter how much you use

  • A cost dependent on number of units used

    • Your electricity, gas, or water meter will be used to measure this

    • Electricity is measured in kWh (kilowatt-hours)

    • Gas and water usage is measured in m³ (cubic metres)

  • VAT (value added tax)

    • This is usually 20%, but for utility bills it is 5%

• Utilities have a tariff which sets out the costs for standing charges and costs per unit