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CanadaON
Grade 8

Investigation - Creating a budget

Lesson

Budgets

The best way to prevent yourself from spending more than you earn is to create a budget. A budget allows you to plan how you want to allocate your future income to cover your future expenses. Income refers to what you earn such as your wages, bonuses and any income you might earn from investments such as shares. Expenses refer to what you spend on items or services such as rent, food and entertainment, and can be broken down into two types: essential and discretionary. Essential expenses are those necessary for living such as rent and food which you can’t easily minimise. On the other hand, discretionary expenses are those that are not essential and that you can minimise your spending on e.g. movies, games and luxury goods.

 

Example

Sam earns \$1000 a week working as a miner. On top of this, he earns a bonus of \$50 on average and receives allowances for undertaking wet and dangerous work of \$80. He also earns \$200 a week on average from his share portfolio. As for his expenses, he pays \$300 a week for rent, \$20 for phone and internet, \$50 for electricity, \$20 for water, \$100 for food, \$80 for car costs, \$200 for entertainment and saves what he has left over.

Following advice from his mom, he decides to draw up with a budget. The following table shows what his weekly budget looks like. Note that budgets can be created for different time intervals such as monthly or yearly, not just weekly.

Income Expenses
Wages \$1000 Rent \$300
Bonus \$50 Phone and internet \$20
Allowances \$80 Electricity \$50
Investments \$200 Water \$20
    Food \$100
    Car running costs \$80
    Entertainment \$200
    Savings \$560
       
Total \$1330 Total \$1330

By coming up with a budget, Sam is now able to manage his money properly and to ensure that he doesn’t spend beyond his means. However, it is important to keep in mind that just like a weather forecast may turn out to be off, so too can a budget. This is because we do not know in advance the exact amount of expenses such as electricity, water, phone, etc. They could rise in the future either from a price rise or from us using more electricity, water, etc than we initially planned.

For example, suppose that because of a drought food prices spiked and water costs increased. Moreover, suppose there was stock market crash that wiped out Sam’s entire share portfolio. The following table shows what Sam’s new weekly budget would look like.

Income Expenses
Wages \$1000 Rent \$300
Bonus \$50 Phone and internet \$20
Allowances \$80 Electricity \$50
    Water \$40
    Food \$200
    Car running costs \$80
    Entertainment \$200
    Savings \$240
       
Total \$1130 Total \$1130

As you can see, Sam’s income from investments has disappeared and his water and food expenses have both doubled, leaving him with savings of only \$240 (compared to \$560 before).

 

Task 1

Chris is a Grade 11 student who works part-time at the local fast food restaurant, earning \$200 a week for his efforts. On top of this, he receives \$65 a week in allowance from his parents. He has moved out of home to live with his older brother, splitting the \$200 a month rent between the two of them. He spends \$40 a week on food for his meals and \$10 on junk food such as candy, chips and chocolate; and \$20 a week for games, movies and other forms of entertainment. He also owns a car which draws annual expenses of \$300 for registration, \$1500 for insurance and \$200 for maintenance, and weekly gas cost of \$30 for travel to and from school. For his phone and internet, he is on the \$50 a month phone and internet bundle with unlimited use. For his electricity and water bills, Chris budgets for these by using the average figure from the previous year. His previous four quarterly electricity bills were \$150, \$120, \$140 and \$160, and his previous four quarterly water bills were \$100, \$80, \$90 and \$120. He deposits whatever money he has left over into his bank account.

Questions

  1. What is Chris’s weekly income?
  2. How much does he spend on rent in a week?
  3. How much does he spend on food in a week?
  4. How much does he pay for phone and internet in a week?
  5. How much does he spend on electricity in a week? On water in a week?
  6. How much does he spend on car-related expenses in a week?
  7. What are his weekly savings?
  8. Which are discretionary?
  9. Draw up a weekly budget for Chris.
Income Expenses
Wages   Rent  
Allowance   Phone and internet  
    Electricity  
    Water  
    Food  
    Car running costs  
    Entertainment  
    Savings  
       
Total   Total  
  1. What is Chris’s annual income?
  2. How much does he spend on electricity in a year?
  3. How much does he spend on car-related expenses in a year?
  4. What are his annual savings?
  5. Draw up his annual budget.
Income Expenses
       
       
       
       
       
       
       
       
       
Total   Total  
  1. Chris would like to save up for a trip to Europe after he finishes Grade 12 in 18 months' time. Which expenses do you think he can cut back on in order to increase his savings?
  2. In order to fund his Europe trip Chris takes up a second job doing a paper run for \$50 a week. Also, he decides that the costs of having a car are too great and so decides to get rid of it. He now travels to and from destinations using public transport, which sets him back \$10 a week on average. Draw up his new annual budget.
Income Expenses
       
       
       
       
       
       
       
       
       
Total   Total  
  1. How much will he be able to save up in the next 18 months?
  2. School holidays run for the next month and Chris plans on spending most of this time playing World of Warcraft at home. As a result of the greater time spent at home, he suspects that his water, electricity and internet bills will be higher than usual over this period. So he decides to allow an extra 10% to cover the possibility of increases in these particular expenses. Draw up his new weekly budget for this period.
Income Expenses
       
       
       
       
       
       
       
       
       
Total   Total  

 

Task 2

Now you are required to research income and expenditure for yourself based on the following scenario. 

Step 1: Choose a job and research the possible income for the first year in this job. You also need to research tax payable in order to calculate your net income (after tax).

Step 2: Research living expenses. In this scenario you will be renting accommodation. Decide what type of accommodation you would like to live in and what the rental fees would be. Research costs of all other possible living expenses 

Step 3: Create a budget spreadsheet. Create a spreadsheet showing your income and expenditure and calculate whether there is any surplus or deficit.

Outcomes

8.F1.3

Identify different ways to maintain a balanced budget, and use appropriate tools to track all income and spending, for several different scenarios.

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