Occupational Standard: Basic Account Works Level II

Unit Title Develop and Use a Personal Budget

Unit Code BUF BAW2 08 0812

Unit Descriptor This unit describes the performance outcomes, skills and knowledge required
to develop, implement and monitor a personal savings budget.
Elements Performance Criteria

1. Analyze and discuss 1.1 The role of budgeting in the lives of different groups and the importance
budgeting as a of budgeting appropriately to meet expenses is analyzed and discussed
financial tool and related to different stages of life
1.2 The importance of setting financial goals is analyzed and discussed
1.3 Obstacles that might prevent financial goals being achieved are analyzed
and discussed with the types of behaviors and skills required for
successful budgeting explored and analyzed
2. Develop a personal 2.1 All income and expenses for a six month period are recorded to assist in
budget estimating expenditure requirements
2.2 A spreadsheet for recording all budget information is obtained or
developed and established to record income and expenditure for a
relevant period of time
2.3 All sources of income and regular fixed expenses and variable expenses
for the specified period are identified and listed in a personal budget
using the budget spreadsheet
2.4 Total expenses recorded are subtracted from the total income to
determine a surplus or deficit budget for the specified period
2.5 Reasons for a deficit budget are explored if relevant and ways to reduce
expenses or increase income are investigated
2.6 Allocation of surplus funds towards saving and meeting identified
financial goals is explored
3. Implement and 3.1 The budget is followed according to plan for a period of time
monitor the 3.2 Actual expenses and income for the period during which the budget is
personal budget implemented are recorded and compared to budgeted expenses and
income with any differences in budgeted and actual amounts looked at
and the budget modified where necessary
3.3 Handy hints for managing the personal budget are discussed
3.4 Ongoing review of the budget is conducted to ensure it remains relevant
and to ensure updates are incorporated if necessary
Variable Range

The different groups  families

who may budget may  governments
include:  individuals:
 single
 married
 elderly
 students
 tourists, travelers.
Different stages of life  approaching and during retirement
may include:  buying your first home
 moving out of home
 starting a family
 studying.
Financial goals may  accumulating a set amount of money by a specified date in the future for
include: the purposes of:
 purchasing assets
 financing holidays, educational expenses, home renovations and other
 known future expenses
 establishing a deposit for an investment such as a home or investment
property
 aiming to repay existing debts and be debt free
 establishing a regular savings plan
 handling income and expenditure responsibly and avoiding financial
difficulties.
Obstacles that might  being unemployed, particularly long term unemployed
prevent financial goals  insufficient income to afford items that are beyond the individual's means
being achieved may  unexpected circumstances such as:
include:  losing a job
 falling ill
 Not being able to work.
Behaviours and skills  controlled spending
required for successful  disciplined approach to money
budgeting may include:  organisational skills
 Record keeping skills.
Budget refers to:  a calculation of all projected income and expenditure for period of time
(e.g. on a weekly or monthly basis)
 Showing all projections versus actual income and expenses for the period
and monitoring variances.
A spreadsheet may:  be simple or complex depending upon the extent of the individual's
finances
 have one section for recording all money received as income and another
section for expenses both variable and fixed
 have a section to record the difference between income and expenses for
the period, this being the surplus or deficit financial situation for the
period.
Sources of income may  interest on investments, dividends
include:  proceeds from sale of assets
 social security benefits, pensions, allowances, child assistance
 wages, commission, bonuses, tips.
Fixed expenses may  fees:
include:  school and university fees
 bank fees
 insurance
 loan repayments (if loan is based upon fixed interest rates) such as:
 personal loans
 car loans
 credit card debts
 Higher Education Contribution Scheme
 public transport
 rent
 subscriptions to:
 magazines
 newspapers
 clubs
 travel including public transport, petrol
Variable expenses may  car maintenance
include:  living expenses such as:
 food
 clothing
 medical
 loan repayments if loan is based upon variable interest rates
 miscellaneous expenses such as:
 gifts
  recreation
 entertainment
 fines
 mobile telephone
 mortgage repayments
 utilities such as:
 water
 gas
 electricity
 telephone.
Ways to reduce  comparing prices for essential items
expenses may include:  monitoring use of utilities such as electricity, gas and water
 moving back home
 reducing expenditure on discretionary items such as expensive clothing,
magazines, eating out
 share accommodation
 using cheaper modes of transport.
Ways to increase  combining part-time work with studying
income may include:  investigating eligibility for student allowances or other relevant
government benefits
 taking on a part-time job or holiday work.
Handy hints may  how to avoid getting into financial difficulties
include discussing:  how to minimise fees and charges imposed by financial institutions
 how to use credit card debt effectively
 the problems of impulsive buying, particularly when under peer pressure
 ways to cut back on spending or change negative spending habits.

Develop and use personal budget

As a personal financial planning tool, a written, monthly budget allows you to plan for how you'll
spend and/or save your money each month and also keep track of your spending patterns. Though
making a budget may not sound like the most exciting activity (and for some, it's downright
scary), it's vital to keeping your financial house in order as budgets rely on balance. If you spend
less in one area, you can spend more in another or choose to save that money for a larger future
purchase, building a "rainy day" fund, or even for retirement.

Before you begin to make your budget, it's important to realize that in order to be successful you
have to provide as much detailed and accurate information as possible. Ultimately, the end result
of your new budget will show you where your money is coming from, how much is there, and
where it's all going each month.

With a budget, you can begin to prioritize your spending and better manage your money and
financial

The importance of setting financial goal

 Accumulate a set amount of money for future purpose
 Purchase off asset
  Financial holidays
 Educational expense
 Home renovating
 Other future expense
 For investment on home or property
 Repay debt
 Handling income and expenditures
Obstacles to prevent financial goals
 Under-earning
 Overspending?
 Not have emergency savings (or enough of it)
 Not have retirement savings (or enough of it)
 Being unemployment
 Insufficient
 Unexpected circumstances
Behaviors and skills successful budgeting
Controlled spending
Disciplined approach to money
Organizational skills
Record keeping skills
Develop a personal budget
All income and expense for a six month period are record to assist in estimating expenditures
requirements. All source of income and regular fixed expense and variable expense for the
specified period are identified and listed in a personal budget using the budget spreadsheet.
Source of income
Interest
Dividends
Sale of asset
Social security benefits pensions
Allowance
Child assistance
Wages
Commissions
Bonus
Tips

Fixed expense
 Amortization. This is the gradual charging to expense of the cost of an intangible
asset (such as a purchased patent) over the useful lifeof the asset.
 Depreciation. This is the gradual charging to expense of the cost of a tangible asset (such
as production equipment) over the useful life of the asset.
 Insurance. This is a periodic charge under an insurance contract.
 Interest expense. This is the cost of funds loaned to a business by a lender. This is only a
fixed cost if a fixed interest rate was incorporated into the loan agreement.
 Property taxes. This is a tax charged to a business by the local government, which is
based on the cost of its assets.
 Rent. This is a periodic charge for the use of real estate owned by a landlord.
 Salaries. This is a fixed compensation amount paid to employees, irrespective of their
hours worked.
 Utilities. This is the cost of electricity, gas, phones, and so forth. This cost has a variable
element, but is largely fixed.

Variable expense
The expense that changes from month to month.

Food

Child Care
Media
Cloth
g
Educating
Donations
Pes
ona
l
Entertainment
Miscellaneous
Ways to reduce expense
1. Reduce your bills
2. Reduce your accommodation costs
3. Reduce bank and interest fees
4. Reduce car expenses
5. Reduce food expenses
6. Save on fuel
7. Stop eating out
8. Cancel newspaper and magazine subscriptions
9. Buy nonperishable items in bulk
Ways to increase income
Part time work
Holiday work
How to Make a Budget in 6 Simple Steps

1. Gather every financial statement you can.

This includes bank statements, investment accounts, recent utility bills, and any information
regarding a source of income or expense. One of the keys in the budget-making process is to
create a monthly average, so the more information you can dig up the better.

2. Record all of your sources of income.

If you are self-employed or have any outside sources of income, be sure to record these as well. If
your income is in the form of a regular paycheck where taxes are automatically deducted, then
using the net income (or take-home pay) amount is fine. Record this total income as a monthly
amount.

3. Create a list of monthly expenses.

Write down a list of all the expected expenses you plan on incurring over the course of a month.
This includes a mortgage payment, car payments, auto insurance, groceries, utilities,
entertainment, dry cleaning, student loans, retirement or college savings — essentially everything
you spend money on.

4. Break expenses into two categories: fixed and variable.

Fixed expenses are those that stay relatively the same each month and are required parts of your
way of living. They included expenses such as your mortgage or rent, car payments, cable and/or
internet service, trash pickup, credit card payments and so on. These expenses, for the most part,
are essential yet not likely to change in the budget.

Variable expenses are the type that will change from month to month and include items such as
groceries, gasoline, entertainment, eating out, and gifts, to name a few. This category will be
important when making adjustments.

5. Total your monthly income and monthly expenses.

If your end result shows more income than expenses, you are off to a good start. This means you
can prioritize this excess to areas of your budget such as retirement savings or paying more on
credit card balances to eliminate that debt faster. If you are showing a higher expense column
than income, it means some changes will have to be made.

6. Make adjustments to expenses.

If you have accurately identified and listed all of your expenses, the ultimate goal would be to
have your income and expense columns to be equal. This means all of your income is accounted
for and budgeted for a specific expense or savings goal.

If you're in a situation where expenses are higher than income, you should look at your variable
expenses to find areas to cut. Since these expenses are typically non-essential, it should be easy to
shave a few dollars in a few areas to bring you closer to your income
 CREATING AN EFFECTIVE PERSONAL BUDGET

Step 1. fill in the estimated dollar amount that you spend on Essential Monthly
Expenses in the column labeled "Current Spending." Use the blank lines
to describe additional expenses that are not already on the list.
Step 2. Add the total of all of your Current Essential Monthly Expenses in the Total
Essential Monthly Expenses
Step 3. fill in the estimated dollar amount that you spend on Other Monthly
Expenses in the column labeled "Current Spending." Use the blank lines to describe
Step 4. Add the total of all of your Other Monthly Expenses in the Total Other Monthly
Expenses row (first column).
Step 5. Write the Total Essential Monthly Expenses number

Step 6. At the bottom add the Total Other Monthly Expenses and the Total
Essential Monthly Expenses to get Total Living Expenses.
Step 7. Copy the Total Living Expenses number into the Total Monthly Living Expenses
blank
Step 8. Calculate your Monthly Gross and Net Income. Your Net income is your
income after income taxes and other withholdings,.
Step 9. Copy the Total Net Income number into the Total Net Monthly Income blank in
the formula to the right.
Step 10. Using the formula above, subtract Total Monthly Living Expenses from Total Net
Monthly Income. If the number is positive, then you are living within your
budget and should consider investing the "excess" money in a savings account,
money market, or other investment option, or payoff outstanding debts. If the
number is negative, then you are spending more than your income allows. Go to
Step 11.
Step 11. . Determine if you can save additional money by reducing certain expenses,
Write these reductions in the Necessary Changes column. You may be surprised
just how much money you find without adding any new income.

Step 12. Write the new values for your monthly expenses in the Planned Budget columns of
calculate your Planned Budget.
Your Planned Budget represents your goal for next month. Monitor your expenses,
and at the end of the month compare them with your budget. Make modifications
to your budget as necessary.
Congratulations on taking your first step to better money
management!

Personal budget plan

▲ Sample Budget Worksheet

The following budget is broken down into the following
types of expenditures: Fixed Expenses, Periodic Fixed
 Expenses, Flexible Expenses and Indebtedness.

Depending on your situation, some expenses (for

example, long distance calls or a cell phone) may be
considered flexible rather than fixed expenses. Be
sure to adjust the budget categories to best reflect
your needs and lifestyle. (Report all expenses as
monthly amounts.)

Name------------------------------------------------------------------ month and year----------------------------

_______________________________
F
i
x
e
d

E
x
p
e
n
s
e
s
H
o
u
s
i
n
g
Rent, Mor tgage or Lot Rent
$

2nd Mor tgage/Equity Loan/Association Fees, etc.

$ Heating

$ Electricity

$ Telephones (land-lines and cell phones)

$ Other

T
r
a
n
s
p
o
r
t
a
t
i
o
n
Gas/Public Transpor tation/Taxi/Parking

$ Car/Truck Payment

$ Other

I
n
s
u
r
a
n
c
e
Health (medical and dental, if not payroll deducted)

$ Life

$ Disability

$ Other

Child Care
Child Care/Babysitters $

Child Suppor t/Alimony $

FIXED EXPENSES SUB-TOTAL $

Periodic Fixed Expenses (list 1/12th of the annual payment amount)
Housing
Proper ty/Real Estate Taxes (if not included in mor tgage) $

Home Insurance (if not included in mor tgage payment) $

Renter’s Insurance $

Water/Sewage $

Trash Ser vice $

Other $

Transportation
Car Insurance $

Car Licenses $

Car Repairs and Maintenance $

License Plates/Registration Fees $

Other $

PERIODIC FIXED EXPENSES SUB-TOTAL $

Flexible Expenses
Food
Food/Groceries $

Work Related (lunches and snacks) $

School Lunches $

Other $

Child Care
Diaper Expense $

Other $

Medical
Doctor $

Dentist $

Prescriptions $

Glasses $

Other $
Clothing
Clothing $

Laundr y/Dr y Cleaning $

Other $

Education
Tuition $

Books/Papers/Magazines/Supplies $

Lessons (spor ts, dance, music) $

Other $

Donations
Religious/Charity $

Other (if not payroll deducted) $

Gifts
Bir thdays $

Major Holidays $

Other $

Personal
Barber/Beauty Shop $

Toiletries $

Children’s Allowance $

Tobacco Products $

Beer, Wine, Liquor $

Other $

Entertainment
Movies, Spor ting Events, Concer ts, Videos, Theater, etc. $

Internet Ser vice $

Cable/Satellite T.V. $

Restaurants $

Gambling/Lotter y Tickets $

Fitness or Social Clubs $

Vacations/Trips $

Other $
 Miscellaneous

Home Maintenance $

Checking Account or Money Order Fees, etc. $

Pet Care/Supplies $

Hobbies and Crafts $

Postage $

Other $

FLEXIBLE EXPENSES SUB-TOTAL $

Indebtedness
Debts (Use the Debt Worksheet in this workbook, as necessary)
Student Loan $

Credit Card (monthly minimum*) $

Credit Card (monthly minimum*) $

Credit Card (monthly minimum*) $

Medical Bills $

Personal Loans $

Other $

INDEBTEDNESS SUB-TOTAL $

FIXED EXPENSES SUB-TOTAL: $

PERIODIC EXPENSES SUB-TOTAL: + $

FLEXIBLE EXPENSES SUB-TOTAL: + $

INDEBTEDNESS SUB-TOTAL: + $

TOTAL MONTHLY EXPENSES = $

TOTAL MONTHLY NET INCOME: $

MINUS TOTAL MONTHLY EXPENSES: -$

EQUALS AMOUNT LEFT OVER FOR SAVINGS AND INVESTMENTS =$

* Although it is strongly recommended that you pay more than the monthly minimum payment due, lenders will
 use this amount when calculating monthly debt obligations.

BUDGET MONITORING

Budget monitoring lays the foundation for effective monitoring and control of personal budgets. This
is exposed in the conceptualization of this phenomenon and the discussion of dimensions related to
budget monitoring
Monitoring is the continuous or periodic review of a programme or project to assess problem areas
and recommend remedial actions Budget monitoring is thus a continuous process of “keeping a check
on the difference between the planned financial status at a given time and the actual financial status at
that time”
Budget monitoring involves the following:

 Checking expenditure against budget allocation.

 Checking whether resources are being effectively mobilized.

 Evaluating and reorganizing if and when necessary.

 Addressing small problems immediately.

Noting whether there is a surplus or deficit at the end of the year and whether there is
any possibility of building reserves.

Budget variance and analysis

Budget monitoring involves the actual budget versus the actual report and takes budgeted income and
expenditure for the reporting period and compares it with the actual income and expenditure for the
same period. He further states that the difference between the two figures is known as the variance. A
variance is therefore an accounting tool used to identify any under- or over-spending against the
budget, which is then investigated with a view to proposing rectifying or corrective action.

Thus variances are often described as either ‘favorable’ (generally good news) or ‘adverse’
(generally bad news). He describes these variance classifications thus:

 Favorable relates to the instance when actual income is higher than the budgeted
amount, or when actual spending is lower than budgeted for, which is actually not
always good news.
 Adverse relates to an instance when actual income is lower than the budgeted amount,
or when actual spending is higher than spending budgeted for.

Monthly income LCM schools

 SOURCE OF INCOME ANNUAL INCOME PROJECTED MONTHLY INCOME

A B C = B/12

School fees 100 000 8 333

Donations 10 000 R833

Departmental subsidies 75 000 6 250

Tuck shop sales 15 000 1 250

Total income 200 000 16 666

Priority list of expenditure LCM schools

ITEM NO PRIORITY LIST OF EXPENDITURE ANNUAL BUDGET

1 Advertisements 2 600
2 Bank charges 2 000
3 Cleaning materials 10 000
4 Duplicating costs 15 000
5 Media centre 8 000
6 Municipal charges 24 000
7 Sports activities 18 000
8 Stationery 14 000
9 Teaching departments 42 000
10 Telephone 6 000
11 Textbooks 50 000
TOTAL 191 600

Net saving=total income- total expense

Net saving LCM schools 200 000- 191 600=8400 birr

.Examples
1. Teachers Habele is earning monthly 2000 birr week. And the following expense incurred per
month for year 2010
Transport_-------------------------------------------------------------300
Rent---------------------------------------------------------------------1500
FOOD-------------------------------------------------------------------2000
Entrainment--------------------------------------------------------------400
Cosmetics----------------------------------------------------------------500
Utilities-------------------------------------------------------------------400
Other expense------------------------------------------------------------300
Required
a. Calculate the net saving for 2011
2. Miss Habele new plan budget for 2011to increase the saving for 20/80 house and decrease by the
following expense
Transport ….40%
FOOD………30%
Cosmetics…….20
Utilities……….30
Required
A calculate net saving
B calculate percentage in changing saving
 Project one
The following data is given for personal income and expenditure for kaleb demelash from July to Oct
2014. At kaleb wants to the remaining income after expenditures are covered.

Description July August September Octobe Total

Clothings 1,377 - 1,377 -
expense
Food and other
Tuitin fee 1,530 1,620 1,530 1,759
consumption 6,120 6,480 6,120 7,038
utilities expense 306 324 306 351
Monthly house
personal saving
rent expense 2,295 2,430 2,295 2,639
Over time work 300 - 300 345
Part time work - 1,200 - -
Salary 15,000 15,000 15,000 17,250 Task .1. Re
Transport 765 810 765 880 arranges the above
data and prepare
the four month
budget for kaleb?

Answer

Task 1.1

Description July August September Octobe Total

income
Salary 15,000 15,000 15,000 17,250 62,250
over time work 300 300 345 945
 part time work 1,200 1,200
Total income 15,300 16,200 15,300 17,595 64,395
Fixed expenses
monthly house rent
expense 2,295 2,430 2,295 2,639 9,659
Tuition fee 1,530 1,620 1,530 1,759 6,439
Total fixed
expense 3,825 4,050 3,825 4,398 16,098
variable expense
clothing’s 1,377 1,377 2,754
transpor expense 765 810 765 880 3,220
food and other
consumption 6,120 6,480 6,120 7,038 25,758
utilities expenses 306 324 306 351 1,287
Total variable
expenses 8,568 7,614 8,568 6,269 33,019
Total fixed and
variable expense 12,393 11,664 12,393 12,667 49,117
Personal saving 2,907 4,536 2,907 4,928 15,278
 Project two
Abebe at employees of 3f furniture company earn a monthly net income of birr 15,000.00 25% of the total
income used to cover his fixed expense and the remaining income is used to cover his variable expense and
saving, saving is 15% of the variable expense for the month December 2014 the actual variable cost is 85%
the budget variable expense variable expense budget deficit
Surplus added to personal saving it is net income will be expected increased 20% February month
Task 2.1 prepare budget performance report to the month of December 2014
Task 2.2 prepare personal budget of March 2015
Task 2.3 calculate total saving at the end of March 2015 and identify the related investment opportunity

Answer for Project two

Task 2.1 prepare budget performance report to the month of December 2014

Fixed cost=25 %( 15,000.00)=3,750.00

Remaining=15,000.00-3,750.00=11,250.00
VE+SP=1,250.00
1.15VE/1.15=11,250.00/1.15=VE=9,782.61

Saving plan=15 %( 9,782.61) =1,467.39

Actual variable expense=85 %( 9782.61) =8315.22
Budget surplus=9,782.61-8, 3125.39=1,464.39 saved
 Ato abera

Budget performance

For the
Description Amount month ended of Dec 2014
Income
description Budget amount Actual budget Difference
Net income 18,000.00
income _
Total income 18,000.00
Net income 15,000.00 15,000.00 _
Cost and expense
Total income 15,000.00 15,000.00 _
Fixed cost 4,500.00
Cost And expense
Variable cost 11,739.13
Fixed cost 3,750 3,750.00 _
Total expense 16,239.13
Variable cost 9,782.61 8,315.22 1,467.39
Personal saving 1760.87
Total cost 13,532.61 12,065.22 _
Saving plan 1,467.39 2,934.78 _

Task 2.2

His income increased by 15%from February 2014

Net income 15,000.00+20%( 15,000.00)

=15,000.00+3,000.00=18,000.00

Fixed cost=25 %( 18,000.00) 18,000.00-4,500.00=13,500.00

VE+SP=13,500.00
VE+15%VE=13,500.00
1.15VE/1.15=13,500.00/1.15
VE=11,739.13

SP=15%(11739.13)

SP=1,760.86

Ato Abera Personal budget

For the month ended March 2015

Task2.3

Total saving of March 2015 December month saving=2,934.78

January month saving=2,934.78

February month saving=3,521.72

March month saving=3521.72

Total actual saving at the end of March 201412,913.00

Project three
Ato fentahun earns birr 9,500 basic salary his monthly expense is given as follow
  Closing expense is 12% of his basic salary
 Food expense is 20% of his basic salary
 Rent expense is 30% of his basic salary
 Educational expense is 5% of his basic salary

 Transportation expense is 5% of his basic salary

Task 3.1 prepare the monthly and annually budget

Project three
 Task 3.1 prepare monthly and annually budget

Ato Fentahun Personal budget Monthly

Estimated
Items budget
income
Net salary 9,500
Expenses
closing expense 1,140
Food Expense 1,900
Rent expense 2,850
Educational expense 475
Transport expense 475
Total expense 6,840
personal saving 2,660

Personal saving = income –Total expense

= 9,500 -6,480

=Br 2,660
Ato Fentahun Personal budget annually

Items
income
Net salary 114,000
Expenses 0
closing expense 13,680
Food Expense 22,800
Rent expense 34,200
Educational expense 5,700
Transport expense 5,700
Total expense 82,080
personal saving 31,920

Annual income = Monthly income x 12Month

Annual expense = Monthly expense x 12Month

Personal saving =Annual income–Annual expense= 114,000 - 82,080= 31,920