Budgets, Income, and Expenditure Statements (Grade 12 NSC Matric Mathematical Literacy): Revision Notes
Budgets, Income, and Expenditure Statements
What is a budget?
A budget is a plan for using income to cover expenses. It helps you manage your money by comparing how much you earn with how much you spend, ensuring you don't spend more than you have available.
A well-planned budget is the foundation of good financial management. It allows you to take control of your money rather than wondering where it all went at the end of the month.
Types of income and expenses
Income sources
Income refers to all the money you receive. Understanding your income sources is essential for effective budgeting. Common sources include:
- Salary - monthly earnings from an employer
- Wages - weekly earnings from an employer
- Commission - money earned from selling products or services
- Profit - extra money gained from sales of goods and services
- Gifts - money received from others
- Financial assistance - grants, bursaries, or support payments
- Rental income - money earned from renting out property
Expense categories
Expenses are all the money you spend. Categorising expenses helps you understand where your money goes. Common categories include:
- Living expenses - basic costs for daily life
- Accounts - store accounts, credit cards
- Telephone - communication costs
- Insurance - protection policies
- Personal taxes - income tax, municipal rates
- Loan repayments - money owed to banks or lenders
- Savings - money set aside for the future
- Business running expenses - costs for operating a business
Types of expenses by timing
Understanding when expenses occur helps with better planning. There are three main timing categories:
- Fixed expenses - amounts that do not change with time (e.g., rent, insurance premiums, loan repayments)
- Variable expenses - amounts that change over time according to the situation (e.g., groceries, electricity, transport)
- Occasional expenses - costs that occur from time to time (e.g., car repairs, medical emergencies, gifts)
Planning for occasional expenses is often overlooked but crucial. Try to set aside a small amount each month for unexpected costs to avoid budget disruption.
Budget planning principles
A good personal budget should aim to achieve several important goals. Following these principles will help ensure your budget is both practical and effective:
- List all items - include everything you need and try to anticipate unforeseen expenses
- Be realistic - set amounts you can actually stick to
- Focus on priorities - essential items like food and healthcare should come first before non-essential items
- Include savings - always plan to save money for the future or to pay off debts
- Be balanced - if income is less than expenses, revise until they balance; if income exceeds expenses, plan to save the extra money
Critical Budget Rule: Your expenses should never exceed your income. If they do, you must either reduce expenses or find ways to increase income before implementing the budget.
Worked example: Travel budget
Let's examine how to create and track a travel budget using a practical example.
Worked Example: Douglas' Travel Planning
Douglas wants to travel from Cape Town to Durban. He has R500 from parents and R2000 in savings (total R2500 available).
Option 1 costs:
- Bus fare: R1200
- Meals on bus: 3 × R30 = R90
- Accommodation: R0 (staying with family)
- Total expenses: R1290
- Money remaining: R2500 - R1290 = R1210
Option 2 costs:
- Bus fare: R400 + R500 = R900
- Meals on bus: 6 × R30 = R180
- Accommodation: R200
- Total expenses: R1280
- Money remaining: R2500 - R1280 = R1220
Actual expenses vs budgeted expenses
When Douglas actually travelled, his expenses differed from his budget due to unexpected costs. This demonstrates why it's important to track actual spending against your budget.
Worked Example: Douglas' Actual Travel Costs
When Douglas actually travelled, his expenses differed from his budget:
Actual expenses incurred:
- Bus fare with VAT: R1200 + R168 = R1368
- Meals on bus: R90
- Backpacker's accommodation: R200
- Locker rental: R20 (unexpected cost)
- Additional meals: R30 × 2 = R60
- Total actual expenses: R1738
Final calculation:
- Total available: R2500
- Total spent: R1738
- Money left for Durban: R2500 - R1738 = R762
Notice how unexpected costs like VAT and locker rental increased Douglas' expenses. This shows why it's important to include a buffer in your budget for unforeseen expenses.
Income and expenditure statements
An income and expenditure statement shows all money received (income) and all money spent (expenses) over a specific period, usually monthly. These statements help you track your actual financial performance.
Example household budget
Let's examine a real household budget to understand how income and expenditure statements work in practice.
Worked Example: Monthly Household Budget
Monthly income:
- State pension: R1140
- Disability grant: R1140
- Salary: R5250
- Total income: R7530
Monthly expenses:
- Rent: R2300
- Transport: R520
- Utilities (electricity + water): R800 + R350 = R1150
- Communication (cellphone + TV): R200 + R250 = R450
- Debt payments: R310 + R570 + R315 = R1195
- Groceries: R2500
- Medical expenses: R75 + R500 = R575
- Total expenses: R8690
Budget analysis: Total expenses (R8690) exceed total income (R7530) by R1160, creating a deficit. This household is spending more than they earn and needs to reduce expenses or increase income.
Key calculations for budgets
Understanding key budget calculations helps you analyse your financial situation effectively.
Surplus or deficit calculation
- Surplus: Income > Expenses (you have money left over)
- Deficit: Expenses > Income (you're spending more than you earn)
Formula:
Running totals
A running total tracks your balance as you add income and subtract expenses. This method helps you see your financial position at any point in time:
- Start with opening balance
- Add each income item to get new balance
- Subtract each expense to get new balance
- Final balance shows your surplus or deficit
Percentage calculations in budgets
Many budget items are calculated as percentages of your total income:
- Savings: often 10-20% of income
- Entertainment: typically 5-10% of income
- Municipal rates: usually 5% of total income
Formula:
Using percentages helps ensure your spending remains proportional to your income. As your income changes, your budget allocations can adjust accordingly.
Common exam tips
Essential Exam Guidelines:
- Always show your calculations clearly with proper units (R for Rand)
- Check if VAT is included - add 14% if not included
- Round answers to two decimal places for money
- Label your final answer clearly (surplus or deficit)
- Use brackets for intermediate calculations:
- Double-check that income and expenses are in the correct columns
Key Points to Remember:
- A budget is a financial plan that compares income and expenses
- Fixed expenses stay the same, variable expenses change, and occasional expenses happen irregularly
- A good budget should be realistic, balanced, and include savings
- Income and expenditure statements help track actual financial performance
- Always aim for a surplus (income > expenses) or at least break even