AY Honors/Household Budgeting/Answer Key
1. What is a household budget and what is the importance of having one?
2. Make a list of your family's expenses and classify them as necessary, useful and superfluous.
3. Check your family's shopping list for grocery and hygiene products. Are all the items really necessary?
4. What is the best day and place to get vegetables, fruits and greens in your neighborhood?
5. What can you and your family do to save on water, electricity and telephone?
6. What is inflation?
7. What taxes does your family have to pay?
8. What kind of shopping should never be done with credit? why?
9. What is interest? How should it be calculated?
10. Investigate what the is interest rate and what are the financial responsibilities in the lines of credit lines for the following:
a. Credit card
b. Overdraft
c. Personal loan
11. What measures should be taken when the family is in debt?
Debt results from either spending more then you bring in until all your savings are exhausted (deficit spending), or from buying assets or investing on credit.
Deficit spending debt is very serious and must be remedied quickly. The best way out of deficit spending debt is to figure out how to run a budget surplus. You either need to increase the amount of money you earn above your spending, decrease the amount you spend below the amount you earn, or preferably tackle the problem from both sides. As you run a budget surplus you can use the surplus to reduce and eliminate the debt.
Another way to get out of debt is to sell assets off to raise cash. Selling investments, real estate, furniture etc may be the only alternative if you suffer some serious unfortunate circumstances, but eventually you will run out of things to sell so running a budget surplus is a much better plan.
Debt incurred to buy income producing assets is more acceptable. You might use debt to invest in a business or farm that makes a living for you.
Similarly, student debt is sometimes required to get a good education, investing in yourself to enable you to earn a better living. However student debt is often a huge trap that takes people many years to get out of.
Most people use debt to buy a home or a car. Used wisely, this kind of debt can ok. It is impossible to save enough money to buy a home for cash, while still paying rent out. Home prices will generally rise faster then the interest on your savings account. Buying a car on credit is a common way to spread out the cost of the car over much of its effective useful life. Usually you can resell the car and pay off the loan if you have to get rid of the payments.
Don't confuse buying a necessary asset like a home or a car with an unnecessary asset like a pleasure boat or fancy bike. Unnecessary assets are actually liabilities because they tend to cost you money to maintain, store and insure them while they do nothing to provide shelter, earn income, or get you to work or school.
