Question

1. Your Aunt has asked you to with her finances. Explain to her why she should establish a budget and what information she needs.

2. After taking your advice your Aunt starts a budget. A few months into the process she is having a hard time sticking to her budget. Explain why she may be having issues and identify strategies that can be used to overcome these difficulties.

3. What is the primary advantage of automating your savings?

Answer 1

1.

One of the most important steps is budgeting for any individual as it allows us to plan your expenses but before that listing of costs and cost-related parameters is done which are then optimized and changes are done according to the need of the enterprise.

It also gives an idea about the future financial requirements of the person and usage of funds which helps to set plans accordingly and manage the finances.

This also helps in accomodating future opportunities for investments hence money can be utilized efficiently.

So developing an accurate budget is very critical as it can mislead, which might bring funds mismatch or financial instability. It might lead to a situation where there is financial insecurity for an individual.

2.

Firstly the amount she accounted for a specific objective might have exceeded the limit or she hasn't considered any amount for contingency.

Sometimes there is the fluctuation of the market price which might not have thought earlier.

So to avoid this type of error she should take a rough estimate and have some extra amount allocated where she feels the market price fluctuates and should create a miscellaneous account where 10% of the budget amount should be accrued.

3.

Advantage of automating your savings:

Automatizing savings means adding it to the priority list, reducing the temptation of using or spending it, and making yourself regular towards contribution which is really essential. It gurantees allocation of fund towards savings by just adding one more monthly expense to your budget.