Lesson 27 — Activity 3: Preparing an Annual Budget
Completion requirements
Lesson 27 — Activity 3:
Preparing an Annual Budget
Lesson 27 — Activity 3:
Preparing an Annual Budget
This activity deals with preparing an annual budget. This is a more difficult budget to plan for because there are more unknowns. What are you planning to do tomorrow? Perhaps you will go to a movie with some friends. It's easy to find out if you have enough money and if there are other things the money might be needed for.
What about next week? It is less certain how much money will be left and which movies will be shown. Next year? Even less is known. A budget for an entire year is always going to be part guesswork.
©iStock
This activity deals with preparing an annual budget. This is a more difficult budget to plan for because there are more unknowns. What are you planning to do tomorrow? Perhaps you will go to a movie with some friends. It's easy to find out if you have enough money and if there are other things the money might be needed for.
What about next week? It is less certain how much money will be left and which movies will be shown. Next year? Even less is known. A budget for an entire year is always going to be part guesswork.
What about next week? It is less certain how much money will be left and which movies will be shown. Next year? Even less is known. A budget for an entire year is always going to be part guesswork.
©iStock
Have you ever heard of inflation? It is the reason for the increase in prices and wages that we see over time. In the last few years, the inflation rate in Canada has been between one and two percent per year. That means that on average, the price of items costs more every year. Not everything goes up at the same rate; some things even come down in price. New technologies such as smartphones have dropped in price because of improved manufacturing techniques and increased competition. Some things such as gasoline at times takes great leaps in price due to world shortages. When planning a budget, we must include an estimated inflation rate.
Preparing Next Year's Budget
Sophie and Greg are drawing up a budget for next year. They will use this year's (2015) budget to develop next year's plan. There are two changes:
The inflation rate is 2%.
They are expecting a new baby.
The baby is due in early July, and they project the cost per month to be $150.
The inflation rate is 2%.
They are expecting a new baby.
The baby is due in early July, and they project the cost per month to be $150.
The budget for 2015:
Calculate their budget for next year.
Using the information in the
table
above, complete the
table
below to prepare the new budget for 2016.
Self-check!
Preparing Next Year's Budget
You Try It!
You need to make a budget for next year. You have already organized your income and expenses into a budget for this year (2015). Using an inflationary rate of 4%, calculate your budget items for 2016.
Your budget for 2016:
Let's help you to get started!
Your income would become (adding on the 4% inflation rate):
$25,000 × 0.04 = $1,000
$25,000 + $1,000 = $26,000
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Now you complete the rest!
When you are finished, answer the questions below.
1. In the 2015 budget, what is the difference between the total income and the total expenses?
2. What is the difference for 2016?
