CHAPTER 2 BUDGETS: Household Expenditure

2 Expenditure Expenditure means spending on the goods and services we use such as televisions, food, clothes, doctors’ services, school fees and transport. 2

3 Financial Cost Versus Opportunity Cost The Financial Cost of an item is the price (in money terms) paid for that item The Opportunity Cost of an item is the item you must do without when you must make a choice between the purchases of two items The computer is the opportunity cost of a new TV if I buy the TV instead of the computer

4 False economies A false economy is spending money on something which initially appears to save you money but over a longer period of time costs you more money. You may need a new set of tyres for your car. You see one set for €240 and another set for €360. The cheaper tyres may last for only 15,000 kilometres, whereas the more expensive tyres may last for 30,000 kilometres. It would be a false economy to buy cheaper tyres. You would need two sets of the cheaper tyres (costing €480) to travel the same distance as one set of the more expensive tyres.

5 Impulse Buying Impulse buying is unplanned spending, i.e. buying something on the spur of the moment (that is not part of your budget) because it seems to be attractive at the time. Example: A spur of the moment decision to book a holiday

6 Fixed, Irregular and Discretionary Expenditure Fixed expenditure is regular spending where the amount spent does not change and is not dependent on usage, e.g. annual car road tax. Irregular expenditure is spending where the amount changes and is dependent on usage, e.g. amount spent on petrol each month. Discretionary expenditure is spending on items we would like to buy but do not need for day-to- day living, e.g. a motoring weekend break.

7 A Simple Recording of Expenditure EXPENDITURE Jan Feb March April May June Total J to J Fixed€€€€€€€ Mortgage ,600 House Insurance Health Insurance ,100 Subtotal (A)1,050 1,020 6,180 Irregular Household expenses1, ,300 7,200 Car running costs230 1,380 Light and heat1, ,2002,630 Telephone costs ,740 Subtotal (B)1,9102,8301,9701,3801,9702,89012,950 Discretionary Holidays500 1,9002,900 Entertainment900 1, ,900 Subtotal (C )1, ,4003, ,800 Total Expenditure = (A + B + C)4,3604,7804,3905,7003,8904,810 27,930 CURRAN FAMILY EXPENDITURE FOR SIX MONTHS

8 Household Current and Capital Expenditure Current expenditure is ongoing spending on items that give benefit for a short period of time, usually less than one year, e.g. spending on food and electricity. Capital expenditure is spending on an item that will give benefit for a long period of time, usually more than one year, e.g. the purchase of a car and new household furniture.