Personal Budget

Question 22 • Skelton - GSN - Financial Math - MA2007

What is one difference between yearly and monthly budgets?

Answer

Yearly budgets show a greater degree of planning, so it is appropriate to plan expenses more strictly and in a more detailed fashion in a yearly budget.

Monthly budgets should focus on the short term, so it is not appropriate to consider planned but future expenses (such as a vacation) in a monthly budget.

Yearly budgets are a better view of your financial goals, so you should work very hard to avoid changing yearly budgets.

There is more uncertainty as you plan further ahead, so a yearly budget needs more room to account for unplanned expenses than a monthly budget does.

Explanation

The farther ahead you plan, the harder it is to predict every expense. A yearly budget should therefore allow more flexibility for unexpected costs than a monthly budget, which is easier to plan in detail. This matches choice d: yearly budgets need more room for unplanned expenses.

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