Creating a Budget — Income, Expenditure, Surplus and Deficit
A budget lists all sources of income (money coming in) and all expenditure (money going out). The balance is income minus expenditure. If income > expenditure, there is a surplus (money left over). If expenditure > income, there is a deficit (a shortfall — you are overspending).
Balance = Total Income − Total Expenditure. Surplus: balance > 0. Deficit: balance < 0.
Balance = £950 − £1,030 = −£80 deficit. This person is overspending by £80 per month.
Step 3
To eliminate the deficit, they need to either increase income or reduce expenditure by at least £80.
Key terms: Income = money received (salary, benefits, rent from tenants). Expenditure = money spent (bills, food, travel, leisure). Balance = Income − Expenditure.
✓ Quick Check 1 — Budgets, surplus, and deficit
Question 1 of 10
Hire Purchase — Comparing Total Cost with Cash Price
Hire purchase (HP) allows you to buy an item by paying a deposit upfront, then making regular monthly payments. The total HP cost = deposit + (monthly payment × number of months). This is almost always more expensive than paying the cash price outright.
Total HP cost = Deposit + (Monthly payment × Number of months) Extra cost = Total HP cost − Cash price
Example 3 — Comparing HP and cash price
A washing machine costs £420 cash. HP: £60 deposit + 18 monthly payments of £25.
Step 1
Calculate total of monthly payments: 18 × £25 = £450
Step 2
Total HP cost = £60 + £450 = £510
Step 3
Extra cost of HP = £510 − £420 = £90 more than buying for cash.
Step 4
Conclusion: HP costs £90 more, but allows the buyer to spread the cost over 18 months without needing £420 upfront.
Example 4 — Finding the monthly HP payment
A sofa costs £360 cash. HP: £60 deposit, 12 monthly payments. Total HP cost = £420. Find each monthly payment.
Step 1
Amount paid in monthly payments = Total HP − Deposit = £420 − £60 = £360
Step 2
Monthly payment = £360 ÷ 12 = £30 per month
Common mistake: do not forget to add the deposit to the monthly payments. The total HP cost = deposit + all monthly payments combined, not just the monthly payments.
✓ Quick Check 2 — Hire purchase calculations
Question 1 of 10
Working out profit and loss as a percentage is covered in Lesson 5.7 — Percentage Change.
Practice: Budget and HP Calculations
Work through these real-life money problems.
#
Question
Answer
Result
1
Income: £1,650. Expenditure: Rent £700, Food £310, Travel £95, Entertainment £120. What is the monthly balance? (£)
2
Is this a surplus or a deficit? (type surplus or deficit)
3
Sofa HP: £120 deposit + 24 monthly payments of £22. What is the total HP cost? (£)
4
The sofa's cash price is £600. How much extra does HP cost? (£)
5
Income: £1,200. Expenditure: Rent £550, Food £220, Travel £70, Other £180. What is the monthly balance? (£)
6
Is this a surplus or a deficit? (type surplus or deficit)
7
TV HP: £50 deposit + 12 monthly payments of £35. What is the total HP cost? (£)
8
The TV's cash price is £400. How much extra does HP cost? (£)
9
Income £900, Expenditure £950. What is the deficit amount? (£)
10
Bike HP: £30 deposit + 10 monthly payments of £18. What is the total HP cost? (£)
⚠ Things to Watch Out For
Confusing surplus and deficit: Surplus = income > expenditure (money left over). Deficit = expenditure > income (spending more than earned). A deficit is negative — you are overspending.
Hire purchase — not adding up all payments: Total HP cost = deposit + (monthly payment × number of months). Students often forget the deposit when calculating the total.
Comparing HP vs cash incorrectly: Extra cost of HP = total HP cost − cash price. Make sure you have the right total HP cost (including deposit) before subtracting.
Budget — missing irregular expenses: Annual or one-off costs (e.g. car insurance, MOT) should be divided by 12 to find the monthly equivalent when building a monthly budget.