There are several financial tools that can help you make better financial decisions, including the capital and operating components of comprehensive budgets and the specialized budgets that also result from comprehensive budgets.
A. What financial tools described in this chapter can help you make better financial decisions?
The processes of planning your budget; analyzing your financial statements; and assessing risk, time value of money, macroeconomic indicators, and microeconomic or personal factors are all financial tools that can help you make better financial decisions because they give you clear pictures of your current and future financial situation and show you how certain choices will or will not lead to certain outcomes. When it comes to budgets, the two components of comprehensive budgets enable you to see and make decisions based on all of your finances and to see and make decisions based on one specific financial goal or activity.
B. What are the components of a comprehensive budget and what is the purpose of each component? …show more content…
More specifically, according to Siegal and Yacht (2009, p. 93), “a comprehensive budget is a compilation of an operating budget for short-term goals involving recurring items and a capital budget for long-term goals involving nonrecurring items.” Thus, the purpose of the operating budget component is to show you a clear picture all of your short-term recurring income such as money you receive from a permanent job or quarterly dividend payouts as well as all of your recurring expenses such as monthly mortgage payments. In contrast, the purpose of the capital budget is to show you a clear picture of all of your long-term nonrecurring expenditures or purchases that are made irregularly or not frequently and not periodically (Siegal and Yacht,
A. What financial tools described in this chapter can help you make better financial decisions?
The processes of planning your budget; analyzing your financial statements; and assessing risk, time value of money, macroeconomic indicators, and microeconomic or personal factors are all financial tools that can help you make better financial decisions because they give you clear pictures of your current and future financial situation and show you how certain choices will or will not lead to certain outcomes. When it comes to budgets, the two components of comprehensive budgets enable you to see and make decisions based on all of your finances and to see and make decisions based on one specific financial goal or activity.
B. What are the components of a comprehensive budget and what is the purpose of each component? …show more content…
More specifically, according to Siegal and Yacht (2009, p. 93), “a comprehensive budget is a compilation of an operating budget for short-term goals involving recurring items and a capital budget for long-term goals involving nonrecurring items.” Thus, the purpose of the operating budget component is to show you a clear picture all of your short-term recurring income such as money you receive from a permanent job or quarterly dividend payouts as well as all of your recurring expenses such as monthly mortgage payments. In contrast, the purpose of the capital budget is to show you a clear picture of all of your long-term nonrecurring expenditures or purchases that are made irregularly or not frequently and not periodically (Siegal and Yacht,