Chapter 5 of the textbook, Personal Finance by Siegel and Yacht, deals with financial budgets (2009). It sheds the light on three types of budgets: the comprehensive budget, the cash flow budget, and other specialized budgets. Each budget is useful in a specific context and they are all helpful to make better financial decisions.
b. What are the components of a comprehensive budget and what is the purpose of each component? A comprehensive budget, which is a “budget covering all aspects of financial life […] includes a projection of recurring incomes and expenses and of nonrecurring expenditures.”
(Siegel & Yacht, 2009, p. 92). A comprehensive budget consists therefore of two large components: the operating budget and the capital budget. Explored …show more content…
For example, photography can be a hobby that a person can invest time, energy, and money in. Let’s say this person decides to buy professional gear like for example, the latest camera, with a few expensive lenses, he needs to plan for these expenses and see how they fit into his overall budget. He also needs to plan for activities that include shooting outdoor or indoor, among friends, or in remote areas. All these aspects (nonrecurring capital investments and recurring expenses) need to be taken into consideration and they are all reflected in the specialized budget (Siegel & Yacht, 2009, p. 103).
An example of a specialized budget is a tax budget that includes financial activities that have direct tax consequences (Siegel & Yacht, 2009, p. 103).
In conclusion, as Siegel and Yacht put it concisely:
While it can be valuable to isolate and identify the effects of a specific activity or the progress toward a specific goal, that activity or that goal is ultimately just a part of your larger financial picture. Specialized budgets need to remain a part of your comprehensive financial planning. (2009, p.
b. What are the components of a comprehensive budget and what is the purpose of each component? A comprehensive budget, which is a “budget covering all aspects of financial life […] includes a projection of recurring incomes and expenses and of nonrecurring expenditures.”
(Siegel & Yacht, 2009, p. 92). A comprehensive budget consists therefore of two large components: the operating budget and the capital budget. Explored …show more content…
For example, photography can be a hobby that a person can invest time, energy, and money in. Let’s say this person decides to buy professional gear like for example, the latest camera, with a few expensive lenses, he needs to plan for these expenses and see how they fit into his overall budget. He also needs to plan for activities that include shooting outdoor or indoor, among friends, or in remote areas. All these aspects (nonrecurring capital investments and recurring expenses) need to be taken into consideration and they are all reflected in the specialized budget (Siegel & Yacht, 2009, p. 103).
An example of a specialized budget is a tax budget that includes financial activities that have direct tax consequences (Siegel & Yacht, 2009, p. 103).
In conclusion, as Siegel and Yacht put it concisely:
While it can be valuable to isolate and identify the effects of a specific activity or the progress toward a specific goal, that activity or that goal is ultimately just a part of your larger financial picture. Specialized budgets need to remain a part of your comprehensive financial planning. (2009, p.