TOPIC 1 - 1.5 SETTING PRIORITIES

TOPIC 1 - 1.5 SETTING PRIORITIES

1. the first thing to do when making a financial plan is to make a list of all of the goods and services on which someone is likely to spend money over a given time frame for example a week, month or year. as well as how much these will cost.

2. these priorities can be grouped into categories based on whether they are items that someone needs, wants or aspires to have or do.

   • NEED = life would be impossible or very difficult to sustain without them.
     • WANT = something that someone wants to have but can live without.
       • ASPIRATION = a goal for example something you want to achieve or do or have in the future.

3. Not paying the rent or mortgage payments could lead to eviction and homelessness. Not paying gas and electricity bills could mean that someone has no way of cooking food or of heating their home in winter.

   • Not paying council tax, or credit card or loan payments, could lead to spiralling debts and court action.
   • MANDATORY EXPENDITURE = income tax and National Insurance contributions (NICs);
     council tax;
     TV licence; and
     third-party car insurance, road tax and MOT certification.
     • ESSENTIAL EXPENDITURE = basic food and drink needs;
       rent or mortgage instalments;
       electricity, gas and water bills;
       adequate clothing;
       a monthly mobile phone contract;
       minimum monthly payments on a credit card;
       
       • DISCRETIONARY EXPENDITURE = snack food and drinks;
         gym subscriptions, or karate or dance lessons;
         satellite or cable television;
         pay-as-you-go mobile phone top-ups; and
         takeaway food.

4. Those with a higher income may be able to cover all of their essential and mandatory expenditure, and also have money left over to pay for things they want to buy.

   • But most people still have to prioritise the purchases that they want most.