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business level 3, unit 31 assignment 3 effective management of debt - P5,P6,M3,D3
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Assignment 3 sophie brookssmith
Sophie Brooks Smith
Assignment 3
Develop a budget plan to service and manage debt for an individual.
In this assignment I have created a budget plan and cashflow forecast for an individual, I will then
discuss the advantages and disadvantages of each of these and relate them to my individual’s
situation, and produce revisions to show the changes in their financial circumstances.
Scenario:
David is a 25-year-old male with a wife called Lucy they currently live in Luton, David works as an
accountant in St Albans, he travels to work by car, David gets paid £3750 monthly, he also gets a
yearly bonus in December of £800.
David and Lucy split the rent of £2500 each month. David pays for the electric bill at £66 monthly
and the water bill at £29.60 each month.
David’s grandfather recently passed in the previous December, he inherited £5000, David and Lucy
decided to save this money for their future child. This money is going to be put into David’s account
in January, he is going to put this into a savings account.
David also invested in a property, he is renting it out and getting £1250 profit after all the bills are
deducted.
They are trying for a baby, and saving up for when Lucy does become pregnant, every month David
puts £250 into a savings account alongside the £5000 from his inheritance
They have recently bought a new puppy; therefore, they need to pay for food, vet bills and monthly
pet insurance. Dog food costs David £80 every month, pet insurance costs £15 every month and
vet bills vary, in February and August their puppy will need his injections this will cost £45 each time.
David and Lucy currently live in a one-bedroom apartment, they are moving into a 3-bedroom house
in St Albans, in February, they had been saving up for the deposit for the past 3 years and managed
to save £30,000. The price of their new house is £600,000, they have paid a 5% deposit to be able
to get the house and start a mortgage. The deposit had previously been taken from their account
they plan to move into their house in march.
The mortgage each month costs £2100, David and Lucy split this bill. The water bill costs £28
monthly, the dual fuel (gas and electric) bill come to £96 each month, David pays for both these
expenses.
Their new house is already furnished; however, they still need to buy things for their house, they
decided to buy a few things each month to spread out the cost, they agreed to spend £150 a month.
David has a car, he must pay for insurance, fuel and maintenance. David pays £500 yearly in March
for his car insurance. He needs to get his MOT and service done in June this will cost £135.50.
David spends roughly £100 a month on petrol while living in Luton, when they move to St Albans
David will no longer have to drive as far for work, this will take his petrol cost down to £55 a month.
David pays road tax of £145 each year in June.
Lucy and David like to go to the gym they both have a membership; David pays for both him and
Lucy these costs him £80 a month.
David borrowed £40,000 to fund his and Lucy’s wedding, he is paying this off monthly for the next
10 years, this costs £333 every month.
It is Lucy’s birthday and their wedding anniversary in July, David would like to take her away for the
weekend, this will cost him £600.
The monthly food shop costs £240, David and Lucy pay half each.
David and Lucy get take away every Friday which costs him £35.
David puts away £200 into his pension each month, he plans to add more as he gets older.
David pays for health insurance, this costs £15 a month.
Around Christmas time in December, David usually spends around £1000 on gifts for his family. He
also spends around £200 every valentine's day in February
, Assignment 3 sophie brooks
smith
David goes to the dentist every 6 months he has an appointment in February then again in August,
this costs him £30 each time.
David ensures to have at least £500 spare in his account to cover any unexpected costs
David spends around £100 a month on entertainment. David spends £45 on his phone bill each
month and £35 on the Wi-Fi each month.
He tries to get a haircut every 2 weeks these cost £10
At the end of each month David gives 10% of his remaining profit to charity, 10% is invested in
stocks and 30% is put in a savings account.
The remaining money after all these expenses stays in Davids's account as emergency funds.50%
Benefits of a budget plan:
A budget plan allows individuals to be able to clearly see and understand their finances, budgets
allow people to save money on and manage their finances better.
There are many benefits of budgeting. One of these is an increase in savings, budgets allow people
to see all their income and outgoings, this encourages people to stick to their budget and save
money. David has a savings account he puts £250 in his savings every month and 30% of his excess
income, if David sticks to his budget plan, he will have more money to put into his savings account
at the end of each month.
Another benefit is better retirement, if during your younger life you budget your money well you
will have more money to save for when you retire. David has a pension, savings account and
investments in property and stocks, his budget plan will ensure he puts in money each month.
Budgeting also helps with emergencies; budgets allow you to consider your emergency funds.
Emergency funds allow you to be prepared for any unexpected situations where you may need
money such as a personal health crisis. If David didn’t have an emergency fund and was in a
situation where he urgently needed money his finances and budget plan would be impacted.
Another benefit of budgeting is peace of mind, lots of people like to see their financial plan for the
upcoming year, this allows them to plan things based of their finances each month. David will be
able to use his budget plan to think about different life events and how much money he can
allocate towards it.
On the other hand, there are limitations for budgeting such as budgets being inaccurate, having a
budget set for a year has lots of opportunity for life events to impact the budget. Many different
situations in life will impact Davids's budget, David and Lucy are trying to have a baby, this will
majorly affect the budget. When they finally have a child, finances such as child maintenance, child
support, higher grocery bill, higher electric and water bill and essential items for the child. David
may have to alter his budget to accommodate the child's needs, this may be done by limiting his
flexible expenses.
Budget plans do not put into account different life events that may happen throughout the year
such as a mortgage, getting married, having a child and any health crisis. David has moved into a
new house and got a mortgage and also trying to have a baby this will affect his budget plan.
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