Creating a Budget for Large Expenditures: A Key to Financial Planning Success

Why is creating a budget crucial for handling large expenditures with periodic payments?

A. Careful consideration of short-term goals
B. Recording income and spending over the past year
C. Creating a budget to consider future income and spending
D. Learning more about different kinds of accounts to manage money
E. Learning about opportunity cost

Answer:

Option (C) is correct. The creation of the budget is the best option for the large expenditure with periodic payment.

Further Explanation:

Budgeting:

Budget is the estimation of the future financial inflows and outflows of an entity. It is an estimation of the revenue and expenditure of an entity for a certain period which is generally one year. Resources are the source of income or revenue. Budget can be made for a person, group, business, and government. It provides the estimation of future activities that are required to be carried out.  

The required condition for the large expenditure:

When a person has to make several payments with a large sum of money, he should create a budget for these activities. A budget would include the estimation of future inflows and outflows. The budget would help the person so mark his future expenditures, and then he can generate revenue according to his fund requirement.

Justification for the correct and incorrect options:

A. Careful consideration of short-term goals: This is an incorrect option. Large expenditures require a long-term perspective, not just short-term goals.

B. Recording income and spending over the past year: This is an incorrect option. Planning for the future requires looking ahead, not just reflecting on the past year's financial activities.

C. Creating a budget to consider future income and spending: This is the correct option. A budget helps in estimating future inflows and outflows, enabling better financial planning and decision-making.

D. Learning more about different kinds of accounts to manage money: This is an incorrect option. While understanding different accounts can be helpful, creating a budget is more essential for managing large expenditures.

E. Learning about opportunity cost: This is an incorrect option. Opportunity cost considerations are important, but creating a budget is crucial for proper financial planning and management.