Expenditure, Saving and borrowing

What is expenditure?

Expenditure means money spent on goods and services.

Types of expenditure?

• essential needs: things you cannot live without

• non-essential expenditure: things that make life better but are not crucial

• capital expenditure: money spent on long-term assets.

  • revenue expenditure: daily operating cost.

Savings

Savings are the part of income you do not spend and keep for future use.

Why do people save?

• emergencies

• Future goals

• wealth building

  • financail security

Borowing

Borrowing means taking money from someone else and promising to repay it later, usually with interest

Types of borrowing

• Personal Borrowing

• Bank Loans

• Mortgage

• Overdaft

• Business borrowing

  • government borrowing

Source of finance

Sources of finance are the different ways a business obtains money.

Internal source: Money comes from inside the business

External sources: Money come form outside the business.

Internal Sources

• retained profit: Profits kept in the business instead of being distributed to owners.

• Owener’s capital: Owner invests personal savings into the business.

• sale of assets: Selling unused assets to raise money.

  • Working capital Adjustment: Managing cash more efficiently.

Advantages of internal

• no interest payments

• mo loss of control

• quickly available

  • lower risk

Disadvantage of internal

• limited funds

• slower growth

• opportunity cost

  • not always available

External sources

• bank loans: borrow money from a bank

• overdraft: bank let you spend more than your balance

• trade credit: by now, pay later

• leasing: rent equipment instead of buying it

  • equity finance:sell part of your company to investors. They become shareholders.

Advantages of External

• Large amount of money

• faster expansion

• shared risk

  • expert advice from investors

Disadvantages of external

• interest payments

• repayment obligations

• loss of control

• risk of depending on lenders