ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Mental budgeting is a psychological process that is considered as the part of mental accounting that is related to financial management (Antonides & Ranyard, 2018). 1. In this process money is labeled for specific spending or saving purposes. Mental budgeting has been studied mainly in the laboratory (cf.

Detailed explanation-2: -The basic rule of thumb is to divide your monthly after-tax income into three spending categories: 50% for needs, 30% for wants and 20% for savings or paying off debt. By regularly keeping your expenses balanced across these main spending areas, you can put your money to work more efficiently.

Detailed explanation-3: -There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based. These four budgeting methods each have their own advantages and disadvantages, which will be discussed in more detail in this guide. Source: CFI’s Budgeting & Forecasting Course.

Detailed explanation-4: -The most effective budgets are those that: Communicate and support strategic goals. Identify risks in relation to the company’s long-term strategy. Provide information to help management make better decisions. Facilitate goal setting and measurement.