Week 11, Action Access Prior Knowledge Item
Question1
In preparation of my budget, I set resources to reinvest in my human capital and to that of others. Different people and organizations also invest in my production factors in a move to actualize their goals. Investing in your human capital ensures improvement in the knowledge, skills, and experience that an individual possesses (Wolf & Zohlnhofer, 2009). More so, organizations can improve human capital through training, motivation, and the provision of advanced technology in production.
Question 2
Although different individuals reinvest in other people, it is not advisable to depend on others to invest you. This point is due to the implications that come along depending on other parties to improve your skills. Notably, depending on others may result in declination on production factors like skills and experiences of the involved party (Wolf &Zohlnhofer, 2009). Institutions may find it hard to spend on reinvesting on another person as the move is expensive. Rebuilding oneself requires commitments like reading books, finding mentors, and engaging in training which may be hard for organizations to engage in.
Question 3
A sustainable budget is one that covers the needs and expenses of an individual, for instance, housing and food. When one encounters a sustainable budget, it shows that the net income of the person is desirable (Blondal, 2003). In the case of significant debt, a person should change the dynamics of the sustainable budget to accommodate it. This act is possible by allocating resources for basic needs and eliminating the wants, luxuries, and savings.
Question 4
Currently, my budget is not sustainable in the short run due to low monthly income and an increase in expenses. However, the budget needs to be sustainable over the period to avoid insolvency. Insolvent is a situation of bankruptcy where one is unable to pay debts within the stipulated period.
Question 5
In budget preparation, there are rules that guide me to come up with the best financial plan. The rules include the 50/30/20 rule which entails that 50% of income should go to income, 30% to wants, and 20% to savings. The other rule is 70/30 rule where one is expected to save 30% and spend 70% f the income on expenses (Blondal, 2003). The rules are effective as one is able to allocate the earnings effectively thus eliminating wastage and misappropriation of resources.
References
Blondal, J. (2003). Accrual accounting and budgeting: key issues and recent developments. https://repositorio.cepal.org/bitstream/handle/11362/6559/S038508.pdf?sequence=1
Wolf, F & Zohlnhofer, R. (2009). Investing in human capital? The determinants of private education expenditure in 26 OECD countries. Journal of European social policy. https://journals.sagepub.com/doi/abs/10.1177/0958928709104738