International Baccalaureate (IB) Practice Exam

What should your monthly budget include?

1. Fixed expenses

2. Discretionary expenses

3. Variable expenses

4. All of the above

The correct answer is: All of the above

Including all types of expenses—fixed, discretionary, and variable—in a monthly budget is essential for a comprehensive financial plan. Fixed expenses are regular, recurring costs that do not change from month to month, such as rent or mortgage payments, insurance premiums, and subscription services. Budgeting for these ensures that you can meet your essential obligations without any surprises. Discretionary expenses are non-essential costs that can vary based on your spending choices, such as dining out, entertainment, and hobbies. By including these in your budget, you allow yourself to enjoy lifestyle choices while also maintaining control over your spending. Variable expenses can fluctuate due to consumption, such as groceries, utilities, and gas. Planning for these helps to account for changes that might affect your monthly cash flow and supports better financial management. Incorporating all these categories in your budget provides a clearer picture of your financial situation, helps track spending patterns, ensures you allocate enough funds for necessities as well as discretionary activities, and ultimately aids in achieving your financial goals. Adopting this holistic approach allows for effective management of resources and better preparation for unexpected expenses.