Advanced Diploma of Financial Planning (ADFP) Practice Test

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What is the primary purpose of budgeting?

To increase savings rate

To manage income and expenses

The primary purpose of budgeting is to manage income and expenses. Budgeting serves as a financial plan that helps individuals or organizations allocate resources effectively, ensuring that expenses do not exceed income. This process involves understanding income sources and outlining all necessary expenditures, which can include fixed costs like rent and variable costs like groceries.

By creating a budget, one can track spending habits, identify areas for improvement, and prioritize financial goals. This holistic approach to managing finances supports the achievement of both short-term and long-term objectives, promoting financial stability and awareness. While increasing savings, minimizing expenses, and maximizing investments can be outcomes of effective budgeting, the fundamental goal remains to give a clear picture of financial health through a comprehensive view of income and expenses.

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To minimize expenses only

To maximize investments

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