PERSONAL FINANCE Earning an income Spending and saving income Borrowing money Managing finances Investing money WHAT YOU WILL LEARN In this topic you will learn: The ways in which income is earned from work, investments, business activities and government transfers The ways income is spent and why saving is important. You will also learn how and why spending patterns vary Why people borrow, how loans are obtained and the main sources of loans. You will also learn about some of the dangers involved in excessive borrowing The importance of managing income and expenditure, and levels of borrowing and credit to avoid problems Budgeting skills and when and how to seek financial advice from a range of sources How to maximise income by investing wisely in a range of investment options WHAT IS IMPORTANT IN THIS TOPIC Managing your personal finances is vital to your material and social health Poor management of finances is a major cause of unhappiness Saving and budgeting are both vital and are the key to financial stability At times you will need to borrow money-for example, for a car or a house.Borrowing is not a potential problem if it is done wisely Investing your savings is important to prepare for your future and to maximise your income
Unit One Earning an income employees people who work for others and are paid a salary For many students, pocket money is your only form of income. Whether you or wage spend it all as soon as you get it, or save some of it so you can buy something special later on. it never seems enough. If you are able to get a part-time job you employers people and organisations will be paid in return for the work that you do for your employer. Your income who have others will obviously increase but you will still have to choose whether you spend it all work for them or save some. However, you may also decide to take up the option of investing some of your savings to help increase your income INCOME Income is the amount of money people receive. Some people earn their income by working for someone else. Their skills and efforts as employees a⊙ are purchased by employers. )Nearly all of the others get their income from being self-employed, from investments and from government payments wage a payment for work that is based on an hourly ratethe more hours worked the greater the amount earned To start thinking about how you can earn an income, look at the following table by the worker that illustrates a number of different income-related activities These activities and their return often depend on having special skills or abilities. The return is the salary a yearly amount of money paid to the person who carries out the activity. For example, payment for work that is broken down someone doing regular paid work for a business would receive a wage. The into smaller units of amount would generally depend on the worker's age, experience and qualifications eekly, fortnightly or monthly pay Type of activity Return dividend the return Doing regular paid work Wages and salary or profit you receive Running a business venture Profit from your shares Professional services Fee interest the return Selling someone else,s belongings Commission you receive from Owning shares Dividend lending your money Letting someone else use your property Rent Lending money Interest royalty the return Relying on social-welfare programs Pensions and benefits you receive from Winning competitions Winnings writing published o Inheriting money Inheritance, legacy recorded material Writing a published book, song or Royalty such as a book computer program specialisation Select five people you know and outline how they earn their income doing one particular b or task types of income interdependence reliance on other We now rely on other people with specialised training or talents to provide most people in the of the things we need. The specialisation and interdependence that are part of community for what our complex commercial world mean that we work for an income and then they need TOPIC1 PERSONAL FINANCE3
use this money to buy those things we need Our income can come from many different sources; however, most can be grouped under the four headings shown 1. FIGURE 1 Where does income come from? Income ocial welfa employment programs contract an agreement between an employer and an employee as Investments Business ventures to what work will be performed and what the pay and conditions will be for that particular job ncome from work enterpnse agreeme nt In China, most people work for an income by exchanging their labour for arrangement about wages and working wages or salaries. Employers will often agree to pay higher wages or salaries conditions that have to employees that have a higher education, increased experience and skills been negotiated This sort of arrangement between an employer and an employee is called an between workers employment contract. and management in individual workplaces types of work leave entitlements the right to be away There are four basic work options available: full-time, part-time, permanent and from work with casual. Both full-time and part-time work can be either permanent or casual payment Another type of work arrangement is where a person agrees to perform Full-time work Part-time work This is based on a standard number of hours Employees work for less than 40 hours per week. usually 40 or more hours per week, as set out Hours may be fixed or variable but are less than the by Labour Laws and enterprise agreements. standard hours common for that industry. Maximum Employees can earn a wage or a salary. They also or minimum hours per week may be set. Employees have holiday and leave entitlements. are entitled to some holiday and leave on a ratio of hours worked compared to the standard for full-time employees Permanent employees Casual employees Employment is ongoing and not limited in length They are employed temporarily for a specific number by the terms of a contract Employees will continue of hours during a day or over a week. Casual working until they resign, retire, are dismissed or made employees, unlike permanent employees, do not redundant because staff numbers are cut back. They usually have sick or holiday leave entitlements To are entitled to sick and holiday leave. Depending on compensate, they are usually paid a higher, hourly the industry, other types of leave may also apply rate. They do not have job security 4 UNIT ONE EARNING AN INCOME
a particular task for a set fee. This person is not an employee but has been contracted to do the work. The contract is usually for a short period of time. Recent changes Although most employees are either full-time or part-time, and permanent or holiday casual, there are many new variations appearing in the workforce entitlements the right to be on holiday O Some workers employed on a casual basis work full-time and so become with payment entitled to some full-time employee benefits, especially if they have been the retail industry with a business for more than 12 months the industry selling Some workers have elected to be employed for less than the standard hours goods to the general but still maintain a permanent relationship with the business. This permanent public part-time arrangement can benefit both employer and employee. The way we work has also changed. Originally workers began as full-time employees and frequently worked with the one business until they retired. To save money on their wages bill and limit other payments to workers, such as sick leave and holiday entitlements, many businesses now have a majority of casual employees. This growth is clearly seen in the retail industry and in particular the fast food industry. Both industries employ a lot of school-aged workers What do you know? 1 Identify the two main types of income workers receive from their employers 2 Define full-time work in less than 25 words 3 Identify three ways employees can improve their wages and salaries TOPIC1 PERSONAL FINANCE5
HOTactiities 1 Identify two activities that would earn you a commission, a fee or a royalt 2 Suggest two reasons why employers are increasing the number of part-time and casual workers in their business savings account a bank account where money is placed to save: the interest ncome from investments rate is usually quite small Often people earn enough money to pay all their taxes and living costs, and put financial year the money aside as savings. Putting savings into special accounts or ventures expected period used by to provide a financial return is called investing. The most common form of investing companies and is saving money in a bank. The simplest bank accounts, usually called savings government for accounts, reward the saver with an interest payment often at the end of each accounting and tax financial year. If a saver can do without their money for a period of time(e.g.over purpose 6 months), banks can offer a higher interest rate. These accounts are usually referred term deposit a to as term deposits. Interest payments can provide a regular form of income for the bank account where money is place to investor, or they can be added to the deposit so the invested money grows save for an agreed period of time: the interest rate is bigger than that of a saving account 6 UNIT ONE EARNING AN INCOME