BBi2OUnit 3: Personal

Finance

Table of Contents

Unit 3 – Personal Finance3.A Income Management

Goals, Values Sources of Income Uses of Income Financial Planning Types of Expenses

Goals, Values

• Article: “I Wish Someone had Told Me …”

• Thought Exercise:– In 2 minutes – identify the 5 most

important things in your life right now- Then – identify 5 things you most hope for

in life that lies ahead- HOW WILL THESE THINGS COME ABOUT?

Goal Setting

Personal Financial wellness is tied to goal setting.

What are your top 3 goals ….

Within 1 year?(ie by 16)

Within 5 years?(ie by 20)

Within 10 years?(ie by 25)

SOURCES of INCOME

SOURCES of INCOME

• Identify and describe four sources of income

• Employment Income • Savings• Investments• Social Programs

Employment Income

Working to earn a paycheque-working for a company or for

yourself (entrepreneurship)-paid hourly, salary and/or

commission(from 2.B Human Resources)

•Most popular source of income for most people

Savings

• Using up money that you had previously put aside

• By saving, you will earn interest as well (very small amount for a simple bank account)

Investments

• Giving up your money for a chance to earn more – an investment is something of value that you own – you can earn money by selling the investment or you may earn interest from it.

• Examples: stocks, bonds, GICs, RRSPs.

Social Programs• Income from the government to

those who cannot work due to illness, layoff, age, etc.

• Includes social assistance, employment insurance (EI), disability, CPP, OSAP (Ontario Student Assistance Program)

Income Level Factors

• Important factors of the employee: education, experience, personal performance, uniqueness of abilities

• Important factors of the job marketplace: type of business, success of business, economic conditions

Income Level Factors

• Education: more education does not necessarily mean you will be earning more money – but it does open the door to more lucrative careers (ex. Lawyers and doctors have high income levels and high education levels)

• Experience: if you have more experience you are more valuable to a company, less experienced employees need more training which costs the company money

Income Level Factors

• Personal Performance: employees who do their jobs well add value to a business … they are the ones who will be considered for promotions and raises

• In a commission based job, the more you sell the more income you will make – the better you are at your job, the more you will earn!

Income Level Factors

• Uniqueness of Ability: the types of skills and abilities an employee has makes them more or less valuable to a company

• The more ‘in demand’ a particular skill set is, the higher the level of income. (extreme example – pro athletes, actors, musicians … these jobs have very high pay because they have a highly valued and rare set of skills)

USES of INCOME

WHAT WE MAKE VS. WHAT YOU TAKE HOME

• Your gross pay is the amount of money you make before any deductions

• Your net pay is the amount of money you have after deductions are taken off, often called your take home pay

What are the uses for your cash money

The money you have left is called your disposable income. You can then choose any of the following:

• SPENDING

• SAVINGS

• INVESTING

• DONATING

SPENDING

• We use money to satisfy our needs and or wants

• However, some of our money must be spent on certain things. We call these Personal Expenses.

3 types of expenses

1) REGULAR FIXED EXPENSES- Occur on a regular basis (monthly or yearly)

and for a constant (predictable) amount. These are often referred to as ‘bills’ and their payment cannot be delayed without penalty.

Examples:- Tuition - rent/mortgage - loan

payments- Daycare - insurance - property tax

3 types of expenses

2) REGULAR FLEXIBLE EXPENSES- Occur on a regular basis (monthly or

yearly) but for a variable amount. - Also called ‘bills’ and their payment

cannot be delayed without penalty.

Examples:- Hydro bill - groceries - gas (car)- Income tax - recreation - phone bill

3 types of expenses

3) VARIABLE EXPENSES- Expenses that occur on an irregular basis

and for a variable amount. These expenses can be controlled to a certain degree by choosing to postpone them.

Examples:- Car repairs - clothing - home

repairs- vacations - furniture - restaurants

Budget vs. financial plan

• A budget is a listing of income and expenses to determine whether income can cover expenses. It does not include a savings goal.

• A financial plan is a forecast of how much money is needed to achieve a given savings goal.

Mr. Ruston’s #1 FINANCIAL RULE

ALWAYS BE SAVING!!

USES OF MONEY #2

• SAVING

• Saving for the long term future (retirement), mid term (college/university), short term (a special school trip) needs to be planned and thought out

• A minimum of 10% of your income should be saved

USES OF MONEY #3

– INVESTING

• Saving your money is a great first step• But having your money sitting in a big

pile isn’t your best option• Investing your money will allow you

the chance to make even more money

USES OF MONEY #4

• DONATIONS

• Giving money away for what you believe is a good reason (ex. Charities, political parties etc.)

• The Gov’t even promotes this by giving Donors tax credits

• Rick Mercer’s Gift Ideas- Goats! Bednets!

So what is better a budget? or a financial plan?

• In reality to be successful financial you must have both a budget and a financial plan

• No matter what your level of income you should always be saving some of your income