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BBi2OUnit 3: Personal
Finance
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Table of Contents
Unit 3 – Personal Finance3.A Income Management
Goals, Values Sources of Income Uses of Income Financial Planning Types of Expenses
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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?
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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)
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SOURCES of INCOME
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SOURCES of INCOME
• Identify and describe four sources of income
• Employment Income • Savings• Investments• Social Programs
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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
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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)
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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.
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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)
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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
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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
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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!
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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)
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USES of INCOME
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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
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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
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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.
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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
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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
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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
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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.
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Mr. Ruston’s #1 FINANCIAL RULE
ALWAYS BE SAVING!!
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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
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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
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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!
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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