BBi2OUnit 1: Personal

Finance

Table of ContentsUnit 1 – Personal Finance

1.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 5 minutes – identify 25 important things to

you right now– Step #2 – Listen for directions …

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• i. Employment Income • ii. Savings• iii. Investments• iv. Social Programs

i. Employment Income Working to earn a paycheque

-working for a company or for yourself (entrepreneurship)

-paid a “wage” (hourly/salary/commission/bonus)

(detailed when we get to our Human Resource unit)

Most popular source of income for most people

ii. 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)

iii. 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.– (more detail on this in 1.C – Investing)

iv. 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

• i- 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)

• ii- 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

• iii- 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

• iv- 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 referred to as “take-home” pay

uses of INcome

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

repayments- Childcare - 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

• Investing is giving away your money now for a chance to earn more in the future.

• Popular types of investments include: TFSAs, GICs, RRSPs, RESPs, or buying shares on the stock market

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!

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.

Budget vs. financial plan

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