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Personal Finance

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    • 1. Personal Finance
    • 2. What is Money?
      • What is Money clip
    • 3. What is money?
      • A form of legal tender that is an accepted form of payment in exchange for goods and services.
          • Coins
          • Paper Bills
      • Cheques and credit cards are not legal tender!
      • Stores are not required to accept them as payment.
    • 4. Cool Fact……
      • On average Canadian currency
      • stays in circulation for :
      • $5 bill for 1 to 2 years
      • $10 bill for 1 to 2 years
      • $20 bill for 2 to 4 years
      • $50 bill for 4 to 6 years
      • $100 bill for 7 to 9 years
    • 5. Functions of Money
      • Medium of Exchange
        • No need to barter
      • Standard of Value
        • Measured in dollars
      • Store of Value
        • Can be used at a later date
    • 6. How do we earn money?
      • Allowances
        • Money paid for performing certain tasks (usually at home)
      • Employment Income
        • Money paid for work performed on the job
      • Savings and Investment Income
        • Interest and Capital Gains
    • 7. Types of Income
      • Gross pay: the total amount of money earned
      • Net pay: the total amount received after deductions
      • Disposable Income: Amount of income left after taxes have been paid.
      • Discretionary income: The amount of an individual's income available for spending after the essentials (such as food, clothing, and shelter) have been paid.
    • 8. Introduction
      • Don't buy stuff
    • 9. Spending
      • Fixed expenses: Those bills you have to pay and that tend to be the same amount month-to-month or year-to-year.
      • Variable expenses: The amounts that vary from month to month and over which you have some control.
      • Spending may be planned or impulsive
    • 10. Budgeting
      • Phase 1: Assess your personal and financial situation (needs, values, life situation).
      • Phase 2: Set personal and financial goals.
      • Phase 3: Create a budget for fixed and variable expenses based on projected income.
      • Phase 4: Monitor current spending (saving, investing) patterns.
      • Phase 5: Compare your budget to what you have actually spent.
      • Phase 6: Review financial progress and revise budgeted amounts.
    • 11. Goal Setting
      • Be Realistic
        • A student working part-time is not likely to be able to afford a new car every couple of years.
      • Be Stated in Specifics
        • “ I plan/want to save $5,000 for a down payment to buy a house.”
      • Have a Time Frame
        • “ I plan/want to pay off my credit card within the next 18 months.”
      • State the Action to be Taken
        • “ I plan/want to start an automatic deposit savings account with monthly withdrawals from my checking account.”
    • 12. Taxes
      • Canada has a progressive income tax system – the more money you make, the higher percentage of your income you pay in taxes
      • People pay both federal and provincial income taxes
      • CPP Contributions: 4.95% to a maximum of $2,118.60
      • EI Contributions: 1.73% to a maximum of 731.79
    • 13. Tax calculations
    • 14. Housing – Renting vs. Buying
      • How often do you expect to move in the future?
        • If you plan on moving a lot, renting is a better idea
      • How stable is you employment situation?
        • If you employment is not stable, don’t buy a house
      • How much can you afford to pay for housing?
        • most mortgage companies will only allow your housing costs to equal 33% of your gross income.
        • Housing costs may include your rent or mortgage payment, property taxes, utilities, and 50% of condo fees if applicable.
        • In addition, if your total debt servicing costs (housing costs plus all of your other monthly debt payments) exceed 40% of your gross income you won't qualify for a mortgage.
    • 15. Why do people save?
      • People save money so that they can:
        • Buy large items, such as a home or a car.
        • Handle surprises and emergencies.
        • Retire in comfort. When you stop working, you may live mostly on your savings. Most people need to save many years to have enough money.
        • Help family and loved ones.
      • Remember: Saving is a habit
    • 16. How much should I save?
      • Your amount of savings depends on your family situation, amount of debt (particularly high interest debt) and future plans
      • Experts recommend having, at minimum, enough money saved to cover one month of essential expenses (fixed expenses, food, etc.)
      • If you have high interest debt, aim for the minimum savings amount and use the rest to pay off debt.
      • If you have little to no debt, other than mortgage debt, save three to six months worth of expenses.
    • 17. Where should I store my money?
      • You want your savings to be liquid enough to access in an emergency but not too easily accessed or you might spend it.
      • Your savings account should:
        • Pay decent interest,
        • Be devoid of fees,
        • Not be too easy to access, and
        • Not be too difficult to access.
      • Pay yourself first – create an automatic withdrawal from you chequing account at least once a month.
    • 18. Simple Interest
      • Simple interest is interest which is computed only on the principle balance .
      • I=Prt
      Interest Principal Rate Time
    • 19. Compound Interest
      • Compound interest is paid on the original principal and on the accumulated past interest.
      Principal Interest Rate Number of Years Amount accumulated A=P(1+i) n
    • 20. Simple Vs. Compound Interest
      • John invested $1000 at a 5% interest rate for 6 years.
      Year Simple Interest Compound Interest 1 1050 1050 2 1100 1102.50 3 1150 1157.63 4 1200 1215.51 5 1250 1276.28 6 1300 1340.10
    • 21. Simple Vs. Compound Interest
      • Jill invested $2500 for 20 years at 6% interest.
      • With simple interest, her investment is worth…
      • I = 2500*0.06*20
      • I = 3000
      • Total investment = 2500 + 3000
      • = 5500
      • With interest compounded annually, her investment is worth…
      • A = 2500(1+0.06) 20
      • A = 8017.84
    • 22. Savings Vs. Investing
      • Saving is preserving your money for a later time.
        • Short-term
        • Safety net for emergency expenses
      • Investing is t he act of using money to make more money.
        • Long-term
      • Each investment has a different level of risk and different type of return
      • Advantages of investing over saving:
          • Investments often produce a higher rate of return than savings plans
          • Investments can grow at or exceed the rate of inflation
      • Disadvantages of investing over saving:
          • There is some degree of risk (you can lose all of your money if the investment fails)
          • Your rate of return is not guaranteed
    • 23. Investment Alternatives
      • When choosing between different investment alternatives, you normally have the following goals:
        • Safety of the principal  how safe is your original investment?
        • A good return  either through interest or buying low and selling high
        • An increase in capital  this occurs if the price of your stock or bond becomes more than what you paid for it
        • Avoiding unnecessary taxes  Remember that all income is taxed!
        • In most cases, when you mix different classes of investments or different investments, you reduce the risks of investing.
    • 24. Investment Pyramid
    • 25. Credit
      • The privilege of using someone else’s money for a period of time
      • “ Buy now, pay later”
      • A creditor is any person or business who grants a loan or sells on credit
      • A debtor is any person or business that buys on credit or receives a loan
    • 26. Learning About Credit
      • Credit Video
    • 27. Credit Responsibilities
      • Borrow only what you can repay.
      • Read and understand the credit contract.
      • Pay debts promptly.
      • Notify creditor if you cannot meet payments.
      • Report lost or stolen credit cards promptly.
      • Never give your card number over the phone unless you initiated the call or are certain of the caller’s identity.
    • 28. How much can you borrow?
      • Never borrow more than 20% of your yearly net income
      • Monthly payments shouldn’t exceed 10% of your monthly net income
    • 29. Advantages and Disadvantages of Credit
      • Advantages:
      • Able to buy needed items now
      • Don’t have to carry cash
      • Creates a record of purchases
      • More convenient than writing checks
      • Consolidates bills into one payment
      • Builds a credit history
      • Disadvantages:
      • Interest (higher cost of items)
      • May require additional fees
      • Financial difficulties may arise if one loses track of how much has been spent each month
      • Increased impulse buying may occur
    • 30. How Credit Cards Work
      • Credit Card Debt
      • http://www.ic.gc.ca/epic/site/oca-bc.nsf/en/ca01812e.html
    • 31. Types of Credit
      • Charge Accounts
        • A contract between a consumer and a retailer for sales in the retailer’s stores
        • Can only use the cards at the issuing store
      • Credit Cards
        • Revolving credit accounts with a set credit limit
        • Monthly payments are required
        • Interest is paid on the balance
    • 32. Types of Credit
      • Installment Sales Credit
        • A credit plan that requires the purchaser to make a down payment and fixed regular payments with financing (interest) charges added to the purchase price
        • The seller retains ownership until the product is paid in full
        • Eg. Purchasing a car
    • 33. Types of Credit
      • Consumer Loans
        • Loans from financial institutions
        • Term Loans – the borrower agrees to make fixed monthly payments over a set period of time including interest Includes leasing
        • Demand Loans – the borrower can repay the loan at any time before the due date with interest
        • Mortgage Loans
        • A long-term credit plan for buying property
        • 20-25 years for re-payment
        • The property is the collateral for the loan
        • Student Loans – Granted by the government to help with the rising cost of college / university
    • 34. What to do when you have debt
      • You must face the enemy:   Tell others about your debt.
      • If you're in "over your head" with credit-card debt, cut up your cards now. If necessary, keep one card for emergencies.
      • Call your one remaining credit card company and ask them to lower your limit to a level that's adequate for emergencies — and nothing else.
      • Pay as much as you can each month — and always pay more than the minimum.
      • Pay off the card with the highest interest rate first, and the rest in descending order.
      • Always manage your cards to provide the lowest interest rates, switching cards every six months if necessary.
      • Make a point to understand all the inner workings of your card(s) − fees, grace periods, everything.
      • Honour all debts equally − whether you owe the money to Mastercard or a family member.
      • Once you pay off one card, you must apply that card's payment toward your next highest-rate card.
      • If you really cannot accomplish this yourself, enlist the aid of outside agencies.
      • Make sure to never let this happen again
      • Once all debts are paid off, apply the payment money toward your future.
    • 35. Building a Credit History
      • Establish a steady work record.
      • Pay all bills promptly.
      • Open a checking account and don’t bounce checks.
      • Open a savings account and make regular deposits.
      • Apply for a local store credit card and make regular monthly payments.
      • Apply for a small loan using your savings account as collateral.
      • Get a co-signer on a loan and pay back the loan as agreed.
    • 36. The Three Cs of Credit
      • Character - will you repay the debt?
        • refers to an individual’s personal reliability
        • is capable of holding a regular job for a reasonable length of time
        • has been reliable at that particular job
        • has a particular job skill
        • is willing to accept financial responsibility
        • has a bank account
        • has stability in current address
    • 37. 3 Cs of Credit
      • Capacity - can you repay the debt?
        • refers to the applicant’s ability to repay the loan
        • can offer assurance his or her present job and income level are likely to last into the future
        • is able to meet all other debts and obligations – household bills, food, car payment, mortgage, rent, etc.