1

Managing Personal Managing Personal FinanceFinance

2

Avoid debt – owing money to other people, banks, credit card

company or lenders. Debts have to be paid back with Interest.

2 Types of Debts – ‘good’ (debt that can be easily paid back) and

‘bad’ (debt that you cannot afford to pay back).

How to avoid getting into Debt

Doing your calculations about repayments and interest before taking a

loan.

Being careful about using Credit Cards

Saving up before making major expenses

Avoid becoming Overdrawn

Importance of managing personal finances effectively

3

Control costs Most people receive a ‘fixed’ income i.e. part-time, full-time, parents, etc. Main way to manage money is to control your costs.

How to control costs

Avoid impulse purchases (buying things you can avoid)

When you go out, have only money you will need.

Plan your spending by having a budget

Maintain a good credit rating Credit rating is used to determine if you can borrow money or not.

Checking of your credit rating is carried out by lenders from credit

reference agencies i.e. Equifax, Callcredit, Experian, etc.

4

Remain solvent You are solvent when you have enough money to pay for your

spending.

Avoid becoming insolvent by carefully monitoring your income and expenses.

Build up savings Savings is money kept in a bank account

Sources of Savings

Regular savings – surplus money after spending on daily living expenses.

Additional income – such as money given as birthday and Christmas

presents.

Plan for future events

5

Consequences of not managing finances effectively

poor credit rating

become insolvent

unable to obtain mortgage and loans

unable to make day-to-day payments

potential loss of home

possible family tensions

6

Importance of keeping & checking financial records

bank statements – statement of your transactions.

credit card statements – statement of your transactions.

chequebook counterfoils - (cheque stubs – on left-hand side)

receipts – proof of your purchase just in case you need to return a purchase.

bills - you and your family will receive utility bills i.e. gas, water, electricity.

pay slips

Basic Pay

Basic pay is the money you earn (gross income) before any additions are made.

Examples of additions include:-

overtime

bonuses

Payments Added-OnOvertime Some employers offer the opportunity for

employees to work overtime - this is working extra hours on top of the time you are contracted to work.

Overtime may be offered at busy times, for example, when a business has a number of large orders to send out.

Overtime is usually paid at a higher rate than normal contracted hours, although this is not always the case. However, payment for overtime is always an addition to your basic pay.

Bonuses Some organisations will pay their

employees bonuses.

Sometimes these are offered for getting a big job finished on time or early.

Some organisations pay an annual bonus to all employees based on the amount of profit that has been made that year.

Bonuses are an addition to your basic pay.

Deductions

Deductions are money taken from your gross pay before you get it (though self-employed people get the money first and then have to pay these deductions out of the money they receive).

Deductions include income tax and National Insurance.

They may also include pensions or superannuation, union subscriptions and charitable donations.

EmployerPrison Service Monthly MM684P

Pay Period01Apr02 30Apr02

EmployeeBenson J

Nat Ins No Ltr

DD563698 M

Tax Code 461L

Taxable PayPeriod Tax Year 1322.95 1322.95

PeriodSupn Pay Pens Pay 1343.09 1343.09

ConditionedHours

41.00 Gross

PaymentNational PayLocal Pay Allowance

Hrs/Days Rate Amount1026.42

316.67

DeductionsTAX PAIDNAT. INS.WPS Ees 1.5%PCS ADM&ALLIEDNON PRIORITY AEOADMIN CHARGE AEOSEAS TICKET 1 RE

Amount187.1689.2420.14

7.5635.00

1.0054.67

Bal/YTD187.1689.2420.147.56183.401.00327.98B

Payments 1343.09

Deductions 394.77 Net Pay

948.32

Payment Details

BACS 06-31-56 95896247 948.32

Basic Rate 12317.00 FTE London Weighting 0.00 FTETaxable Allces 3800.00 FTEStandard Rate (pro-rated) 16117.00 (41.00)

Pay enquiries to:Home Office Pay ServiceLitherland HouseLitherland RoadBootleMerseysideL20 3QE

Tax enquiries to:Public Department 1Ty-Glas RoadLianishenCardiffCF14 5XZ

Income tax Everyone is allowed to earn a certain amount

of money before they have to pay income tax.

This amount is called a personal tax allowance.

The personal allowance for a person under 65 is £4895 a year. The allowances change every year and are announced in the budget.

The amount of income tax you pay will depend on how much you earn.

The more money you earn, the higher the percentage will be, of your earnings, that is deducted.

National Insurance contributions

Employees and the self-employed have to pay National Insurance contributions.

If you are an employee your employer will deduct the contributions from your wages or salary and will also make a contribution themselves.

If you are self-employed, you will pay small monthly or quarterly contributions and then may also need to pay a lump sum every year if your profits are over a certain amount (which changes every year).

As with income tax, the more money you earn the more money you will need to pay in National Insurance.

If you have low earnings (or profits if self-employed) then you may not have to pay any National Insurance.

Pensions / Superannuation

Superarmuation is another word for pension.

Pensions are long-term investments that are designed to provide you with an income when you retire (stop working after a certain age).

As with any form of saving, the earlier you start the more you will receive at the end.

Pensions are paid to us when we get older or when we are unable to work through ill health.

If you are an employee, your Organisation is likely to have a pension scheme (which may be compulsory).

The employer will usually pay a contribution into your pension fund, but you will also pay money into it yourself and this will be deducted from your wages or salary before you receive it.

Self-employed people can set up private pension funds themselves, but they do not have to.

Employees can also set up an extra private pension fund separate to their work-based fund.

17

Planning for future events

buying a house

buying a new car

going on holiday

getting married and having children

University / college fees

retirement

18

Contingency planning

ensure you have savings

ensure you have insurance for emergencies i.e.

central heating boiler,

car breaking down,

flooding, etc

lose your job through redundancy

19

Online banking

setting up standing orders

setting up direct debits

ease of transferring funds

ease of transferring paying bills

24/7 access to account balances

security issues

20

Keeping money secure

taking care when using ATMs and PINs

setting secure passwords for online accounts

being aware of phishing and scam emails