Chapter 21 Managing Resources Managing Your Money What

Chapter 21: Managing Resources – Managing Your Money

What I Will Learn • • To identify sources of income To discuss family expenditure To state the advantages of budgeting To create a budget To explore buying on credit To explore the advantages of saving To discuss why a home filing system is important

Managing Personal Money What do you already know about managing money and budgeting? Answer ‘Yes’, ‘Not Sure’ or ‘No’ to the following statements: • • • I understand what a ‘budget’ is. I think carefully about how I spend my money. I am aware of prices of a wide range of products. I understand how a bank account works. I am aware of ‘interest’ and I am able to calculate it. I understand the advantages of saving money. See Activity 21. 8 in the TRB

Money Management • Money management involves managing money wisely so that you can meet all your expenses. • Money is an important resource in every family so money management is an important skill to have. • Planning a budget is a good example of money management.

How to Manage Your Money • Identify your goal: Your goal is to divide up your income to ensure there is enough money to pay all your expenses. • Identify your resources: Usually money, time and skills. • Plan: On paper or on screen, work out your income and expenses, then allocate a percentage of income to each expense so that all your expenditure is covered. • Take action: Put the plan into action. • Evaluate: Did the budget work? Were you able to cover all your expenses? If not, you will have to change your budget.

Benefits of Managing Your Money • You will know where your money is going and whether you are spending more than you can afford. • It will give you peace of mind a sense of control. • It can help you to avoid debt problems, prepare for emergencies, save money and achieve your future goals.

Budgeting • A plan for spending and saving money is called a budget. • Creating a budget involves dividing up income and allocating certain amounts towards expenses and saving, in order to avoid going into debt.

Income • Most households have a regular weekly, fortnightly or monthly income, in the form of a wage or salary, a pension, social welfare payments or interest on savings. • However, not all the money we earn is ours to spend. Some goes to the state to pay for running the country. This is our tax liability and is a compulsory deduction from our wages or salary.

Income (continued) • Gross income is the total amount earned before deductions are made. • Net income is a person’s take-home pay – the amount left after deductions have been taken out. • Statutory deductions are compulsory (must pay). • Voluntary deductions are optional. • Tax credits refer to the part of an income that is not taxed.

Income: Deductions Statutory deductions • Income tax — Pay as you Earn (PAYE) is deducted by the employer and goes to the state to pay for services. • Pay Related Social Insurance (PRSI) goes towards paying people if they are ill or unemployed. • Universal Social Charge (USC) is a government tax on income. • Pension contributions can be compulsory in some jobs.

Deductions Voluntary deductions • Private health insurance, e. g. VHI, Irish Life Health, Laya • Trade union fees, e. g. SIPTU, TUI • Pension payments Net income is a person’s take-home pay – the amount left after deductions have been taken out.

Expenses • Expenses differ from person to person depending on age or what stage their family is at. • For example, a young person working and living in an apartment will have different expenses from a family with two school-going children.

Managing Personal Money Activities 1. On your mini whiteboards or in your notebooks, write a list of the things people of your age spend money on (try to think of at least six). Discuss your answers in pairs or groups of three. Then place your ideas under the following headings on a desk: ‘Must have’, ‘Want but not essential’, ‘Could do without’. 2. Look at the case studies you have been given and answer the questions below each one. See Activity 21. 8, Tasks 2 and 3 in the TRB

Family Expenses • Rent or mortgage • Food • Household expenses, e. g. electricity, heating, water, cleaning agents • Education and childcare • Travel, e. g. car repayments, tax, insurance, NCT, petrol, servicing, bus fares • Clothing • Entertainment, e. g. newspapers, internet connection, TV licence, socialising, holidays • Medical expenses, e. g. dentist, doctor, health insurance, medicines • Emergencies, e. g. unexpected costs • Savings

Budgeting • Family budgeting is a responsible job, so it should be shared between the adults in the family. • It should be flexible to allow for changes in family circumstances, e. g. loss of a job or the arrival of a new baby. • Families should be careful not to take on too many commitments or buy a lot on credit, because this can cause financial stress and hardship.

Budgeting (continued) There are three steps to budgeting: 1. Calculate income 2. List expenses 3. Allocate a percentage of income to each expense • A budget should be designed specifically to suit the individual or family in question. • It must be reviewed regularly and adjusted if necessary.

Budgeting Activity Think–Pair–Share 1. What steps should you follow when planning a budget? 2. a) Following the sample budget on page 297 of your textbook, plan a budget for the following people: i. An older retired couple with an income of € 450 per week. They have no mortgage or rent to pay and use their bus passes to get around the city. ii. A family with two children with an income of € 900 per week. Both parents work and they pay € 125 per week in afterschool childcare charges.

Budgeting Activity (continued) iii. A single person with an income of € 325 per week sharing a house with three others. The rent is € 60 each per week. They share all utility bills and buy their own food. b) Present each budget breakdown on a pie chart. c) Explain your choices for each budget.

Advantages of Budgeting • Makes the person feel more secure – fewer financial worries • A budget allows planning for major bills • There is less chance of overspending and impulse buying • Areas of overspending are identified quickly • Sets a good example for children

Credit and Saving Activity Think–Pair–Share Watch the You. Tube video ‘Quick. Quid Restore Some Order’. • How does this loan help the family? • What are the advantages and disadvantages of this type of loan? • Is there a better way to cope with an unexpected emergency like this?

What is Credit? • Credit is a way of borrowing money. • It means ‘buy now, pay later’. • Buyers borrow money to buy goods and pay it back later, usually with interest. • Often it is used to buy large items like houses and cars but it can be used to buy consumer goods like furniture or electrical goods if the buyers do not have the money to pay for them immediately.

What is Credit? (continued) • Credit costs more than paying cash. The credit company or bank charges the borrower interest to cover the cost of borrowing, which can be expensive. • You must be over 18 to get credit. • If a family take on too many credit commitments it can be dangerous; if circumstances change they may not be able to make repayments and the item may be repossessed, i. e. taken back.

Forms of Credit • Hire purchase: This is an agreement whereby a person hires goods for a period of time by paying instalments. At the end of the agreement, they will own the goods once all the instalments are made. • Bank overdraft: This is when a bank arranges that allows the customer to spend more than is in their account, up to an agreed amount, without paying interest. • Loan: The lending of money from a bank, building society or credit union to an individual or organisation. This loan is paid back in instalments with interest over a set period of time.

Forms of Credit (continued) • Credits cards: A credit card is a payment card issued to an individual so they can pay for goods and services based on the cardholder’s promise to pay the credit card company or bank back the amount (plus other agreed charges). • Credit cards should be paid off fully when billed to avoid interest.

Credit: Advantages and Disadvantages • • Advantages Buyer has the use of the goods immediately Necessary for large items such as houses or cars (why? ) Good for the economy as it encourages buying, therefore increasing employment Buyer avoids having to carry large amounts of money Disadvantages • High interest makes items more expensive • Danger of having too much credit repayments, leading to debt • Encourages impulse buying and overspending • Goods can be repossessed if repayments are not made

Saving is Better • Savings means putting a certain amount of money aside each week or month. • If you want to buy a computer or go on holiday, it is better to put aside a little from your budget each week until you have enough to pay for it with cash.

Where Can You Save? Where can you save? • Bank • Credit union • Building society • Post office To choose the best option, consider: • Interest rate • Ease of withdrawal • Safety • Extras, such as free banking

Savings: Advantages and Disadvantages Advantages • Money is generally safe and secure • Earns interest • Avoids impulse buying and overspending • Good example for children • Cash buyers pay less Disadvantages • You will have to wait until you have enough money

Saving: Research Activity • In groups, research one financial institution each. • Complete a table of your findings with the following headings: Place Interest rate Safety Ease of withdrawal See Activity 21. 10 in the TRB

Saving: Research Activity Now, looking at all the information for each institution: • Recommend a place to save and explain your choice to the class. • Find out how to open an account in each of these financial institutions:

Have a Home Filing System • To be a good money manager, it is essential to have a home filing system so important documents like bills, receipts, guarantees, insurance policies and payslips are stored safely and can be easily found when needed. • Bank statements can be monitored and spending adjustments made if necessary, e. g. past and present electricity or fuel usage can be monitored. • A filing cabinet, accordion file or a sectioned box could be used.

Quick Revision 1. Explain the term ‘budget’. 2. Identify three sources of income. 3. Discuss what expenses a family might have. 4. State the advantages of budgeting. 5. Explain how to plan a budget. 6. Which is best: to buy on credit or save to buy? Why?