1 Managing Personal Finance

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-On Overtime  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.

Employer Prison Service Monthly MM684P Pay Period 01Apr02 30Apr02 Employee Benson J Nat Ins No Ltr DD M Tax Code 461L Taxable Pay Period Tax Year Period Supn Pay Pens Pay Conditioned Hours Gross Payment National Pay Local Pay Allowance Hrs/DaysRateAmount Deductions TAX PAID NAT. INS. WPS Ees 1.5% PCS ADM&ALLIED NON PRIORITY AEO ADMIN CHARGE AEO SEAS TICKET 1 RE Amount Bal/YTD B Payments Deductions Net Pay Payment Details BACS Basic Rate FTE London Weighting 0.00 FTE Taxable Allces FTE Standard Rate (pro-rated) (41.00) Pay enquiries to: Home Office Pay Service Litherland House Litherland Road Bootle Merseyside L20 3QE Tax enquiries to: Public Department 1 Ty-Glas Road Lianishen Cardiff CF14 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 s