1. Chapter 12: Income Management What Is Money?
Money allows businesses to operate and consumers to buy products and services that meet their needs and wants.
Forms of Legal Tender
Coins and paper money are classified as legal tender by the government of Canada and must be accepted as payment for goods and services.
Coins are minted and bank notes are issued as paper money.
New Canadian Bank Notes
Since 2001, the Bank of Canada has been updating bank notes with sophisticated security features. Canada’s culture, the queen and prime ministers are depicted on bank notes.
FORMS OF LEGAL TENDER
Cheques and credit cards are not legal tender.
The Royal Canadian Mint manufactures coins such as the $1 and $2 that replaced the less durable paper notes.
Bank notes are issued by the federal government, Canada’s central bank.
English and French versions of notes were first issued in 1935.
The Bank of Canada uses two privately owned, high-security, printing companies.

2. Chapter 12: Income Management What Is Money?
Special Features of Bank Notes
Ever changing state-of-the-art security features on Canadian bank notes discourage high-tech counterfeiting (the production of fake money). However, features such as unique textures on every note help visually impaired people to make distinctions between denominations. Credit cards, traveler's cheques, passports, and other identification are subject to counterfeiting as well.
Money’s Changing Purchasing Power
Coins and bank notes have no true value. The paper is worthless as are the metals to make coins. Both are only important to consumers because they accept that currency or money has a standard value that allows them to purchase items or invest. Since prices tend to rise, consumers’ money buys them less every year.
FORMS OF LEGAL TENDER
Special Features of Bank Notes
See Figure 12.1, “Security Features on This $5 Bill”, on page 366.
Counterfeiting is the production of fake money.
MONEY’S CHANGING PURCHASING POWER
Inflation causes our money to be worth less as prices for goods and services goes up.
Calculated monthly, the Consumer Price Index (CPI) is a figure that represents purchasing power.
CPI calculates the cost of 600 products, including food, shelter, transportation, clothing, and recreation.

3. Chapter 12: Income Management What Is Income?
Income is money that an individual or business receives from sources, such as wages or sales, interest, and dividends. Closely related to income is the need for a financial plan that looks at how to make money grow.
Types of Personal Income
Forms of Employment Income
Employees Benefits
Other sources of income can include dividends, allowance, interest, gifts,
part-time jobs, and inheritance.
salary
wages
commission
piecework
profit sharing
Some people earn just enough to pay for needs or necessities such as food, rent, and clothing.
Individuals with higher incomes usually spend more on wants and non-essential items such as vacations and electronics.
medical insurance
paid sick days
paid holidays
drug and dental plans

4. Chapter 12: Income Management What Is Income?
Gross Income
Gross income is the total amount of money received by a person before any deductions.
Disposable Income
Disposable income, or take-home-pay, is the amount of income that is left after deductions of income tax, Canada Pension Plan (CPP), and Employment Insurance (EI).
Discretionary Income
Discretionary income is the amount of money that is left over after all necessities have been paid. Necessities consist of rent or mortgage, food, transportation, insurance, electricity, and so on.
TYPES OF PERSONAL INCOME
Gross Income
See Figure 12.2, “Nadira’s Annual Gross Income”, on page 368.
Disposable Income
The amount an individual pays in income tax varies depending on things such as union dues, charitable contributions, pension deductions, dependents, etc.
Taxes are paid to Canada Revenue Agency (federal) and to the province the person lives in.
See Figure 12.3, “Nadira’s Disposable Income” on page 369.
Discretionary Income
See Figure 12.4, “Nadira’s Monthly Necessity Expenses and Discretionary Income”, on page 370.

5. Chapter 12: Income Management Managing Money for Personal Use
Money management is the daily financial activities aimed at satisfying a person’s needs and wants within a limited income. Individuals need to carefully plan, save, and spend their money to get the most out of it.
Why We Buy
Consumers choose among marketplace alternatives. Five key factors that influence consumer buying decisions include
income and price
status
current trends
custom and habits
promotion
WHY WE BUY
Money management education is very important and people often learn it by observing how adults close to them earn and spend.
It is important to know how much you have to spend, where you spend it, and financial goals.
Income and Price
Family obligations, such as children, and disposable income greatly influence what we buy.
Low-income families spend a greater percentage of income on necessities.
High-income families have more to spend on wants.
Price is the most important consideration for consumers.
Some consumers believe that a higher price always means better quality or design.
Status
Some people feel that having a certain product makes them better or more noticed than others.
Conspicuous consumption is the purchase of products or services with the primary purpose of impressing others.
Current Trends
Clothing trends, for some people, are the foundation of their image.
Clothing is often seen as an indication of status, popularity, or group identity.
Peer pressure, a strong influence on people in their social group, can cause individuals to buy products they do not want or need.
Customs and Habits
Customs related to family, religion, and community influence consumer choices.
Habits are behaviours formed over time and done repetitively such as buying a magazine monthly.
Promotion
Advertising and promotion influence consumer spending creating desire for products and services.
Lifestyle advertising incorporated attractive, successful, and appealing people thereby implying that using the product or service will improve ones life.

6. Chapter 12: Income Management Spending Money
Today’s society is known as a consumer-driven one. This means that the economy offers consumers a never ending supply of exciting and innovative goods and services.
Comparison Shopping
Comparing price, quality, features, and services helps consumers make smart purchases.
Comparing Price and Quality
Comparison shopping means selecting the least expensive product or service that best meets the consumer’s needs and wants.
Features
The features of goods and services are often the most important requirements for consumers when they purchase these items.
COMPARISON SHOPPING
See Figure 12.5, “The Wise Shopper” On page 375.
Comparing Price and Quality
Selecting a product that has higher quality, usually at a higher price, may result in a savings since it may be more durable and last longer.
Features
Weather it is the gears on a bike, the safety aspects of a new car, or cell phone features all of these characteristics influence purchases.

7. Chapter 12: Income Management Spending Money
Services
Retail stores often offer services that complement their merchandise. Some of these are free delivery for large purchases or warranties on these items. Warranties are usually written promises that products comply to high standards.
Planning and Comparing
Prices and features of products or services can be compared using catalogues, newspapers, calling stores, or Internet searches.
COMPARISON SHOPPING
Services
Service can include aspects such as guarantees or warranties, delivery, store locations, etc.
See Table 12.1, “Where to Buy” on page 377.
Planning and Comparing
Asking others for their opinion and reading consumer magazines and daily newspapers features are other ways to plan and compare purchases.

8. Chapter 12: Income Management When to Buy
When planning a purchase, consider clearance and promotional sales as well as second-hand shopping. Consumers need to consider doing some comparison shopping for the same or similar product at other stores.
Clearance Sales
Retailers often have clearance (end-of-season) sales where seasonal goods are sold below the regular price to clear out old stock and to make room for new items.
Promotional Sales
Promotional sales happen when goods are sold below regular price to build acceptance for new products or to publicize store openings. These sales can create opportunities to sell future non-promoted products to consumers.
CLEARANCE SALES
Clothing stores usually have sales in January and June (July).
Traditionally Christmas items go on sale on Boxing Day.
Car dealerships lower prices in August and September to make room for new models.
Clearance sale selection is often limited making consumers decide it the lower price out-weights not getting exactly what they want.
PROMOTIONAL SALES
The hope is the consumer will like the product that they purchased on sale and buy it again.

9. Chapter 12: Income Management When to Buy
Second-hand Shopping
Second-hand shopping involves the purchasing of goods that have been previously owned by someone else. Buying such merchandise supports the three Rs of waste management—reduce, reuse, and recycle.
Avoid Impulse Buying
Impulse buying is purchasing items on the spur of the moment without considering whether they are needed or wanted. Ways to avoid impulse buying include taking your time, visiting many stores, checking the Internet, seeking out the best value, and, most importantly, not rushing.
SECOND-HAND SHOPPING
Second-hand items are usually priced very low but do not come with a guarantee or the ability to return it.
You may not find exactly what you want but you may get something unique or valuable.
AVOID IMPULSE BUYING
Buying on impulse wastes money, especially if you are on a tight budget.
Planning purchases often means getting the best value for your money.
Do not let others, peers, family, or sales staff, rush you into a unnecessary purchase.
Visit stores or go on-line to find the best value for you money.
Be aware that displays at store check outs are designed to get you to purchase the things you do not need or want.

10. Chapter 12: Income Management Budgeting
A budget is a plan for smart spending and savings based on one’s income and expenses.
Personal Budgeting
Personal budgets can be kept daily, weekly, and even monthly. Many people avoid budgeting because they believe that it is too difficult, or it will limit their enjoyment of life. However, learning to budget can actually help them find money for the things they really want or need.
Setting Personal Goals
Setting up a personal financial plan requires establishing realistic and achievable short- and long-term goals. Most people need to set aside specific minimum monthly amounts to achieve long-term financial goals.
With a budget you can reach financial goals and control what you spend your money on.
PERSONAL BUDGETING
A student budget could address aspects such as savings, post-secondary savings, charitable donations, planned spending, and mad money.
See Figure 12.6, “Budgeting Your Allowance”, on page 381.
Start getting into the habit of budgeting early in life to develop planning skills that will enable you to reach your financial goals throughout your lifetime.
Setting Personal Goals
Families can prepare budgets together that set goals that are important to everyone.

11. Chapter 12: Income Management Budgeting
Preparing a Personal Budget
Step 1: Calculate the amount of expected income.
Step 2: Calculate expenses.
Include regularly occurring fixed expenses.
Preparing a Personal Budget
Step 1: Calculate the amount of income you expect to earn or receive.
Step 2: Determine the two types of expenses:
Fixed expenses occur on a regular basis and usually cannot be adjusted.
Savings, usually about 10% of of income, should be saved.
Variable expenses differ from one month to the next.
Step 3: Calculate the amount of money left over.
This money can be added to savings or can be added to discretionary income.
The goal of a personal budget is to have all income allocated and not to have any leftover.
Reviewing your budget can help you compare expected and actual spending and to see if you are buying on impulse.
If you are spending too much, expenses will have to be decreased or income increased.
Goals may have to be re-evaluated and time-lines adjusted.
Estimate variable expenses that change monthly.
Step 3: Calculate amount left over.

12. Chapter 12: Income Management Managing Money for Business Use
Money management for businesses means that they are accountable to the owners and/or shareholders. The primary goal is profit.
Types of Business Income
Three forms of business income are revenue, gross income, and net income.
Budgeting for a Business
Business success is determined by its ability to stay within a budget.
The two types of business budgets are start-up budgets and operating budgets.
Setting Business Goals
Managers set company goals that are measurable and specific. Budgets often involve a variety of different departments, such as production, marketing, human resources, and finance.
Business owner spends money to make money, wage earner makes money to spend money.
Business budgeting and planning are tools for creating profit and growth, not simply cutting back on expenses.
Spending in a business is good as it helps increase sales in an effort to increase profit.
TYPES OF BUSINESS INCOME
Revenue is the money a business receives from products and/or services it sells or from investments.
Gross income is the total amount of money received by the business minus the cost of goods sold.
Net income is gross income minus the business expenses.
BUDGETING FOR A BUSINESS
All Interconnected budgets are needed for projects, departments, and divisions.
Often created by top management, budgets should receive input for all organizational levels.
A start-up budget shows the money needed to open a business.
Often underestimated, start-up budgets need enough capital to last more than a year.
Operating budgets are done monthly, yearly, or per project.
Sets out ongoing revenues and expenses for the business.
See Figure 12.9, “Before Starting a Business”, on page 387.
SETTING BUSINESS GOALS
Goals could be for business aspects such as launching a new product, expanding internationally, increasing research and development, or closing a division.

13. Chapter 12: Income Management Managing Money for Business Use
Preparing a Business Budget
Step 1: Calculate amount of business income expected.
Step 2: Calculate expenses, including fixed and variable.
PREPARING A BUSINESS BUDGET
The steps in preparing a business budget are similar to those of preparing a personal budget.
Step 1: Calculate the amount of business income expected; this is total revenue.
Step 2: Calculate all business expenses; these include fixed and variable expenses.
Examples of fixed expenses are rent, salaries for full-time employees, and property insurance.
Examples of variable expenses are part-time workers, cost of goods sold, utilities, advertising, and bank charges.
Step 3: Determine the amount of money left, also known as net income.
Business budgets should have income left over because this is the business’s profits.
Step 4: Review the budget to compare actual spending with expected or projected spending.
If a business is spending more than it earns, expenses need to be adjusted or an increase in income has to be realized.
Income can be increased by increasing sales, raising prices, advertising more, or the introduction of new product lines.
Step 3: Calculate amount left.
Step 4: Review budget.