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Personal Finance

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Personal Finance

It is important to plan the finance for any regular expenditure such
as the basic needs of any person like food, clothes, accommodation,
bills etc.

To be able to for fill all your personal needs you must have some kind
of personal income, which will cover these expenses.

The sources of personal income might be:



Salary or wages
===============

A regular earned income from employment, for these earnings the
employee and the employer both have to pay a deduction to the
government such as income tax and N.I. contribution.

Overtime

An extra earned income for the additional hours of work


Commissions
-----------

An employee can get a percentage of the selling price of product from
his/her employer.


Bonus
-----

Bonus is an earning for good performance at work place.


Interest
--------

Interest using your money to create more money, expressed as a rate
per period of time, usually one year, in which case it is called an
annual rate of interest.


Winnings
--------

You may win money from playing the lottery or gambling on sport
events.


Gifts
-----

Money received from a friend or relative on a special occasion such as
birthday.


Sale of personal items
----------------------

Earned income from selling personal items


Gross and net pay
-----------------

Gross pay is the total amount of money earned by an employee before
any deduction is made.

Net pay is the amount of money an employee receives after deduction
have been made for income tax, national insurance and any voluntary
contribution such as pension contribution.


Regular and irregular earned income
-----------------------------------


Regular earned income

This is the income earned by a person on a regularly basis e.g.

Salary

Interest on savings

Irregular earned income

Irregular earned income is the money what you receive occasionally,
these can be payments that the employee may be entitled to but which
are not received on a regular basis such as commission, bonus and
overtime.

Other examples of irregular income can be:

Sale of personal items at car boot sale

Gifts

Additional weekend or holiday work


Expenditure

Some expenses are arguably more important than other - opinions differ
but the general consensus is that you must pay:

Rent - this varies according to type of accommodation, location and
duration of lease.

Food - this depends on your appetite and your style of living.

Fuel - i.e. electricity, gas and water

Telephone - this is definitely controllable but can run away with the
money, particularly mobiles.

Socialising - going out, buying tickets for special events or cinema.

Laundry - can sometimes be quite costly especially if you are keen on
sport.

Other expenses - these are inevitably and unique to you e.g. smoking,
clothes, car expenses, CD's/ DVD's, sports etc.


Difference between everyday expenditure and contingencies
---------------------------------------------------------

Everyday regular expenditure includes payments for accommodation; for
example rent or mortgage. Also payments for travel such as bus and
train fairs, and petrol expenses for car.

Contingencies are unexpected spending and would need sufficient
savings to ensure that the result would not be a large debt. An
example of a contingency is if your car broke down you would need to
pay for the repairs. If there is no savings for contingencies then
there might not be sufficient money available to meet regular
expenditure.

Monitoring financial transaction

The monitoring of financial transaction is important, as it is the way
to record, monitor, analyse and optimise the management of personal
finance. This way is also beneficial for individuals as they can take
control of their finances and this avoids many unnecessary downfalls
and losses.

These are financial transaction documents that can help individuals to
monitor their financial situation.

Bank statement

Bank statement is issued to customers, showing them how much money is
in their account and it giving listing details of credit/debit card
transactions. These statements are only available to customers who
hold currant account, loan account or saving account.

Passbooks

Banks and building societies issue passbook, which is used for
withdrawals and deposit from a person savings account.

Cheques

Cheques are an order in written to the bank to pay a named person or a
company a set amount of money.

Pay slips

These are financial documents issued by the employer. It gives details
of gross pay deduction made to give net pay.

Bills

These are statements received from suppliers of water, electricity,
gas, telephone, etc.

Reconciliation

Reconciliation means to balance your account monitoring your income
and outgoings. This is also a way to update any outstanding direct
debits. It is check and control if the amount, which is deducted the
same as the amount you have spent.

Another way to monitor your personal finance would be to create a cash
flow forecast this will monitor all your inflows and outflows.

An example of a cash flow forecast is:

Income

Amount

Outgoings

Amount

Salary

Parental contribution

1200

100

Rent

Food

Energy supply e.g. water, gas, electricity

House expenses

Council tax

Savings

Other expenses

500

200

50

80

20

300

100

Total

1300

Total

1250

Financial Advice

Still not sure about your financial situation, don't worry because
there are handful places where you can get advice.

Most of the financial advisers are banks and BS like:

Barclays; Halifax, Lloyd TSB, Abbey, Midland, HSBC, Nationwide etc.

Bank and building society

The majority of these organizations have their own financial products,
so they may only offer limited advise on their own products and in
some cases on a small range of products offered by one or more
companies.

Independent financial adviser

There are thousands of independent financial advisers across the
country that offers you financial product available in the market,
because they are independent they can give you the best advice you
need.

Tied advisor

People who represent a single organization such as banks and building
societies are called tied advisors.

They are only able to offer advice on a limited selection of products,
which are the banks and building societies. Therefore, they cannot
advice you on whether these products are more suitable for you than
available elsewhere.

Information from the media and websites

It's good for young adults to go and search on the Internet for
financial advice. The website what may help you sort out your personal
finance are:

www.moneyfacts.com www.fsa.co.gov www.bbc.co.uk/money

Not only the Internet but also many magazines and newspapers like the
economist, financial times, telegraph, observer, the guardian etc
gives financial advice.

There are also some programs on TV and radio what can help some people
can get there financial advice from.

FSA

FSA financial service authority is there to protect consumer's
interest. Financial advisers must be registered and authorized by FSA
before they start working.

Saving and investment

Why save?

We live in an uncertain world where jobs are easy to lose, incomes
fragile and where relying on the state for anything more than a basic
financial safety net looks foolhardy. Also the housing boom has meant
that it has become more difficult to buy a property without a
substantial deposit.

So saving is more important than some people realize.

Here are some tips for improving returns and/ or keeping down risk.

What's the difference between saving and investment?

Saving means putting some of your money away for emergencies or a
short-term goal. All banks have savings account plans where your money
will earn fixed rate of interest and be safe.

Investment is when money is invested in shares that MAY show a better
return. Where as with saving you know that you will earn at the end of
a period with investment is this uncertain. So there is also a
possibility that you MAY lose your money.

Many people never take the time to set financial goals for themselves.
They are too busy just getting by from day to day. Yet goal setting
allows you to take control of your savings and work toward your
dreams. Different goals may have different time frames. Generally,
these goals can be divided into three time frames.

Short-Term
Medium-Term
Long-Term

Short-Term
Generally, short-term can be accomplished within three months. Some
examples include:

* Building an emergency fund

* Buying a new CD/DVD player

* Saving for a short vacation

Medium-Term These may take from three months to a year to reach. For
example:

* Saving to buy a computer

* Buying a used car

* Starting a college fund

Long-Term
These may take more than a year. They could include:

* Saving £15,000 or more for a home down payment

* Starting a business

* Creating a retirement savings fund

Saving and investment options

One thing Britons are not short of in the world of saving is choices;
there are more than thousands of saving products on offer from
hundreds of financial companies. Here are the main categories and some
idea of woo they might me suitable for.

Bank accounts: Some bank accounts - particularly those operated over
the internet - will pay interest rates as high as many savings
accounts. You could find it convenient to use the account your
pay-cheque goes into, and which you use for spending, for saving as
well. But equally it could be confusing and you could lose sight of
your saving goals.

Savings accounts: Again, many of the best-paying accounts will be
operated over the Internet. Nowadays 30-day or other notice accounts
often pay little or no more than instant access deals. Fixed-rate
accounts and bonds will generally pay more than ordinary variable rate
savings accounts but they will require you to tie up your money for
anything up to five years.

Many savings accounts have introductory bonuses. Savers attracted by
these initially high rates need to keep an eye on the rate once the
bonus goes.

Unit trusts: These are all types of investment fund, where your money
is pooled with that of other savers and invested by a professional
fund manager. Generally these funds invest in the stock market. With
more than 1,000 to choose between from dozens of investment companies,
it is possible to find funds investing in the most exotic stock
markets and the most complex financial instruments.

National Savings & Investments: National Savings & Investments also
has a range of accounts and bonds, which are particularly useful for
higher rate taxpayers.

Shares: shares are small takes in a company. When you buy shares you
become joint-owner of the company along with other shareholders. If a
company is doing well the value of the shares might go up but if the
company is not doing well the value of the shares might go down, what
means that the value if your investment might go down.

Reasons for borrowing

We almost all need some kind of consumer credit from time to time. The
reasons fro this can be:

* To make a purchase for example to buy a computer or a car

* To mortgage a house

* To start up a business

· Borrowing money to invest in other companies

Personal loans can be either secured or unsecured. A secured loan is
linked to a major asset, usually the borrower's home. They are cheaper
than unsecured loans but if you miss any payments you risk loosing
your home. Secured loan is commonly used when borrowing larger sums of
money over a long period of time.

The other type of personal loan is an unsecured loan. Unsecured loans
are usually available for smaller amounts (£500 - £15,000). These
loans are more expensive because they are riskier for the lender as
they can't repossess your house to recover the loan if anything goes
wrong.

Authorized loan this is when you notify or apply to the bank to run up
an overdraft

Unauthorized loan this is when you do not notify the bank to run up an
overdraft.

Overdraft

An overdraft is money borrowed from bank or building society over a
short period of time. It is when u agrees with your bank or BS to
allow you to spend more money than what you have in your account. It
is a handy method of short-term borrowing but the biggest disadvantage
is that a high interest rate has been charged.

Credit cards

Credit cards are a very popular form of credit and often very cheap if
it is used wisely. However they aren't really suitable as a form of
lending because if you fail to clear debts it could leave you with
high interest repayments. If you struggle with your money management
or won't be able to clear your card each month then credit cards will
probably be very costly.

Store cards

Some retail stores issue their own cards. These cards can only be used
within the group's stores. They usually don't have fees nut the
interest rates are generally higher then normal purpose credit cards.

Hire purchase

It is a system of buying things on credit whereby the seller of the
goods is regarded as the dealer, the purchaser is regarded as the
hirer and the finance company is the owner. The ownership of the goods
bought on hire purchase does not pass to the hirer at the time of hire
purchase agreement or upon delivery of the goods. the ownerships of
the goods remains in the owner till the hirer has fully paid the price
agreed upon in the hire purchase agreement.

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