There are many different ways in which you can borrow money, but they all
have their advantages and disadvantages. Who or where you borrow your money from also depends on what you are going to sped the money on.
For example if I was going to buy a house I would get a mortgage because it is a long term loan. The advantages of a mortgage is that I can pay back over a long period of time (e.g. 25 years) whereas the interest rate may be fixed so if my rate is low when I first get the mortgage then it will remain low.
However if I was going to need money for general shopping for goods, I would consider using a credit card which is a short term agreement compared to a mortgage. An advantage of a credit card is that you can spend immediately and obtain but you can also get into debts easily.
An overdraft is a short term loan which you receive when you open a current bank account. The bank will give you a cheque written by you, up to the agreed amount even though you don’t have the money in your bank. An advantage is that you can increase the agreed amount if you want to but only up to a certain limit e.g. £250- £1000. Then again the interest charges are higher than other methods and you may end up paying much more than you originally borrowed.
Financial records are any documents which contain financial information such as receipts, bank statements e.t.c these are very important when you want to finance your money.
When you are spending money it is best to keep records of where you are spending your money some reasons for doing so are:
- So that you don’t get into debts
- so you can check that you haven’t been over charged
- So you can plan ahead for your own life’s activities
The results of not monitoring your finances can be dramatic, you may get into debts and become bankrupt or you may even loose your credibility with banks.
Another reason that it is important to keep financial documents is incase you may have been charged for something that you haven’t even bought, you can use it as proof. Or even when you want to keep track of your money if you have financial document it is easier to calculate.
Tax is money which goes towards the government. The Inland Revenue collects it goes towards things that you may need.
You can have tax on anything you buy from computers to even clothes, you pay road tax so that the roads can be renewed, overseas tax is for things that you may buy from abroad, council tax is for things like community service even your wages have tax taken away from it this is called income tax.
There is a certain way in which tax is taken away from the money you earn, you will learn about this on the next page.
When you earn money you are given an amount which is tax free. If you want to calculate how much of the money you earn goes towards the Inland Revenue you have t follow certain steps. This will be shown below.
Catherine Jeremy who is 23 years old earns £23,000 a year. I'm going to show you how to work out her personal allowance (amount of money which is tax free)
Calculations:
Salary£23, 000
Personal allowance: £4615
Taxable income: 23,000 – 4615= £18,385
Now you have to work out the percentage of tax that is deducted from her earnings.
£1,920@10%= 1,920 x 0.1= £192.00
£18,385 - £192= £18,193
£18,193@22%= 18,193 x 0.22= £4,002.46
Total tax payable= £192.00 + £4,002.46= £4,194.46
Bank statements are documents which you receive from the bank up to every 45 days or so. It includes all the money which you have used within a certain time period given.
A bank statement includes:
- amount deposited
- account number
- balance as at a given date
- branch sort code
- name of the bank
- your name and address
A bank statement would have a date of when money was either withdrawn or paid in, the amount paid in or withdrawn, your new balance and payment type. An example of a bank statement is show on the next page.
This is an example of a bank statement.
As you should know, when ever you purchase a good you always receive a receipt.
It contains information on:
- where you purchased the good (address)
- date of purchasing goods
- sales person name
- phone number
- what you purchased
- prices of purchased items
- payment type
Below are examples of receipts:
A cheque is a document that you get when you open a bank account. When you want to withdraw money from your bank without going to the bank you can write up a cheque.
Cheque are important when financing because if you were being charged for something which was payed by cheque but you didn’t actually ever write a cheque out, then you can use your cheque book as proof.
A cheque contains blank columns for you to fill in they are for:
- a date
- who it is payable to
- the amount payable in figures
- amount payable in words
- place to sign
It also contains:
- a cheque number
- branch code
- account number
- and name of account holder
Example of a cheque on the left.
You receive a pay sip before the money you earned goes into your bank account. A pay slip includes all the information you would need like the amount of tax deducted from your earnings e.t.c.
Some more are listed below
A pay slip
- the amount you earned
- the amount deducted from it
- company name
- date tax code
- employee name
- net pay
Example of a pay slip above
An invoice is basically like a receipt. It’s a bill written by a seller of goods or services and given to the purchaser.
An invoice contains:
- the date
- address to which it is being sent
- description of what is being purchased
- name
- prices
-
total
Invoice
Hardeep has successfully completed his A level course at Cranford and is looking forward to stating university. He is concerned about money; he has heard lots of stories of students running into debts of £15-20,000 by the end of the three years of studying. He has decided that the best way of controlling his money is by producing a plan of his income and expenditure. He has several sources of income. Till he has to go university he plans to work in McDonald’s full time and earns £250 a week before tax. He knows that he must try and save as much as possible. During term time at university he plans to work 15 hours in a bar earning £4.50 an hour before tax. He is also planning to take out the full loan he can get from the government. His parents have said they will give him £100 a month during term time towards his costs. The bank has said they will give an automatic overdraft of £1000 but he wants to use this as little as possible.
His expenditure will include tution fees, halls of residence, books, leisure, clothes, travel to and from university, presents for family and he hopes to have some money to go on holiday. He is also aware that he needs to keep some sort of savings (contingency fund) in case of an emergency. He would also like o learn to drive. Other expenditure could be CD’s, DVD’s or computer games and mobile phone bill.
During Christmas and Easter holidays he stayed a home. His income is zero but he still spends him money. His parents give him £50 a month during holidays.
University term dates.
October-mid December
Mid January-mid march
Mid april-june
During March he will have his laptop stolen. Unfortunately he is not ensured and has to spend money from his contingency fund to replace it.
TUTION FEES: Hardeep goes to Kings College London. The fee for a year is £1125 so for a month it would be £93.75.
RENT: the rent is £280 a month and £70 a week, he has rented out a student hall and shares with another person.
BOOKS: he bought most of his books at the beginning of the year it cost him £140 for the rest of the year he bought exercise books and tried loaning out books from the library where ever possible.
LEISURE: Hardeep goes to pubs; he doesn’t drink much though, he goes to the cinema and only goes to clubs every now and then so he only spends £250 a month. He spends £80 a month on pubs, £120 on clubs and £50 on cinema and any other leisure activities.
CLOTHES: he doesn’t need to buy clothes regularly but he buys some every two months some times he needs new shoes, underwear, and clothes this costs him about £400 a year.
TRAVEL: he walks to university, but spends money on travel when he goes out for leisure activities.
PRESENTS: he doesn’t have to buy presents regularly only for birthday and special occasions. During Christmas the price for presents goes up because he has more people to spend money on. So in a year he spent £160
SAVINGS: he saves about £250 for the first three months because he didn’t need to spend that much money from about £900 of his earnings.
PHONE BILL: he is a pay as you go customer and doesn’t use his phone much only on emergencies. He tops up his phone every week with £10.
DRIVING LESSONS: he is with AA driving lessons and has been learning for 6 months it’s 21.00 for one hour he does 4 hours in a month with a total cost of £84 per month.
LAPTOP: during March his laptop gets stolen. He buys a replacement for £1,099.99.
