Chapte 5 - Personal Saving And Borrowing Flashcards
What is financial independence?
Knowing you have money saved for when you need it.
Gives you FREEDOM + CHOICES.
Eg …….taking a holiday whenever you want
Starting your own business
Helping family /friends when they need it
Taking a job with less pay
Savings
Saving means holding on to and not spending your money.
Saving should be done on a regular basis
Reasons for saving
- To buy something in the future (eg) new laptop
- To earn additional through interest on savings
- to have a deposit to buy a house
- For a future event, like a world trip or a ski holiday.
- For unforeseen events such as emergencies
Factors to consider hen saving
SAFTEY: is your money safe? Most ppl save with a facial institution bank, building society ,An Apost or a credit union
INCOME: how much interest (income ) will I earn ?
TAXATION: How much DIRT will I pay ?
CONVENIENCE: Can I withdraw my money whenever I want?
INTERNET ACCESS: Are my savings easy to access online or offline ?
Interest on savings
When starting the rate of interest, most financial institutions give the CAR ( Compound Annual Rate ).
This means that the interest on your savings is added each year to the principal ( the amount of money you saved ).
Investments
Investing means putting your money/savings into a product or scheme that should make a profit.
There are many types of investment available to from socks to shares to bonds or even buying property.
Having stares in a company means that you will have a share of the profits that a company makes
They offer the opportunity but also risk = lose money
Pensions
Pensions are long term loans that helps you save for the future.
When you are working you pay into a fund to provide for your retirement .
The state offers a pension of 230 euro a week but however if you plan on travelling and enjoying your retirement you will need additional money. To get that you will need to pay into a pension plan.
Pension planning
The younger you start paying into a pension fund the cheaper it is.
** the important message is if you do not start paying into a pension at a young age you will pay a much higher price when you’re older.
Borrowing
Borrowing means receiving money ( a loan ) from a financial institution that you must pay back with interest.
THERE WILL BE OTHER CONDITIONS:
You must be 18 or over.
You must be credit-worthy and have a good track record of paying back other loans and of being a regular saver.
You must have regular income.
You may have to offer some form of collateral - property or other assets,which the lender can take if you fail to repay the loan.
Reasons for borrowing
Reasons:
COLLEGE FEES= Education is an investment in your future and you may not be able to pay college fees in advance.However,your qualifications will help you get a good job and pay back the loan.
Major purchases eg,house = a house may take a lifetime to save for and you do need somewhere to live.
However it makes more sense to be paying back a mortgage to live in your house rather tan paying rent.
Types of borrowing
Debit cards Credit cards Overdrafts Loans Mortgages
Debit cards
A debit card is a payment card that deducts money directly from a consumer’s checking account when it is used.
Credit cards
A card issued by a financial institution that allows you to buy goods on credit.
When you use a credit card you will billed for the money spent at the end of the credit period ( usually one month ).
If you do not pay the bill on time, you will be charged interest %%%%.
Student credit cards
Student credit cards are specifically designed to suit people living on a tight budget.
They offer a lower credit limit perhaps €400 to students in their first or second year of full-time study and an increase rate of up to €850for those in third year or above.
Affinity cards
Affinity cards are the same as credit cards but in addition the bank make a donation to an agreed organisation often a college are charity.
Overdrafts
An overdraft occurs when there isn’t enough money in an account to cover a transaction or withdrawal but the bank allows it anyway.
It allows you to withdraw more money than you have in your bank account.
It is similar to a loan.You will pay interest on the extra money that you withdraw .You pay interest only on what you use.
You must pay back your loan at the end of the year,it is a short term source of finance
What is cash flow?
Cash flow means having suffice to ready cash.
Loans
A loan is a fixed amount of money that you borrow and agree to repay with interest.
Usually the loan will be for a fixed period of time.
When comparing interest rates you should look at the APR (annual percentage rate)
Mortgage
A loan is a long-term loan used to buy a house.
Mortgages are typically for 20-30 years.
They are provided by financial institutions.
You will need to be ale t pay a deposit ( money paid up front for the property ) -normally 20% of the value, but 10% for people buying their first home.-before the institution will agree to the mortgage.
What is collateral?
A collateral offers security to the lender, in case of non-payment.
This means that if you do not pay back the mortgage , the lender could take the house.
INTEREST
The cost of a mortgage of interest
Fixed rate - the rate does not change over the period of the mortgage.
Variable rate - the rate will increase and decrease to reflect the state of economy and other rates in the market.
Qualifying for a mortgage
Are you in safe and secure employment and with a good salary prospects ?Do you have a permanent contract of employment ? How long have you worked there ?
Are you a regular saver ? — a good savings record suggests wise spending habitats and financial management.
Can you afford the repayments ?
Have you a good credit history ? Debt ? Missed any payments on previous loans? Do u clear your credit card bills every month ?
Are you making a wise investment? Is house good value ?
What is short term finance ?
Is needed to cover day to day running of a households.
Examples: overdraft
Credit card
What is medium term finance?
Needed to cover major purchases that cannot be repaid in the short term.
Paid back in 3-5 years.
Example: hire purchase
Leasing
Hire purchase - owned after the final payment
Leasing - rented and not owned
