LOA Flashcards
understanding the importance of managing personal finance.
functions of roles of money
functions of money
unit of account -
means of exchange -
store of value -
legal tender -
unit of account
Value of something that can be expressed in an understandable way
In a way that allows a value of something to be compared
means of exchange
Money allows goods and services to be traded without the need for a barter system
store of value
‘This can refer to any asset whose value can be used now or in a later date
This means that people can save now to fund spending at a later day
legal tender
how is the role of money effected
- personal attitudes
- external influences and trends
- culture
- life events
- life stages
- interest rates
role of money
- culture
- life events
-externl influences - interest rates
expenditures
-money paid out. it is important to manage when managing personal finance
common principles when planning expenditures
- avoid getting into debt
- control costs
- remain solvent
- maintain a good credit rating
- avoid bankruptcy
- manage money to fund purchases
- generate income and savings
- set financial targets and gaols
Why plan expenditures
1. Avoid getting into debt.
Knowing what money is coming in and going out is important as it ensures you are not overspending and therefore avoids debt
It also means that you can save money for a rainy day therefore meaning you will not go into debt for unexpected costs.
Planning expenditures
Control costs
By planning expenditures, you are aware of your expenses and you can control costs. By making adjustments. To your finances. E.g spending less on shopping
Planning expenditures
3.avoid legal action/repossession
A consequence of not planning expenditures is that you could over stretch your finances and become unable to pay bills. could lead to to legal action to reclaim the cost of unpaid items.
For example buying a car on finance and not been able to pay the repayments.
Car dealer will reposes the car
Planning expenditures
4. Remain solevant
Means you have the ability to meet your financial obligations.
Cover any costs your have
Planning expenditures
Good credit rating
- how trustworthy you are in terms of paying of any debts.
-planning expenditures will mean you are in control of your finances meaning you are a safe person to lend money to therefor you will have a good credit rating.
Help you borrow money more easily
Avoid bankruptcy
Declaring bankruptcy means you are unable to pay your debts.
You will be clear but you will have severe consequences financially going forward.
Effects of inflammation.
By managing your personal finance well you can counter the effects of inflammation.
inflammtion = rise in price across the economy.
risk of not planning expenditures
- get into debt
- poor credit rating so cannot borrow
- no saving/security
- unable to pay bills
advantages of planning expenditures.
- surplus money to save
- Savings can provide security
- Good credit rating
- avoids debt
methods of payment
- cash
- credit
- debit
- cheque
-contactless
-mobile banking
what are current accounts
-type of bank account that keeps your money secure and helps you manage your finances.
- current accounts facilitate the making of payments. - direct debits, standing orders - they let people, business , organisation and people pay for thing in an effective way.
-current accounts that join the dots and enables our financial ecosystem to exist.
common features of a current account
- paying money - wages
-paying money out - bills, direct debits - overdraft
-interest paid on positive balances
-interest charged on negative balance - additional extras
different type of current accounts
-standard = most common account. has standard features as you can pay in and withdraw money. you will receive debit card, be able to pay for things online and set up a prearranged.
-basic = current account is mainly used by people who have a poor credit rating and struggle to open a standard account.
- it has limited facilities and no overdraft available.
- Premium/packaged = this account has a monthly fee in return for additional benefits such as breakdown cover, cashback on purchase, home insurance and payment protection. Not always t5he best for value for money.
Borrowing
the most important thing to leant about borrowing is it can leadto to serioud consequences if not mkanaged properly.
- banks and building societies are just like any other buissness as thye create a variety of products to meet the indicidual neeed of their customer
- there is numerous types of borrowing to meet the needs of the customer depending on what they need to borrow the money for and how long they want to borrow it for.
Overdraft
an overdraft lets you borrow extra money through your current account.
-for example if you have no money left in your account and you spend £30 your balance would be £-30 this is an overdraft. postive asit allows you top to p[ay for short term exenses like unexpected bills.
different types of borrowing
-overdraft
- personal loans
-Hire purchase
- Mortgages
- Credit Cards
- Payday loans - not advised be advised in most situations not to be used however should certanitly not be used to borrow money.
Personal Loan
- allows you to borrow money for a specific reason such as improving your home or buying a car. These are long term forms of borrowing for a higher priced item.
Hire Purchase
- arrangement where a customer agrees to a contract to buy an asset by paying of the amount in regular payments
Mortgages
Long term loan. -paid back after 30 years.
Credit cards
type of loan, where the money you spend is actually borrowed from the card provider. instead of getting money in your bank account you get credit on your cards. your lender will set you a credit limit. you have to pay it back balances each month
payday loan
a short term finance that is available over a very short period of time with extremely high interest. usually used in an emergency a few days before payday- hence teh namepayday laon
what ways can you save and invest
- individual savings accounts (ISAs)
- Deposit and savings accounts
- Premium bonds
- bonds and gilts
-shares - pensions
individual savings accounts (ISAs)
The main difference between an ISA and any other savings account is that it offers tax-free interest payments, so you can get more for your money.
- there is a limit to how much you can put in your ISA in each tax years- called the ISA allowance. it is 20,000
-álos can only have one active ISA account.
Deposit and Savings account
- a savings account is somewhere you can put yopur money so it can grow in value. due to intrest. each savings account has interest rate. - this tells you how much you will be making overtime.
-
4 options for investments, each come with different levels of risk and return
-Premium bonds
- bonds and gilts
-shares
- pensions
shares
shares five you a part of owner ship of a buissness. this part ofownership means that you alsobenefit from the buissness success in the formof paymnets called diviswnds.
- value of shares can go up as well as down
- you can posisbily loose all you invetsmnet if teh buissness fails.f
premium bonds
investment product issues by National Savings and Investments.
Unlike other investments, where you earn a interest ,
-you are entered into a monthly price draw where you can will between £25-£1m tax free.
-all the money you put into a preimum bond is secure
- there is very small chance you coudl earn a high tax free return
- you wont eran regular incoem on your bionds
- most peoeplewho buy premium bonds will earn only a small amount as a percentage of the money they contribute.
Bonds
- fixed income instrument that represents a loan made by an investor
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Gilts
Government bonds in the UK, India and several other common wealth countries are known as gilts,
the term gilt is often used informally to describe any bond that has a very low risk of default and a corresponding low rate of return.
insurance types
life
travel
home
car
pet
health
insurance types explained
car
is a legal requirement in the UK and covers you in case of any accidents, fire or theft depending on the level of cover purchased.
typical types of cover are
- third party
- third party fire and theft
- fully comprehensive
home and contents
events that home insurance covers
- burglary’s
- fires
-natural disasters
home insurance covers the building of the house.
contents insurance covers the building of the house.
premium is calculated on the maximum cost of the total cost to rebuild the house or covering the value of the items.
for items that are of a very high value - usually worth thousands of pounds. They will need to be identified specifically in the policy and in case may need a separate policy, or lead a higher premium.
travel
travel insurance protects individuals or groups (such as families) while abroad.
policies can either vary greatly, but will usually cover loss or theft of property, illness cancellation and emergencies up to certain limits.
some types of holidays have higher premiums due to risk, for example skiing holiday or anything involving extreme sports will have a higher premium as there risk is higher.
life
life insurance is a continuous, ongoing policy that will pay-out a lump sum upon death..
life insurance is usually for the duration of a mortage,and will pay out a lump sum is you die during that period.some mortages lenders will require life insurance for the duration of the mortgage, to protect their investment-however this isn’t required by all lender
pet
pet insurance covers you for any expenses that can occur as a result of pet ownership
this is mainly limited to vet bills.
while a lot of vet bills for routine checks/ vacations can be quite cheap, emergency treatment can be very expensive and go into hundreds, or potentially thousandsofpounds.insureance may not cover allof the cowsts - but will cover a significantamount of it.
health
