Money Matters Flashcards
What is budgeting?
Budgeting is a skill that involves prioritising spending
Why formulate a budget?
To balance income and expenditure
To avoid overspending
To avoid debt
To ensure you have money for emergencies
Allows you to plan for the future
What are needs?
Things you must have to live a basically healthy life eg food, clothing, electricity, fuel, heating, healthcare, shelter
What are wants?
Things that you’d like to have in order to improve the quality of your life eg hobbies, eating out, holidays, fashionable clothes, bigger house, a car, electronic devices.
Consequences of poor financial management
Debt Forced to take out loan/use credit card Forced to borrow from parents Inability to achieve goals Loss of home Relationship difficulties Stress and related illnesses
How might a home budget planner help one plan for financial future?
Can see income and expenditure/outgoings
Help work out needs and wants
Help you figure out where you can save
Help you work out weekly, monthly and yearly bills
Main financial priorities when getting a home of your own
Electricity/phone/gas/oil bills Food Bank/credit card statements Basic furniture Essential appliances Mortgage/rent Home insurance Travel TV licence Home maintenance
Where would your income come from?
Salary/wages Government benefits (children, caring for someone, out of work, injured and can't work) Savings Investments Lodger Pension Student loan
Balance
A figure representing the difference between credits and debits in an account
Cash positives
In some cases, a discount can be negotiated Consumer feels more in control Can see how much spent No further payments to be made No interest
Cash negatives
Inconvenient to access from ATM, limit on ATM machines Can't buy online Can't trace if stolen Temptation to overspend Safety issues when carrying
Cheque positives
Useful if you don’t want to carry large sums of cash
Exact total cost can be paid even if unknown beforehand
Less risk of theft
Easy for postage
Cheque negatives
Must have bank or building society account
Some retailers no longer accept payment by cheque
If cheque book lost, risk of signature being forged
Debit card positives
No interest
Cash back
Don’t have to carry large sums of cash or bulky cheque book
Some can be used abroad
Debit card negatives
Temptation to overspend as not handing over physical cash and with overdraft facility (safety net)
Need bank account
Sometimes you can get charged for withdrawing cash
Store card positives
Similar advantages as credit card
May get special offers, invites to sales, extra discount, loyalty points etc
Store card negatives
Rates of interest are often higher than for most credit cards
Can encourage impulse buying and excessive spending
If regular monthly payments not made, increases risk of debt
What is hire purchase?
A credit agreement that allows a consumer to borrow money from the credit provider
Large chains such as furniture and electrical shops and car dealerships
Hire purchase positives
Can be interest free if paid back regularly
Hire purchase negatives
Could end up in debt
Could seize item if monthly payment not paid
May end up having to pay interest if payment schedule isn’t strictly adhered to.
Credit card positives
Useful for buying online
Convenient to carry
Might get interest free period
Spreading out cost over long period of time
Extra protection if company goes bust (have to spend at least £100 a month) or against fraudulent purchases
Credit card negatives
Risk of overspending
Risk of credit card fraud
Interest rates higher when used in an ATM machine
If balance isn’t paid in full each month, interest added, increasing risk of debt
What is a credit limit?
A total amount of money that the consumer has access to
Every month, the card holder is sent a bill and has 3 options…
Repay minimum amount (could be as little as £5)
Repay proportion of bill
Clear bill in full
