Money Matters Chapter12 Flashcards
Budgeting
To balance money coming in and money spent. Involves working out carefully what you need to spend and how much money you have.
Budgeting is a skill, each individual and family will prioritise spending in different ways. There’s no right or wrong way to prioritise. We all have different needs and wants. Important to remember that how we prioritise will determine our lifestyle. One rule- budget for needs before wants.
What are needs?
What are wants?
Needs are things you need to have to live a basically healthy life. E.g. Clothing, transport and electricity
Wants are things you would like to have to improve your quality of life: e.g. Eating out, holiday’s, fashionable clothes, a bigger house or car.
Importance of budgeting for individuals and families
Main reason for budgeting is to avoid debt. Budget helps people decide how they can save some money for use in an emergency, e.g. Repair car or essential appliance such as boiler if broke down. Estimate 4/5 people receive a bill they’re not expecting over next 12 months and 50% of householders need to resort to credit cards and overdrafts in order to pay.
Methods for paying for goods and services include:
1) cash
2) cheque
3) debit card
4) credit card
5) store card
6) hire purchase
Paying with cash
Advantages and Disadvantages
Cash is currency in the form of bank notes and coins
Advantages
Paying for products or services with cash is quick, efficient and cost-effective as in some cases paying with cash a discount can be negotiated.
No interest can be charged, the price you see is price you pay.
Disadvantages
Accessing cash from bank account
Safety issues associated with carrying a large amount of money
Paying by cheque
Advantages and Disadvantages
Cheque instructs your bank to release funds from account
Advantages
Cheques are useful if you don’t want to carry large amounts of cash
Flexible method of payment where the exact total cost is unknown beforehand e.g. Supermarket bill
Disadvantages
To write a cheque individuals must have a bank or building society account that is in credit and have been issued with a cheque book and cheque card.
Banks charge retailers a fee for every cheque they receive, to cover the banks’ processing costs
Some retailers no longer accept payment by cheque.
Paying by debit card
Advantages and Disadvantages
A debit card draws from the funds in your bank account to pay for products purchased or services used.
Advantages
Quick and efficient
Cost-effective as they do not usually incur charges or interest for the consumer
Paying by Credit card
Advantages and Disadvantages
A credit card enables a consumer to borrow money from the card issuer to pay for products or services.
Advantages
Cardholders receive regular statements of how much they have borrowed and need to repay
Credit cards are quick and efficient and are particularly useful for large or unexpected purchases
Disadvantages
Main problem is the higher interest charged by the card issuer
A charge may be made for using the credit card e.g. When airline flights online
Payment must be made to the card issuer every month to reduce the outstanding balance
If the balance is not paid in full each month interest is added therefore increasing the risk of debt
Store cards
Advantages and Disadvantages
A store card allows consumers to borrow money from the card issuer to pay for products or services
Advantages
Store cards are provided by specific stores for use in their chains and special discounts or member benefits may be offered
Disadvantages
The rate of interest are often higher than for most credit cards
Store cards can encourage impulse buying and excessive spending
Regular monthly payments need to be made to pay off money borrowed on store card
Hire purchase
Advantages and Disadvantages
Hire purchase is a credit agreement that allows a consumer to borrow money from the credit provider to pay for a product or service
Advantages
Large chains such as furniture and electrical shops and car dealerships often offer hire purchase as a method of payment.
If the hire purchase loan is interest-free and the repayments are planned and monitored effectively this can be a good way to borrow money
Disadvantages
The payment schedule must be strictly adhered to or the customer may end up having to pay the interest for the term of the loan which could be 12 months or more
Consequences of poor financial management
Poor financial management means failing to manage your finances effectively. Some are: Debt Stress and related illness Relationship difficulties Loss of home Inability to achieve goals
Managing finances effectively
It’s important to manage finances effectively to avoid the consequences of poor financial management.
Tips for good money management Plan budget and monitor it regularly Stick to the budget and prioritise the needs and wants Open and check bills and statements Keep a check on credit card Put money to one side for emergencies Make allowances for little extras
Signs of poor money-management
No prioritising of needs and wants
Bills and statements unopened and unchecked
No budget planned
Spending on what you can’t afford
Sliding into creeping debt
Impulse buying and credit card left unchecked
Money saving methods
1) take lunch into work a least 2-3 times a week. This could save you £15 per week, or £800 per year just by using what’s in your fridge.
2) plan meals in advance also prepare shopping list. Studies prove shoppers without shopping lists buy more items than those with list.
3) cook meals from scratch to avoid cost of pre-prepared meals
4) 1 a week do big food shop
5) buy in bulk and split cost with friend
6) buy goods second hand or in charity shops
Out shopping
1) buy non-brand products and use money off coupons
2) become a comparison shopper
3) price check with other stores
4) check prices of goods on bottom shelves. Goods at eye level usually cost more
5) do your sums on quantity and pricing
6) think: getting 15% or 20% extra or 3 for 2 is great but only if it’s for something useful. End of aisle displays aren’t always a bargain
7) ask yourself: do you really need it?
