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Commerce > Personal Finance > Flashcards

Personal Finance Flashcards

1
Q

What is income?

A

Money received on a regular basis from work, property or business payments.

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2
Q

Sources of income

A
  • Wages (part-time job)
  • Salary (full-time job)
  • Fees (dentists, doctors, solicitors – service fee)
  • Profit (business owner)
  • Royalties (musicians, artists and writers)
  • Rent (property investment)
  • Social welfare payments (government  people in need)
  • Dividend (shares)
  • Commission (real-estate agents and sales assistants)
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3
Q

What are fixed expenses?

A

taxes, bills, rent, mortgage payments

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4
Q

What are variable expenses?

A

going out, entertainment, clothing

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5
Q

Saving strategies

A

Budgeting, saving plan, keeping track of purchases

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6
Q

Reasons to save

A
  • House
  • Holiday
  • Unexpected expenses (illnesses or accidents)
  • Retirement
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7
Q

Reasons for borrowing money

A
  • Immediate satisfaction – have the use of an item and pay later
  • Convenience – don’t have to carry large amounts of cash around
  • Emergencies – access to money can help you pay for unexpected expenses
  • Improve your quality of life – acquiring more assets can improve standard of living
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8
Q

Reasons against borrowing money

A
  • Interest – the cost of borrowing is usually high
  • Impulse buying – may be tempted to buy items due to ‘unlimited money’
  • Inability to repay
  • False sense of security – unrealistic perception of how wealthy you are
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9
Q

Steps in getting a loan

A
  1. Decide how much you need to borrow
  2. Decide if you have enough savings for a deposit
  3. Decide if your income is sufficient to meet the repayments
  4. Shop around for the best deal
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10
Q

Personal loan

A

Secured – something is deposited as a guarantee to fulfil the payment of the loan

Unsecured – nothing is deposited as a guarantee to fulfil the payment of the loan
e.g. cars, furniture, travel

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11
Q

Mortgage loan

A

Borrow money to pay the balance of a house.

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12
Q

Bank Overdraft loan

A

Writing cheques greater than the amount in their account

e.g. businesses with cash flow problems that need to pay suppliers

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13
Q

Credit Card loan

A

Borrowing someone else’s money to pay for smaller expenses. If the account is not paid by the due date interest is charged on the outstanding amount.

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14
Q

Store credit loan

A

Major retailers offer store cards that allow you to purchase goods on credit at their stores – high interest rate.

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15
Q

Payday loan

A

A cash advance against your next pay slip.

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16
Q

Credit Rating

A
  1. Character – refers to person’s reputation for honesty and reliability in paying debts.
  2. Capacity – ability to pay the debt based on occupation
  3. Collateral – assets used as security for the payment of the loan
17
Q

A good budget allows you too…

A
  • Establish some savings and prove that you can pay debt
  • Control spending
  • Prepare for times when extra cash is needed (birthdays and unexpected expenses)
18
Q

Effects of not budgeting

A
  • Fall into debt
  • Business failure
  • Loss of family home and possessions
  • Stress
19
Q

Steps of budgeting

A
  1. Decide on a time frame
  2. Estimate income
  3. Estimate fixed and variable expenses
  4. Calculate your savings
  5. Devise strategies to increase savings (reducing expenses = increasing income)
20
Q

Financial consequences - PFM

A

You could lose money. Your assets may get repossessed if you can’t pay back your loan. The lender can also apply to have access to reduce your pay.

21
Q

Legal consequences - PFM

A

As a debtor you have certain liabilities and obligations to the creditor (person who is owed money). Failure to fulfil these obligations will result in the creditor taking legal action against you to recover the money owed.

22
Q

Social consequences - PFM

A

The financial pressures of debt may cause stress at home and work. As debts mount up people spiral which can seriously affect your wellbeing.

23
Q

Risk/reward

A

The relationship between the amount of return gained on an investment and the amount of risk undertaken in that investment. The more return sought, the more risk that must be undertaken. Investments are sometimes risky as they are often subject to fluctuations (increases and decreases in the market.)

24
Q

Forms of Investment

A
  1. Shares (bluechip, speculative) – purchasing equities,
    Profit = dividends
  2. Property – purchasing land or buildings with the expectation they will increase in value overtime
    Profit = rent
  3. Managed Funds -
  4. Superannuation – saving some income for retirement
  5. Gambling
25
Q

What are shares?

A

A share is a part ownership of a company. Shares in public companies are bought and sold on the stock exchange. The price of a share constantly changes and if the price of the share rises you can make a profit (capital gain). A profit or loss is only achieved once you actually sell the share.

26
Q

Capital gain/loss calculation

A

Sale price of share – purchase price of share = capital gain/loss

A shareholder may also receive a dividend. This is part of the firm’s profit which is divided amongst shareholders.

27
Q

Factors causing share prices to rise

A
  • Price of mining share increases due to the discovery of a new ore deposit
  • Increase in economic growth in countries such as India and China means an increase in demand for Australia’s minerals
  • Company tax rate reduced by government means more profits for companies and shareholders
  • Increase in world price of oil increases the price of oil stock
  • Low interest rates - better return for investors
28
Q

Factors causing share prices to fall

A
  • World events that may cause instability in the financial markets (global financial crisis & 9/11)
  • Trade Wars – add uncertainty
  • Aussie dollar - many of the companies on the Australian share market generate revenues and earnings from offshore. This impacts translated earnings when they convert back to Australian dollars

Commerce (3 decks)

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