Money Management Dividing up income to meet expenses © PDST Home Economics

A budget is a plan for spending and saving money A budget is a plan for spending and saving money Dividing up income and allowing a certain amount towards each expense and saving Dividing up income and allowing a certain amount towards each expense and saving

Income Income can be in the form of Income can be in the form of Wages (weekly), Wages (weekly), Salary (monthly), Salary (monthly), Pension, Pension, Social welfare payment, Social welfare payment, Interest on savings, Interest on savings, Dividends or Shares Dividends or Shares Gross income – Deductions = Net income Gross income – Deductions = Net income

Deductions include :- * Compulsory/statutory * Compulsory/statutory PAYE (Pay as you earn)(income tax) PAYE (Pay as you earn)(income tax) deducted from wages by employer deducted from wages by employer and sent to government, helps run and sent to government, helps run the country the country PRSI: Pay related social insurance, PRSI: Pay related social insurance, goes to government to provide social welfare payments for people who are unemployed or ill etc.. goes to government to provide social welfare payments for people who are unemployed or ill etc.. Pension schemes *Voluntary/non-statutory Pension schemes *Voluntary/non-statutory Health insurance Health insurance

Tax Liability Two rates of tax in Ireland Two rates of tax in Ireland 1. A low/standard rate of 20% 2. A high rate of 42% People on very low incomes do not pay any tax.

Tax Credits Part of income that is not taxed Part of income that is not taxed

Expenses Expenses within households vary Family expenses: Family expenses: Rent / Mortgage Rent / Mortgage Food Food Household Expenses (electricity, oil, cleaning agents) Household Expenses (electricity, oil, cleaning agents) Education/ Childcare Education/ Childcare Travel (car repayments, tax, insurance, NCT, petrol, servicing, bus fares) Travel (car repayments, tax, insurance, NCT, petrol, servicing, bus fares) Clothing Clothing Medical expenses (dentist, dr., health insurance, medicines) Medical expenses (dentist, dr., health insurance, medicines) Savings Savings Entertainment ( TV licence, newspapers, magazines, books, DVD’s, CD’s, going out, cinema, holidays) Entertainment ( TV licence, newspapers, magazines, books, DVD’s, CD’s, going out, cinema, holidays)

Budget Planning List all expected net income List all expected net income List planned expenditure (mortgage, phone, E.S.B.) Overestimate rather than underestimate. List planned expenditure (mortgage, phone, E.S.B.) Overestimate rather than underestimate. Add up totals and ÷ by 52 Add up totals and ÷ by 52 Set aside money to cover planned spending Set aside money to cover planned spending Allow for discretionary spending – Christmas, birthdays Allow for discretionary spending – Christmas, birthdays Allow for personal spending – cinema, clothing Allow for personal spending – cinema, clothing Allow for saving – future education, pension Allow for saving – future education, pension Avoid impulse buying Avoid impulse buying Fill in cheque stubs Fill in cheque stubs

Sample Budget Housing 25% Housing 25% Food 25% Food 25% Household Expenses 15% Household Expenses 15% Education/Childcare 10% Education/Childcare 10% Travel 5% Travel 5% Clothing 5% Clothing 5% Medical 5% Medical 5% Savings 5% Savings 5% Entertainment 5% Entertainment 5%

Sample budget €400 per week Housing € 100 Housing € 100 Food € 100 Food € 100 Household expenses€ 60 Household expenses€ 60 Education/childcare€ 40 Education/childcare€ 40 Travel € 10 Travel € 10 Clothing € 10 Clothing € 10 Medical € 10 Medical € 10 Savings € 10 Savings € 10 Entertainment€ 10 Entertainment€ 10

Advantages of Budgeting Overspending avoided Overspending avoided Impulse buying avoided Impulse buying avoided Luxury spending reduced/avoided Luxury spending reduced/avoided More security, less worries More security, less worries Maximum use made of income Maximum use made of income Bills & seasonal expenses highlighted Bills & seasonal expenses highlighted Good example to children Good example to children

Living on a Low Income Very difficult – particularly if there are children. Very difficult – particularly if there are children. Good budgeting practises - essential Good budgeting practises - essential Help from: Help from: M.A.B.S. – Money, Advice and Budgeting Service M.A.B.S. – Money, Advice and Budgeting Service F.I.S. – Family Income Supplement F.I.S. – Family Income Supplement M.A.B.S. managed by Dept. of Social, Community and Family Affairs M.A.B.S. managed by Dept. of Social, Community and Family Affairs 1. Help with budgeting 2. Help with clearing debt – advice 3. Negotiates with creditors 4. Account with Credit Union 5. On-going support

Family Income Support To qualify for FIS :- Be in full-time employment working at least 19 hrs a week Be in full-time employment working at least 19 hrs a week Have at least 1 dependent child Have at least 1 dependent child Earn weekly income falling below a set amount for family size Earn weekly income falling below a set amount for family size January 2010 If you have Your weekly family income is less than € 1 child €506 2 children €602 3 children €703 4 children €824

Family Income Support The FIS received is 60% The FIS received is 60% of the difference between the net family income and the income limit that applies to the family of the difference between the net family income and the income limit that applies to the family FIS income limit – family net income = difference FIS income limit – family net income = difference difference x 60% = FIS payment difference x 60% = FIS payment Example : Family of 2 parents, 3 dependent children Income limit (Jan. 2010) €703 Net income €350 Difference €353 FIS payment € (60% of 353)

Methods of payment Advantages of cash Quick & easy method Interest free Goods paid for immediately Less risk of debts Disadvantages of cash Difficult paying for large items eg.car Cannot buy-online or over phone May need to change currency if abroad Easy to steal No record kept

Methods of payment Advantages of a cheque Quick & easy method Safe paying by post Owner only signs cheque so less chance of bad debts Not easy to steal Record kept Disadvantages of a cheque Charge for each cheque Stamp duty on each cheque book

Methods of payment Advantages of debit card Money straight from account Can get cash back Can withdraw from ATM Accepted in most places Avoids bad debt build-up Disadvantages of debit card Government charge Most cannot be used abroad Charge for each transaction Must have money in account

Methods of payment Advantages of credit card Immediate use of product eg. washing machine V laundrette Very expensive items can be bought eg. house, car Avoids risk of theft Interest-free if bill paid on time Can borrow more if you build up good credit rating Encourages spending - more money in economy Credit card used in most countries Disadvantages of credit card Goods more expensive due to interest rate Goods repossessed if repayments not made Temptation to overspend Could lead to serious debts

Methods of payment Advantages of direct debit/standing order Money straight from a/c Can get cash back Can withdraw from ATM Accepted in most places Avoids bad debt build-up Disadvantages of direct debit/standing order Bank charge for each transaction Must give signed agreement to the bank May forget to keep track of your expenses

Methods of payment Advantages of Advantages of credit transfer/giro Bills can be paid through all P.O. or banks An Post offers Bill Pay service – no handling fee Disadvantages of credit transfer/giro Some banks charge per transaction Inconvenient compared to on-line banking due to travel

Methods of payment Advantages of hire purchase Immediate use of goods Expensive goods paid for over set time Disadvantages of hire purchase High interest rate Only yours when paid for Goods repossessed if repayments not made Court order necessary if more than 1/3 of the price has been repaid

Methods of payment Advantages of store card Some stores have attractive interest rates Special offers to store cardholders only Disadvantages of store card Can only be used in that particular store

Savings Putting money aside each week or month. Putting money aside each week or month. May be for a specific item e.g. a holiday or just to have for emergencies. May be for a specific item e.g. a holiday or just to have for emergencies. Better to save money in a financial institute Better to save money in a financial institute e.g. Post Office, Credit Union, Bank, Building Society. e.g. Post Office, Credit Union, Bank, Building Society. Your choice of saving scheme will depend on Your choice of saving scheme will depend on (a) Interest paid (a) Interest paid (b) Ease of withdrawal (b) Ease of withdrawal (c) Security (c) Security (d) Tax – tax-free or D.I.R.T. (d) Tax – tax-free or D.I.R.T.

An Post Saving Schemes See page 237 ‘Lifelines’, Enright and Flynn See page 237 ‘Lifelines’, Enright and Flynn See page 267 ‘Studies in Home Economics’, See page 267 ‘Studies in Home Economics’, McLoughlin & McGarvey McLoughlin & McGarvey See page ‘Home Matters’, Ryan, Frawley, Henderson, Keane and Mooney See page ‘Home Matters’, Ryan, Frawley, Henderson, Keane and Mooney

Banks & Building Societies Saving Schemes See page 238 ‘Lifelines’, Enright and Flynn See page 238 ‘Lifelines’, Enright and Flynn See page 268 ‘Studies in Home Economics’, See page 268 ‘Studies in Home Economics’, McLoughlin & McGarvey McLoughlin & McGarvey See page 209 ‘Home Matters’, Ryan, Frawley, Henderson, Keane and Mooney See page 209 ‘Home Matters’, Ryan, Frawley, Henderson, Keane and Mooney

Advantages and Disadvantages of Saving Advantages More security, less More security, less worries worries Cope better with unexpected payments Cope better with unexpected payments Less risk of bad debts Less risk of bad debts Good example to children Good example to children Avoids paying on credit Avoids paying on credit Safer than money kept at home Safer than money kept at home Disadvantages Interest can be really low Money may not be easily available

Credit Buying Credit means that you buy now and pay later Credit means that you buy now and pay later Buyers borrow money to buy goods and pay it back later usually with interest. Buyers borrow money to buy goods and pay it back later usually with interest. Often used to buy large items like houses and cars but can be used for small things too like furniture or electrical goods. Often used to buy large items like houses and cars but can be used for small things too like furniture or electrical goods.

Forms of Credit Bank Overdraft Bank Overdraft Loan from bank, building society, credit union Loan from bank, building society, credit union Mortgage (for land or buildings only) Mortgage (for land or buildings only) Hire Purchase Hire Purchase Credit cards Credit cards In-store card In-store card Interest -free credit Interest -free credit

Advantages and disadvantages of credit Advantages Immediate use of goods Immediate use of goods Necessary for large items e.g. houses Necessary for large items e.g. houses Good for economy Good for economy Avoid s carrying large sums of money Avoid s carrying large sums of money Avoids risk of theft Avoids risk of theft Interest-free if credit bill paid on time Interest-free if credit bill paid on time Can borrow more over time if you build up good credit rating Can borrow more over time if you build up good credit rating Disadvantages Interest charged – goods more expensive Temptation to overspend Goods repossessed if repayments not made Could lead to serious debts

Consumer Credit Act 1995  Implemented by the Director of Consumer Affairs.  Consolidates all consumer credit legislation into one act  Deals with :- Credit advertising Credit advertising Credit agreements Credit agreements Hire purchase agreements Hire purchase agreements Home loans Home loans Bank charges Bank charges Control and licensing of money lenders Control and licensing of money lenders

Hire Purchase Act 1946, 1960 States that H.P. agreements must include:- cash price of goods cash price of goods amount of initial deposit amount of initial deposit instalment arrangements and due date instalment arrangements and due date a description of the goods a description of the goods total H.P. price including interest total H.P. price including interest information on termination of agreement, information on termination of agreement, recovery of goods (repossession) recovery of goods (repossession) APR – rate of interest being charged APR – rate of interest being charged details of penalty clauses details of penalty clauses details of 10 day 'cooling off period’ details of 10 day 'cooling off period’ give names and addresses of the parties give names and addresses of the parties

Household Filing System Place for bills, receipts, guarantees, school report, bank statements, etc Place for bills, receipts, guarantees, school report, bank statements, etc Compare past and present bills Compare past and present bills Monitor use of fuel & energy Monitor use of fuel & energy Use past bills to create next budget Use past bills to create next budget Check bank statements & saving accounts Check bank statements & saving accounts