Commerce Yearly Notes Personal Finance

Income – The amount of money received by an individual, household, company or government from any source

Savings – Money or other financial assets that are stored for future use Wages – Money paid on a regular basis for a period of work or services. Each hour worked

above the number stated in an award is considered overtime and must be paid at a higher rate – referred to as penalty rates

Award – Minimum rate of pay and working conditions specified for a particular job and set by an industrial court

Overtime – Time worked over and above normal hours of work Penalty rates – Higher than normal wage rates to compensate for working outside normal

hours Salary – Income paid on a yearly basis Some salary owners earn fringe benefits Fringe benefits – Payment of non-income items received in addition to normal wages or

salary Flexitime – Working a set number of hours but using different start and finish times than

those normally set Rostered day off – A day off to compensate for longer hours worked during a week or

fortnight Expense accounts – Allows a person working for a firm to entertain clients who may have

business with the company and can be used for business trips and other business expenses Profit – The reward for risk-taking, after selling something at a higher price than it cost to

produce Entrepreneurs – People who own and run businesses Income can be gained from investing (see investing notes) Income can be gained from renting or hiring property Fee – Set charge for completion of a job or task. Fees are often regulated by professional

associations i.e. Australian Medical Association. Commission – Person acting as an agent or middleman is paid a commission. They usually

bring buyers to sellers or sell the product for a seller. People who work on commission basis are paid a base amount known as a retainer.

Royalty – Money paid to a creator for use of their copyrighted/patented intellectual property.

Social Security Benefits – Wealth disparity is Australia is combated by the government’s taxation system. Some tax money is used to help people who are unemployed, disadvantaged, disabled and underpaid.

Spending and Saving Income Savings represent the amount of income not spent immediately. May be kept for future

spending or for future investments Spending patterns vary based on personal circumstances i.e. health, financial state,

employment, loss of income, age, wealth

Borrowing money is based around consumer credit laws that give consumers protection when they enter into credit contracts

Three types of credit contracts: Credit sale contract – Person who sells you goods or services provides the credit Loan contract – For the loan of money Continuing credit contract – An example might be a credit card or charge account at a

department store Credit contracts must be: Easy to read and understand State the rights and responsibilities of the borrower Set out all the costs involved Interest is the price you pay for using someone’s money Fixed interest is set when the loan is taken and does not change Variable interest is based on the changing interest rates Buying on credit is a normal part of a consumer’s way of life but it does require some

responsibility and wise management. The most important things to remember are: you have to pay for the goods sooner or later, plus interest charges you must sign a contract before the credit is provided—read it carefully and if you do not understand what your responsibilities are, then before you continue, find out: – the total amount of the credit (or the limit for cards) – the credit charge and when it is payable – the total cost – the annual percentage rate of interest – instalment payments—how much per instalment and how many – what happens if you fail to make your instalment payments.

A budget is a means of planning ahead and keeping long-term as well as short term goals in mind

Personal Budgets and Setting Goals: Step 1: Set your goals, whether long term, short term or both. Step 2: List your sources of income. This includes your regular income sources, pocket

money, jobs and all of money that you are sure of receiving. Keep a track of any money that you receive that you did not expect.

Step 3: List of all of the expenses that you know you must pay. This is a very important process, so think carefully.

Step 4: Record when your income and expenses are due. Have a section for each month of the year, and perhaps each week, and write in the items in their proper section.

Step 5: Plan to save a regular amount and keep a record of this in your budget. Step 6: Add a safety valve in case of unexpected expenses. A good budget will be able to

handle this. You can add more to your savings for this purpose. Finally, always keep your budget in mind and keep it up to date.

Insurance is a way of protecting yourself against risk. Insurance policy – A contract that sets out terms and condition of insurance Premium – Amount of money payable for insurance. Actuary – A person who calculates odds of something happening. Insurance companies use

actuaries. As the risk of something bad happening goes up, so does the premium. Property Insurance – Protect you from loss and damage to property. Insurance provides

financial compensation if loss or damage to property occurs. Known as indemnity. Companies have assessors who evaluate value of loss or damage Insured needs to honestly disclose all information relevant to a claim and needs to own or

have an interest in the property being insured. Bankrupt – When a person’s debts outweigh their assets and are unable to pay debts.

Receiver – Person/company appointed by court to take charge of financial affairs of an individual/company

Insolvent – When a company owes more than it owns Liquidated – A company is wound up because it cannot afford to continue trading

Investing money Banks offer many investment accounts with different features. Term deposit accounts are

used by people who want interest on deposits but do not necessarily want to have daily access to their funds. They agree to leave money in the account for a specified time and earn higher interest than normal.

Credit unions are owned by the people who save and borrow with them. They offer a range of investment accounts. The greater the money invested, the higher the rate of interest earned.

Shares –

You cannot buy/sell shares by yourself, so you need to go through a stockbroker Real estate tends to appreciate in value over time, however sometimes property might lose

value due to random factors Superannuation is an investment for retirement. People contribute money to a super fund

regularly and then collect it when they retire, wither all at once or in instalments. Managed funds – A managed fund is putting your money with a company that has financial

expertise. They then invest the money and pay you the dividends based on the success. Speculation – A person with money may gain income by buying an item in the hope of selling

it later for a higher price. It is risky but can be highly rewarding. Includes antiques, real estate, jewellery and even wine.

Investing Putting money to use with the aim of financial gain Aim is to build up an investment portfolio A planned list of a person/company’s investments (Investment Portfolio) Investment options include: Depositing money in investment accounts Buying shares Life insurance Superannuation Managed funds Buying and selling property Buying and selling assets Ethical investments are investments that involve socially responsible behaviour on behalf of

the company or organisation. Some ethical investment brokers include Australian Ethical Investments Association, the

Ethical Business Network and the Ethical Investment Services company Financial markets are complex. Companies/Individuals may operate in financial markets to

buy/sell financial products i.e. shares, government bonds, debentures, unsecured notes, insurance policies and invest in superannuation or managed funds.

Stock market provides means for companies/individuals to buy/sell shares. All buying/selling is carried out by Australian Stock Exchange (ASX).

Shares are bought/sold through a stock broker who acts as an agent who does what a client advises

Only public companies are listed on ASX and have to conform to Australian Securities and Investments Commission (ASIC)

Other stock market investments: Government bonds are issued to people who lend money to the government in exchange

for a rate of interest. These bonds and treasury notes (short-term bonds) are traded like shares.

Debentures are like loan certificates. They are issued to people or organisations who lend money to companies and receive interest in their investment. Unsecured notes are like debentures, except holders do not have security over the company’s assets if the company goes into liquidation. They receive higher interest because there is greater risk.

Options are contracts that give the buyer the right to buy/sell a parcel of shares at a predetermined price within a given time. For this right the buyer pays a premium, and to exercise that right the buyer “exercises’ that option. Options are traded like shares.

Life insurance is a protection of yourself and your family against loss of income. Life insurance generally guarantee the payment of a sum of money on the death of the

insured or when the insured reaches a certain age. They operate on the principle of utmost good faith, which means the insured has to disclose

all relevant details about themselves i.e. occupation, health etc. It is possible to surrender a life insurance policy before it is used and collect the cash. The

surrender value is very often less than the amount of premiums already paid, so it is wise to think carefully before surrendering the policy. Bonuses are also likely to be lost.

Superannuation is a scheme that allows you to save for your retirement. You pay a percentage of weekly income into a super scheme. Your employer is also obliged to pay super on tour behalf. This is currently 9% of your income. You get a tax break on your money, however you do not see your money until retirement age.

Super is either paid to you as a lump or a pension. The funds are supervised by a fund manager such as AMP, BT, Rothschild and First State

Super. The fund manager invests the money to maximise investment i.e. property, shares and government bonds.

Managed funds are similar to super except people and companies may wish to invest the money and are unsure where to invest it. Thee managed funds will invest the money and declare a rate of return, as a percentage of money invested.

Property market is popular among investors, but there is no guarantee of success. Property prices are subject to change based on state of the economy.

Rate of return on an investment = profit from investment/original investment x 100/number of years

Investments with higher risk generally have higher return than safe investments. It is recommended to spread the risk in investment over different investments in different

sectors. It is important to keep good records of investments and returns to analyse trends and make

informed decisions based on the analysis.

Consumer Choice Commerce involved interchange of goods and services for money Retail Stores – Use advertising, personal selling, customer comfort, convenience and an

effective store layout to encourage purchases. Factory outlets – Do not have some of comforts and conveniences of retail stores, may not

sell brand names and are therefore cheaper Local markets – Get bargains without traditional overhead costs Door to door – Salesperson visits home. Generally uses high pressure sales techniques and

exaggerated claims, similar to a telemarketer. When contract is signed there is a ten-day cooling-off period before the transaction is

binding. Does not apply to cash transactions Mail order and selling online are other forms Goods are attractively packaged, however they cause large amounts of household waste. Caveat emptor means buyer beware. ACA (Australian Consumer Association) was formed in

1959. Consumers have a right to safety in their products. Advertising must be correct and factual. Cannot be misleading or false

All foodstuffs must be packaged so they cannot deceive the customer.

Warranty is a written promise given by the dealer or manufacturer that the product is free of

faults. If the product develops a fault within a period of time the dealer/manufacturer will make good the fault, repair or replace the item. There is also an implied warranty. You are entitled to a refund if the goods are faulty, unfit for purpose, do not match description, and were bought on misleading info.

Unordered goods are allowed to be kept if there is no response within three months. You must not throw the goods away, damage them, must write a letter to the seller.

Complaints

Consumer Claims Tribunal Obtain a claim from Office of Fair Trading Hearing is attended by consumer, trader and a referee from the tribunal Claims dealt with by Tribunal must be for less than $10,000, lodged within three years of

transaction and must arise from supply of faulty repairs, goods and unsatisfactory work.

Running a Business

Guidelines for success

Selecting business opportunities Market research – Research chosen market and analyse to select what to sell and when Location – Research demographics of the area you consider. Make sure you are close to

customers, supplier, amenities/services and transport/parking. Competition – Consider competition and analyse whether there is a demand for product in

the area New or existing business – Start from scratch or buy existing? Setting up new business can

be exciting, however you need to build up reputation, quality and wait a while to see if it is successful or not. Buying an existing business means there is a ready cash flow, however you

have to adhere to standards of previous management.

Sole traders are business with one owner. Owner is liable for all business debts. He has unlimited liability. If debts are greater than value of business the owner’s personal belongings are seized