what is income? terminology to be discussed: personal income employment income investment income...
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What is Income?Terminology to be discussed:Personal IncomeEmployment IncomeInvestment IncomeGross IncomeDisposable Income Discretionary Income
IncomeIncomeMoney that an individual or business receives from various sources, such as: wages or salaries for an individual
Sales for a business
Types of Personal Income1. Employment IncomeSalaries and wagesCommissions (earn a fixed % of a sale amount such as 3% on a sale of a $400,000 house which is equal to $12, 000)Piecework (earn a fixed amount per item produced)Profit sharing (earn fixed % or amount of a business profit)Benefits such as medical insurance, paid holidays, paid sick days, drug plan and dental benefits.
2. Investment IncomeDividendsInterest from savings accounts or other types of banking investments
Gross Income3. Gross IncomeThe total amount of income received by a person.
AGI = Salary + Commissions + Dividends + Interest EarnedANNUAL GROSS INCOME = 90 000 + 10 000 + 1000 + 500 = 101 500
$ 1 000$ 90 000$ 500$ 10 000
Gross IncomeAnnual Gross Income = $101 500Monthly Gross Income = $101 500 / 12 = $8458.33
BUT You dont take home or actually receive this amount.
WHY Deductions are made from your gross amount.
Any many people would respondBut why
Gross Income DeductionsOf the 90,000 gross salary, deductions are made as some of the money will go towards paying: 1. Federal income tax 2. into the Canada Pension Plan (CPP) 3. into government Employment Insurance (EI) 4. for any job benefits such as health insurance, a companys pension plan, union dues, life insurance, etc.
Take-Home Payaka Disposable Income
After deductions actual take home pay (disposable income) of $90 000 may be:
Additional provincial taxes would also need to be deducted.
4. Disposable IncomeThe amount of income that is left after taxes have been paid and any other deductions are made to gross income.
Example:Disposable Income = Gross Income Federal Taxes Provincial Taxes Property Taxes EI Benefits Health Benefits Pension Deductions other)
2010 Federal Income Tax BracketsCanadian Revenue Agency. What Are Income Tax Rates For Canada 2009. 24 August 2009. 16 February 2010
Taxable IncomeTax on this income$0 - $10,382 Nil$10 382+ - $40 970 15%$40 970+ - $81 941 22%$81 941+ - $127 021 26%Over $127 021+ 29%
2010 Ontarios Tax BracketsCanadian Revenue Agency. What Are Income Tax Rates For Canada 2009. 24 August 2009. 16 February 2010 http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html#provincial
Gross vs Disposable (Take-Home) IncomeExample
Note on TaxesActual taxes and deductions may vary depending on a number of additional factors such as: 1. charitable donations 2. union dues 3. other pension payments 4. other forms of income received
What do we spend Disposable Income On?
Necessities in life - Lifes financial responsibilities - Mortgage payments, food, car payments, insurance, electricity, etc.
Discretionary purchasesWants and luxury itemsVacations, eating out, the latest TV technology.
5. Discretionary Income Money left over after paying for necessities that can be used to purchase luxury items
BudgetingBudgetingHow we allocate or distribute our disposable income amongst necessity spending and discretionary spending
Personal Money Management
Why We Buy? Five key factors that influence consumer buying decisions: 1. Disposable Income and Price 2. Status 3. Current Trends 4. Customs 5. Habits and Addictions 6. Promotions
1. Disposable IncomeA low-income family spends a larger portion of its disposable income on necessities than a high-income family
Depending on income level, people with young children or university and college bound children will have less discretionary money to spend
Aging parents, and medical issues mean less discretionary income
Price Price affects the types of purchases and the quantity of purchases
Some believe, the higher the price, the better the quality
People will pay what they believe an item to be worth. If their perceived value is lower than the price, they wont purchase the product or service.
2. StatusSome purchases are made to satisfy a desire to feel important
Conspicuous ConsumptionPurchasing goods and services because of a desire to flaunt purchases and/or to impress others.
3. Current TrendsFashionClothing helps create an image
May be an indicator of status, popularity or group identity
Peer pressure can influence these purchasing decisions
Current TrendsTechnologyOften comes into play with the phrasekeeping up with the Joness or in many cases, your friends.Keeping up to date for professional reasonsKeeping up to date to identify with your childrenIndividuals who love to play with the latest gizmo
4. Customs and HabitsCustomsFamily, religious, community and customs affect consumer choices. Examples include birthdays, Christmas, baptisms, barmitsfa, weddings, etc.
Habits and AddictionsGoing to a movie every month, renting a movie every weekend, buying a monthly or weekly magazine, smoking
5. PromotionsBusinesses spend a great deal of money on promotions and advertising to instill a desire and/or perceived need for a particular product and/or service.
Businesses often use common insecurities to create a desire for their products.
The Wise Spender THE WISE SHOPPER
1. Compares whats available from different stores and online 2. Looks for higher-quality products that will last 3. Makes sure a product has the right features before buying it 4. Asks the vendor about delivery and warranties 5. Does research before buying anything 6. Watches for clearance and promotional sales 7. Considers buying things second-hand 8. Avoids impulse buying
Planning and Comparing The following resources can help with your planning and comparing: 1. Visiting stores 2. Comparing catalogues and newspaper advertisements 3. Phoning stores or checking online 4. Customer references 5. Consumer Reports, MoneySense, and Globe and Mail
SourceWilson, Jack et al. The World of Business, 5th Ed., Nelson Education Ltd., Canada, 2007