2. Unit 4 – Managing Money
General Learning Outcome:
Develop an understanding of managing
money.
Specific Learning Outcomes
• Solve problems that involve personal
budgets.
• Demonstrate an understanding of
financial institution services used to
access and manage finances.
3. Unit 4 – Managing Money
Specific Learning Outcomes
• Solve problems that involve personal budgets.
• identify income and expenses that should be
included in a personal budget.
• Explain considerations that must be made when
developing a budget including prioritizing, recurring,
and unexpected expenses.
• Create a personal budget, with or without
technology, based on given income and expense
data.
• Collect income and expense data, and create a
budget.
• Modify a budget to achieve a set of personal goals.
• Investigate and analyze, with or without technology,
“what if …” questions related to personal budgets.
4. Unit 4 – Managing Money
Specific Learning Outcomes
• Demonstrate an understanding of financial
institution services used to access and manage
finances.
•describe the type of banking services available from various
financial institutions, such as online
•services.
•describe the types of accounts and related service charges
available at various financial institutions.
•identify the type of account that best meets the needs for a given
set of criteria.
•identify and explain, for different accounts, the various record-
keeping options such as deposit slips,
•withdrawal slips, cancelled cheques, account statements, cheque
register, and receipts.
5. Unit 4 – Managing Money
Specific Learning Outcomes
• Demonstrate an understanding of financial
institution services used to access and manage
finances.
•identify and explain various automated teller machine (atM)
service charges.
•describe the advantages and disadvantages of online banking.
•describe the advantages and disadvantages of debit card
purchases.
•describe ways that ensure the security of personal and financial
information such as passwords,
•encryption, protection of personal identification number (PiN)
6. Unit 4 – Managing Money
Budgeting
• Preparing a budget is one of the best ways to
reach your financial goals. A budget allows
you to compare your income with your
expenses. It allows you to see where your
income is coming from and how you are
spending it.
A budget can help you:
– live within your income
– identify financial priorities
– allocate funds to meet expenses
– meet financial emergencies and reduce credit use
– reduce uncertainty and conflict about affairs
– gain a sense of financial independence and control
– save and invest to reach financial goals
7. Unit 4 – Managing Money
Budgeting – Paying Yourself First
• One of the most important suggestions made by
financial planners is ‘paying yourself first.’ By this,
financial planners mean that you should set aside a
certain percentage of your net income as soon as you
receive it and live off the remaining amount. Paying
yourself first will provide you with financial security.
• Most people know it is important not to spend all the
money they earn, but to save some of it. ‘Paying
yourself first’ involves saving money but with a twist.
Rather than spend and save what is remaining, you
set aside a fixed amount to save first and then spend
the remaining amount. Most financial planners
recommend that you set aside 10% of your net
income. They also suggest you begin the habit of
paying yourself first as soon as you start earning
money.
8. Unit 4 – Managing Money
Budgeting – Recommended Spending Levels
• The recommended levels of spending in the various
categories of a budget differ by the subject’s age, income,
and family situation. The following table of recommended
levels of spending provides a general guideline only.
9. Unit 4 – Managing Money
Budgeting
Worksheet 8.6
10. Unit 4 – Managing Money
Preparing a Budget
• The budget template you will be using is divided
into the following five sections.
Section 1: Net income
Section 2: Expenses - Monthly Expenses
Section 3: Expenses - Annual Expenses
Section 4: Reserve Fund and Savings
Section 5: Summary
12. Unit 4 – Managing Money
Section 1: Net income
• Your first step in preparing a monthly budget is to
accurately estimate your annual income. The category for
net income is subdivided into three parts: regular net
annual income, additional net annual income, and other net
annual income.
Regular net annual income is that of the major income
earner. Additional net annual income includes that of other
family members. Other net annual income includes income
such as scholarships, bonuses, tips and gratuities, income
tax refunds, child tax credits, and inheritances.
Note: Annual income in the budget form is net income and
not gross income. This means that it is the income you
receive after all deductions such as Canada Pension Plan
contributions, Employment Insurance premiums, and
income tax have been deducted.
13. Unit 4 – Managing Money
Section 2: Monthly Expenses
• This section consists of expenses that are paid each
month. Some of these may be fixed expenses such as a
mortgage or car payment. Some of these may be variable
expenses such as groceries, clothing, and car
maintenance.
Section 3: Annual Expenses
• This section consists of annual expenses. Although you
pay annual expenses only once a year, you should budget
for them each month. You are then prepared for them when
you have to pay them.
Note that this calculation is completed by dividing an
annual expense by 12 to calculate the average monthly
contribution.
14. Unit 4 – Managing Money
Section 4: Reserve Fund & Savings
• Many financial planners suggest that individuals should set
aside money in a reserve fund for emergencies. The
suggested amount is equal to two month’s net income.
Apart from this emergency reserve fund, individuals should
‘pay themselves first’ by saving approximately 10% of
total net monthly income.
Section 5: Summary
• In this section, the total of all expenses, reserve fund and
savings is subtracted from the total net monthly income. The
calculation will result in a surplus (income exceeds
expenses) or a deficit (expenses exceed income – shown in
red on the spreadsheet).
15. Unit 4 – Managing Money
Preparing A Budget
Exercise
Q. 1 - 7
16. Unit 4 - Investments
Net Worth
• A net worth statement is a
‘snapshot’ of your financial
situation at a given time.
It is the difference between what
you own, your assets, and what
you owe, your liabilities.
Your net worth statement is the
best overall indicator of your
financial worth.
17. Unit 4 - Investments
Net Worth
• In a net worth statement, your
assets can be divided into the
following three categories:
– Liquid Assets
– Semi-Liquid Assets
– Non-liquid assets
18. Unit 4 - Investments
Net Worth
• Your liabilities in a net worth
statement can be divided into the
following two categories:
– Short-term debts
– Long-term debts
19. Unit 4 - Investments
Net Worth – Debt/Equity Ratio
• One of the most important ratios used to
analyze a net worth statement is the
debt/equity ratio. The debt/equity ratio of
a net worth statement compares all debt,
excluding the mortgage on a principal
residence, to the equity or net worth. This
ratio is expressed as a percentage and is
a measure of an individual’s debt burden.
The debt/equity ratio is calculated using
the following formula:
20. Unit 4 - Investments
Net Worth – Debt/Equity Ratio
• Most financial advisors suggest that
the debt/equity ratio should not
exceed 50%.
If the debt/equity ratio is greater than
50%, it indicates an individual’s debt
burden is too high. The individual
should then consider ways to reduce
this debt.
21. Unit 4 - Investments
Sample Problem:
Completing a Net Worth Statement
• Olivia Jones has $670 in her chequing account
and $1500 in a savings account. Her life
insurance policy has a $5000 cash surrender
value.
She has $6000 invested in mutual funds and
$35,000 in a registered pension plan.
Her home is valued at $85,000 on which she has
an outstanding mortgage of $62,000.
Her car is valued at $18,000. She has a car loan
of $8000 that must be repaid within two years.
The balance owing on her credit cards is $495.
23. Unit 4 - Investments
Sample Problem:
Completing a Net Worth Statement - Solution
Olivia has a net
worth of $80,675
and a debt/equity
ratio of
approximately
10.53%.
Since her
debt/equity ratio is
well below 50%, her
debt burden is quite
manageable.
