Sally Morgan

Personal finance
Focus statement


In this chapter we focus on the concept of financial independence and the decisions that must be made in order to achieve it. The fundamental question here is what is the best way to manage personal finances? In answering this question, we look in detail at the decisions that people need to make in relation to spending, saving, investing, borrowing and managing their money.

In this chapter you will learn about:
• the different types of income • spending patterns and the factors that influence the need for saving • the reasons for investing and the different investment options • the reasons for borrowing and the different borrowing options • the different sources of financial advice • the laws that monitor the financial services industry • how to manage your finances • the consequences of poor financial management.

2.1 Spending and saving
Getting technical
commission Income from acting as an agent, or gobetween, between buyers and sellers. disposable income A person’s income after tax has been deducted (gross income – tax = disposable income). dividend A payment made to a shareholder of a company as a cash reward for investing in that company through the purchase of its shares. The dividends are derived from the company’s net profit, which is the final profit to the company after all business expenses have been deducted from income earned. employee A person working under the control or direction of another, according to a contract of employment and in return for a wage or salary. employer A person or organisation who employs workers under a contract of employment. Employers exercise some control over their workers and are responsible for the payment of wages or salaries and for providing a safe working environment. fee Income from providing a professional service, such as legal advice or public speaking. flexitime A system that provides salaried workers with flexible working hours. income Money earned from working and the...