Money Markets

Budget + why is it important?

An estimate of income and expenses / expenditure for a set period of time.

Puts you in control, helps you create a visual spending picture, and prevents impulse spending

Personal budget

A personal budget is a financial plan that allocates future income towards expenses, savings, and debt repayment.

Median house price

The median house price is the middle sale price of a list of properties when ranked from lowest to highest (exact centre)

It is different to the mean which is the average of all house prices

E.g. $100, $120, $150

Median: $120

Mean: $123.30

Factors that influence the median house price

1. Location: proximity to schools, healthcare, beaches, cities can increase house value

2. Economic Conditions: higher economy suburbs can correlate with higher priced houses

3. Property Characteristics: the size, design and condition can increase value 

Interest rate

Borrowing: a percentage of money that a lender chargers a borrower for the use of their money, you pay back the original amount plus the interest.

When you borrow money

E.g. from a loan

Saving: the interest rate is the percentage of your savings that the bank pays you for holding your money

E.g. money in a back account

Credit cards

Credit cards allow you to borrow money up to a certain limit as long as you make regular minimum repayments

Annual credit card fee

A yearly charge that some credit card issuers impose for the privilege of using their credit card. This fee is separate from interest charges

Low annual fee cards are often favoured by those who prefer simplicity and lower upfront costs

High annual fee cards, often referred to as premium or rewards cards, are attractive to those who spend a lot and can take advantage of the perks

Interest fee period

he time between when you make a purchase and when interest starts being charged (if you don’t repay the full amount by the due date, interest is charged on the unpaid amount)

Credit rating

A numerical representation of your creditworthiness, shows how likely you are to repay borrowed money. 

A low credit score would make it harder to get loans, borrow money or receive credit cards

Good credit services would make it easier to receive these services (pay bills/loans on time, build up savings)

GST

Goods and services tax (GST) is a broad-based tax of 10% on most goods or  services in Australia.

Necessities are exempt from GST

e.g. basic foods, some medicines, some educational courses

Income tax

The income tax system for workers is known as Pay As You Go (PAYG).

Under this system, the employer automatically takes out an amount of money from each worker’s pay. The more money that you earn, the more tax you pay.

How to calculate income tax

1. What bracket in the income part of (e.g. $150,000 is in Bracket 4)

2. Minus the upper income of the previous bracket (e.g. $150,00-$135,00 = $15,000)

3. Multiply the amount from step 2 by the tax rate specified in the table (e.g. $15,000 x $0.37 = $5,500)

4. State the tax payable from the previous bracket (e.g. $31,288)

5. Calculate the tax ($31,288+$5,500)

Define entrepreneur

Someone who is willing to take a a financial risk to start a business to fill a need in society

Benefits: Be your own boss, potential to make money

Risks: Financial loss, lose time

E.g. Morgan Hipworth - Bistro Morgan

Entrepreneur qualities/skills

Hardworking

Innovative

Risk-takers

Resilient

Corporate Social Responsibility

the concept that businesses have a responsibility to operate in an economically, socially and environmentally sustainable way, whilst balancing the interests of diverse stakeholders

E.g.

Triple Bottom Line

People (social), Planet (environmental), and Profit (economy)

Stakeholders

Any individual/ group that has vested interest in the activities of a business

(internal) Shareholders/owners

A person that owns at least one share or fund in the company

Managers

A person responsible for controlling a group of staff

Employees

People who work in the business in exchange for remuneration

(external) Competitors

Someone that sells good or services similar to your business

Suppliers

Parties who provide funds to allow the business to operate or expand

Customers/target market

Those that purchase goods and/or services from a business. They are a lifeline for a company.

Community

A group of people that live in the same place in which the business operates in

Shareholders

A person or group who owns a SHARE in a business

Sole trader

When one person owns and runs the business. May have other employees, but the owner provides all finance and makes all decisions for the business.

Pros:

• Easy and Cheap to set up

• No disputes with other owners 

• Owner keeps profits

Cons:

• Unlimited Liability 

• Business cannot run without owner

E.g. A freelance writer

Partnership

Owned by two or more people (usually max of 20). May have other employees, but the owners provide all finance and make all decisions for the business.

Pros:

• Easy and Cheap to set up

• Ability to share ideas and vision

• Owners keep profits

• Business can continue if one partner dies, is ill or away

Cons:

• Can be disputes between owners

• Unlimited Liability

Private limited (Pty Ltd)

A business that is incorporated but wants to control who can be a shareholder. Usually owned by between 2 and 50 private shareholders. Usually small-to-medium sized businesses

Pros:

• Shareholders HAVE CONTROL over who can become a shareholder 

•  LIMITED LIABILITY

• Business can continue if one shareholder dies

Cons:

• Can be EXPENSIVE and TIME CONSUMING to set up

• Higher TAX and REPORTING requirements

• Shareholders can potentially LOSE CONTROL over direction of business

E.g. Cotton On

Public limited (Ltd)

A business that has been incorporated and has decided to make shares publicly available to anyone who wants to buy-in. No limit on number of shareholders, usually large businesses. Shares are openly traded on ASX

Pros:

• LIMITED LIABILITY

• Business can continue if one shareholder dies

• Potentially more attractive to become a shareholder in

Cons:

• Can be EXPENSIVE and TIME CONSUMING to set up

• Higher TAX and REPORTING requirements

• Can potentially LOSE CONTROL over direction of business

E.g. Coles

Social enterprise

Businesses who provide goods and services for sale, but with the aim to fulfil a social need.

E.g.

4 P’s of marketing

Product, price, place, promotion

Place

The place is where the customer receives the product or service. The organization must determine how much the target market is willing to pay for atmosphere and physical resources.

Price

What the customer pays. The benefits of the product have to be great enough to warrant the price, whilst ensuring the business can still make a profit.

Product

Product is anything that is offered to the market that might satisfy a consumer's need or want.

Promotion

Includes all forms of communication you use to communicate the benefits of your offering to the target market(s).

Accounting equation

a = l + oe

What are assets?

Assets are what you own

What are liabilities?

Liabilities are what you owe

What is owner’s equity?

The owner’s investment in the business

What are source documents?

Records that proves that a transaction has occurred

E.g. receipt, invoice, or credit note

Receipt (verify the business received cash & customer made a purchase)

Invoice (verify the business owes money to someone else or that a customer owes a business money)

The accounting process

Raw financial data → Data input → Business reports → Business decision making

1. Raw financial data

Collecting the financial data from source documents

2. Data Input

Sorting, classifying and processing the data in an organised and methodical method (Cash Receipts Journal and Cash Payments Journal)

3. Business Reports

Summarising the data into useful information (Income statement, Balance Sheet)

4. Business decision making

Make informed and educated decisions about the business based on the information provided