topic 4 libf


How do we choose to spend money

Spending is paying for things with our money. We choose how to spend based on what is important to us.

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How do we choose to spend money - essential v non

'essential' spending is on items for which you must pay. People who rent or own a home must pay many essential items regularly. There are negative consequences if essential bills are not paid. 'Non-essential' spending is on wants. You might want to go swimming, but it is essential to pay your electricity bill first.


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value for money

A big concern for most types of spending is getting value for money. This does not always mean getting sometging at the cheepest price. In fact, buying the cheapest item might lead to a 'false economy'. The value of money is about:

- QUALITY, how well is it made? or how good does it taste?

- QUANTITY, how much are you getting for your money?

- CONVENIENCE, how easy is it to find?

- PRICE,is it cheaper to buy in a larger quantity? do you need a larger quantity?

- STABILITY, is it what you need? does it do the job you want it to do?

- HOW LONG IT LASTS - is it a 'throwaway' item, or does it need to last longer?

- WHAT IT LOOKS LIKE, is it nicer-looking or a better colour than the cheaper option?

- HOW DOES IT MAKE YOU FEEL, sometimes you want to treat yourself

- FLEXIBILITY, can it be used to do the job of two different products?

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value for money - Shopping around

Shopping around in many places is key to getting value for money. It also means you can compare prices of the same itemin different stores, such as a certain toaster or a specific pair of shoes. By shopping around, you know it will be cheapest for you to buy the Blu-ray online.

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value for money - Loyalty cards

A lot of stores offer plastic loyalty cards that give you points on everything you buy there. You can use points to get money off your bill or exchange them for free gifts. This is useful if you spend a lot one particular shop, but it can also put you off shopping around.

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value for money - What are hidden charges

If you shop online or by phone, the price you see advised is not always the total cost. Before you confirm you order, you need to know any costs you may have to pay. Look carefully at the total price - is the item still the bargain it seemed to be. Smartphne apps often charge for in-app purchases. Costs of in-app purchaces may seem small but can quickly add up. Resturants often add a 'survice charge' to the bill. A survice charge is meant to be for the waiting staff but it is not allways paid to them. If a resturant charges for service, this must be stated before diners get to their table, such as on the door as well as on he menu.

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Attitudes to spending

Different people have different attitudes to spending. Some people like to spend little and save a lot, other people spend their money as soon as they get it. Whatever your approach to spending, you must think about what you need to spend money on before you buy the things you want. This is an important skill in managing your money

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To 'prioritise' means to putt things in order of their importance. When spending, we must prioritise our essential purchases ahead of those that are non-essential.

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taking risks with money

some forms of non-essential spending for adults involve taking a risk with your money. You might win a lot of money. You might win a lot of money, or you might lose the money spent. When you take a risk, you need to consider whether the potential reward is worth it. Gambling is non-essential spending for adults that involves risk. An example is the UK National Lottery, where people pay for a ticket with a line of six numbers. Some people gamble because they weigh up the risk they are taking against the reward they could win. Foe the national lottery, the possible reward is greater than the risk, which is why some people pay every week. The chances of winning the jackpot are extremely low. Gambling can be addictive, leading people to lose more and more money each time they do. Many adults gamble every so often as a bit of fun. But we need to stay in controll of how much we spend, and spend only what we can afford. Gambling on scratchcards or fruit machines may seem harmless, but they are designed to keep people spending money. When peoole choose to invest in company shares, they are taking risks. The risk of investing in shares can be reduced by using an expert to choose th companies you invest in. Premium bonds let people save money nd have the chance to win cash. Instead of avers earning interest, the interest is used to fund cash prizes. Prizes vary each month, but the top prize is always £1 million. Premium bonds are backed by the goverment, so the original amount that people put in is 100% safe. The risk here is whether you will earn morein cash prizes than you would earn interest by saving elsewhere.

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What is budgeting

We need to 'budget' to manage our money. This means planning ahead so we do not run out of money and we have enough to do what we want to do.

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Income and expenditure

To start budgeting, you need to know two key things:

- your income over a certain period

- how much you need to spend over the same period - ypur expenditure

Budgeting is also about priorities. Your essentiual expenditure must be prioritised first

Essential = high priority

Non-essential = low priority

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Short-term budgeting

A short-term budget lets yiu plan your spending over one week or month. To buget, list your income and expenditure so you can see what will be left after each week.

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Checking bank statements

People who make regular payments out of their account need to check their bank statement to stay on track. An online bank statment will show two different ballences. The ballence is what you have available to withdraw now. The available balance is what will be available to withdraw after upcomming debits. To work out what we have left, we must include debits that are about to be tacken.

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What happens when things change

Budgeting our income and expenditure means we can adapt if something unexpected happens. We need to prioritise expenses if anything changes ( eg. higher buss fair costs may mean you have to cut down you expenditure on clothes)

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Long-term budgeting

We need to budget for long term when we set financial goals, such as:

- saving up to go on holiday

- paying for a car or home

- saving for a pension when we retire

The idea is the same as for short-term budgeting, but extended over many months or even years.

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