Personal Finances AS 12.1.3 12.1.2 12.1.1

8/4/2019 Personal Finances AS 12.1.3 12.1.2 12.1.1

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PersonalPersonal

FinancesFinances

A S 12.1.3 12.1.2 12.1.1


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Would you like toWould you like to

Control your Finances?Control your Finances?

Issues that affect personal finances suchas taxation, retirement planning, changinginterest rates on credit, investment andthe ability to not be in debt.

Make sure you

understand


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TaxTax

Income tax: It is paid by all individuals that earn

more than a certain amount. This amount isdetermined in the National Budget each year.

Other taxes: This includes small business &company tax, rates & taxes on home, fuel tax,

custom & excise duties, property transfer fees etc.

VAT: It is an indirect tax and is levied at14% on

the value of all goods and services. Some goodsare exempt from VAT e.g. brown bread.

To pay for services like education, health,roads etc., the Government raises money

through various taxes e.g.


4/22

tax = R20250 + 25/100 x (180000-125500)= R33 875

Tax payable = 33875 7740 = R26 135

Deduction = 12 x R2 180 = R26 160

Due to him = R26 160 R26 135 = R25

An extract from the 2007/2008 tax rates forindividuals in S.A. reads:

If the taxable income exceeds R112 550 but not R180 000,the tax is R20 250 plus 25 % of the amount over R112 500.

Shariffs taxable income is R125 000 p.a. The

primary tax rebate applicable is R7 740. Theemployer deducts R2 180 p.m. for PAYE. Howmuch tax is due to him or still owed by him?

A Tax Rebate is a fixed amountdeducted from the tax payable.

1.


5/22

Shariff drives a tourist bus each Saturday and getsR315 for this. SARS instructs the Tourist Company

to take off25% for tax as it is extra income.

Income = 75/100 x 315

= R240

New cost = 315/75 x 100

= R420

What is the net incomethat Shariff receives each

Saturday?

The Company gives Shariff an increase tocompensate for the tax that has to be paid.

What is the total cost to the company per week?

2.


6/22

Shariff buys a flat for R300 000 (the market value).

What will the rates and taxes be, per month, if themunicipality charges rates at 1,295c in the Randp.a. on the market value?

What will the insurance be, per month, if the

homeowners insurance p.a. is calculated at R0,55per R100 on the market value?

Rates = 0,01295 x 300000

= R3 085Rates p.m. = R323,75

Insurance p.m. = 0,55 x 300000/100 12

= R137,50

3.


7/22

Shariffs Municipality bills him for water (excludingVAT) as follows:

First 6 kl Free6 10 kl R3,99 per kl10 25 kl R5,25 per kl25+ kl R8,15 per kl

How much VAT does he pay if he uses29 kl of water?

Costs = 6x0 + 4x3,99 + 15x5,25 + 4x8,15= R127,31VAT = 14/100 x 127,31

R17,82

4.


8/22

Shariff has to buy a stove. He sees two advertsfor similar stoves.

El Co storePrice (excluding VAT):

R1 899,00

PE Co storePrice (including VAT):

R2 159,00

Where must Shariff buy the stove? Explain.

EL Cost with VAT =114

/100 x R1899= R2 164,86

Buy at PE-Co cheaper

5.


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Saving OptionsSaving Options

Instead of a single lump sum investment you caninvest in an annuity.An annuity is a number ofequal payments made atregular intervals (monthly, quarterly etc.) subject to

a rate of interest for a period of time.

Another option is to invest in the stock exchangeand buy a certain no. ofshares e.g. unit trusts.These shares can be sold at any time but you needto be careful as sometimes the shares decrease in

value and you may lose money.

Annuity Formula: A = P[(1+i )n 1]i


10/22

Thinking of his retirement, Shariff started investingat the age of 30 in an RA by making regular

monthly payments of R250. Calculate the value ofthe annuity after 35 years if the average interestrate is 6% p.a. compounded monthly.

A = P[(1+i )n 1]i= 250[(1 + 6/1200)

35x12 -1] 6/1200 R 356 177,57

Determine the interest earned on this investment.

Amount paid = R250x12x35 = R105 000Interest = R356 177,57 R105 000

= R251 177,57

1.


11/22

Shariffs friend, Abdul, started investing R250 per

month at a rate of 6% p.a. compounded monthly,

when he was 20 years old and stopped contributingwhen he turned 30. What was the value after 11years?

A = P[(1+i )n 1]i

= 250[(1 +6

/1200)12x11

-1] 6

/1200 R46 580,66

How much did he contribute?

A = R250 x 12 x 11 = R33 000How much interest was earned?

Interest = R46580,66 R33000

= R13 580,66

2.


12/22

Abdul decides to leave the money in the accountfor 35 years at 6% p.a. compounded monthly.

What is the accumulated value of his savings?

A = P(1 + i )n

= R46580,66(1 + 6/1200)12x35

R378 400,39

Which was the better investment,Shariffs or Abduls? Discuss the factors

that influenced your decision.

How much interest was earned on the totalinvestment?

Task

Interest = R378400,39 R33000

= R345 400,39

This is a lump sum investment for 35 years


13/22

Abdul bought2 000 unit trust shares at R1,38 pershare. They are now worth R3,17 per share. He

had the shares for 6 months.

How much did Abdulpay for the shares?

What was the %increase per share?

If he chooses to sell the shares now, how muchdoes he get for his shares and what is his profit?

Cost = 2000 x R1,38= R2 760

Increase = 1,79/1,38 x 100

129,71%

Sell = 2000 x R3,17 = R6 340Profit = R6340 R2760 = R3 580

3.


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Interest can be compounded daily, monthly,quarterly etc. To make a fair comparison whenthe compounding periods are different we mustconvert the interest rates to their equivalent

effective annual rate using, E = [(1 + i )n

1].

The Best RateThe Best Rate

Emily bought a laptop using her credit card. Theinterest rate for the loan is 22% p.a. compounded

daily on the full purchase price. What is the effectiverate?

E = (1+ 22/36500)365 -1

0,24599

Rate % 24,6%

The effective rate of an investment will always be

higher than the given interest rate p.a., wheninterest is compounded more than once per year.


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Plan A 5,50% p.a. compounded annuallyPlan B 5,45% p.a. compounded semi-annuallyPlan C 5,35% p.a. compounded monthly.

PLAN B:E = (1+ 5,45/200)2 - 1

0,055242rate % = 5,52%

PLAN C:E = (1+ 5,35/1200)12 - 1

0,054831Rate % = 5,48%

PLAN A: rate % = 5,5%

Which is the best interest rate for a guaranteed fixeddeposit savings offered by U-Bank?

Plan B is the best


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Balancing the numbersBalancing the numbers

Bank statements or account summaries arewritten records of what happens to your savings,loan, credit card spending etc. It is important tokeep track of the balances in your different

accounts.

You took a loan from the bank for R4000. Interest iscalculated on the outstanding balance at the end of

each month. The bank statement shows R38,33charged for interest after the 1stmonth.

What is the annual interestthat the Bank charges?

38,33/4000 x 100 x 12

11,5%


17/22

Is the new balance of R523,47 correct?Show your working.The amount must be added onto how muchyou owe the card company.

Date Balance

b/f

Pay-ments

(-)

Cashadvances

(+)

Pur-chases

(+)

Inter-est(+)

Newbalance

Jun 24 243,74 50,00

Jul 3 175,60

Jul 7 150,00

Jul 24 4,13 523,47

Shariff has a Chargmee credit card.He received this statement.

193,74

369,34

519,34

What do the (+) signs in the columns mean?yes

1.


18/22

Date Balanceb/f

Pay-ments

Cashadvances

Pur-chases

Inter-rest

Newbalance

Jun 24 243,74 50,00 193,74Jul 3 175,60 369,34

Jul 7 150,00 519,34

Jul 24 4,13 525,47

Interest is 18% p.a. compounded daily on the unpaidbalance from the previous statement & cash advances.Interest is not charged on purchases made during thecurrent month.

Show how the interest of R4,13 was determined.

Interest = 193,74x18/36500 x13 + 343,74x18/36500 x17

R4,13


19/22

How wouldyou use yourcredit card,and not payany interest?

The minimum payment is 2,5% of the closingbalance of R525,47. Shariff only paid the minimum

due and spent R120 the next month. What is theclosing balance on August 24?

Pay = 2,5/100 x 525,47

R13,14Int = 18/36500 x 31 x 512,33

R7,84

Closing balance= 525,47 -13,14 +7,84 +120= R640,17

Pay off the totaldebt amounteach month.


20/22

Dont Fall into the minimum trap !

If you just pay the minimum due on a creditcard, you will barely cover the interest you

owe, let alone the debt. It will take youyears to pay off your balance, and you willend up spending thousands of rands morethan the original amount you were charged.


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Marc and Liesl have rented a 2 bedroom townhousefor 5 years. They pay rent plus utilities. As they they

are expecting their first child, they are consideringbuying a small house.

Town

house costs:Rent = R3450/month

Refuse = R1659/yearElectricity=R2700/year

Parking = R90/month

House costs:Bond Loan=R780/weekWater= R165/month

Electricity=R690/month

Rates & taxes = R5940

Should they buy the house? Justify your answer.

Discuss the pros & cons of owning a house.Task

2.


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House costs per month:= 780x4 + 165 +690 + 5940/12= R 4 470,00

Townhouse costs per month:

= 3450 +1659

/12 +2700

/12 +90= R3 903,25

Cheaper to carry on renting !

Documents

Personal Finances AS 12.1.3 12.1.2 12.1.1