Earning Money

1) Important Terms
Salary: earnings that are fixed per year. E.g $45 000 p.a (teachers, police,
lawyers etc.)
Wage: Earnings based on hours worked. E.g $8.50 per hour (casual/part
time jobs in retail, food, construction etc.)
1 year = 12 months, 52 weeks, 26 fortnights, 365 days.
Leap year = 366 days.


2) Allowances and Loading
Overtime: Time and a half (x1.5) and double time (x2).
E.g uniform, travel, tools etc.
e.g. Normal pay rate $8.42 per hour.
a) Time and a half rate = $12.63
b) Double time rate = $16.84
c) Total earnings of working 38 hours at a normal pay rate and 6 hours at
time and a half overtime = ($319.96 + $75.78) = 395.74

3) Commission
A commission is a percentage of the total cost of goods sold, that is paid
to the sales person (real estate agents, car salesmen etc.)




e.g : Joe sold a car at $48 000 in a week, calculate his commission at a rate of
7%

4) Piecework and Royalties
Piecework: A method of earning money per how much you make of fix
something.
e.g. Rick waxes surfboards at $6.70 per board
a) How much does he earn if he waxes 15 surfboards? = $100.50
b) If it takes Rick 2 hours to wax one board, what is his hourly rate? = $3.35
Royalty: Earning a percentage of the selling price of an item. E.g. authors,
writers, musicians etc, earn royalties when their work is reproduced and
sold.


5) Bonus and Holiday Loading
Bonus: A gift/incentive for employees who have worked hard over a
period of time.
e.g. Haley earns a bonus of 6% of her annual salary of $47,000.
a) What is her bonus earning? = $2820
b) What is her total salary for that year? = $49,820
Holiday loading: It is normally 17.5% bonus of an employees 4 week
normal pay given while theyre on annual holiday leave.
e.g. Amy goes on 4 weeks annual leave, earning 17.5% holiday loading.
a) She earns $450 per week. How much is her holiday loading?

b) How much is her holiday pay? = $2115

6) Deductions
Gross income: income before deductions.
Deductions: amounts taken away from gross pay for expenses such as
insurance, superannuation, tax, fees etc.
Net income: the final amount paid to an employee of the income minus
deductions (gross pay deductions).

7) Earning Money










Earnin
g
Money
Wage/hour
Overtime
Time and a
half
Double time
Gross pay/net pay
Deductions
Income tax
superannuation
Royalties: % of
sales (artists
etc.)
Holiday loading:
17.5% of 4 weeks
normal pay.
Salaries: per
annum (p.a.)
Commission: %
of sales

Taxation
1) Taxable Income
Taxable income = total income allowable tax deductions.
Taxable income: The income that is taxed. It includes all incomes earned
including salaries, wages, bonuses and interest.
Allowable tax deductions: The costs of items and other expenses related
to the profession of income e.g stationary, clothes, donations over $2.
This reduces the taxable income.


2) Medicare Levy
Medicare is a public hospital medical system for Australians. To fund this,
there is a tax put on people taxable income. It is normally a percentage.
e.g Medicare levy is 1.6% and the taxable income is $49, 975.
Medicare levy =

Taxable income = total income allowable deductions.
Medicare levy: is usually 1.4% of taxable income.


3) Calculating Tax
The financial year is from the 1
st
of July to 30
th
of June the following year.
Pay as you earn (PAYE) tax: the tax money that is directly deducted from
pay.
Tax refund: tax money due back to the tax payer when too much PAYE
tax has been payed.
Balance payable: Tax money from the tax payer that they owe.
e.g Ken has paid $6790 in PAYE tax instalments. His Tax payable from
income is $5600. Does he earn a tax refund or have a balance payable? He
earns a tax refund of $1190.

4) GST and VAT
GST: Goods and services tax.
In Australia, 10% is paid on top of all goods and services purchased.
Divide by 11 to find GST.
e.g:
a) What is the GST of a bag that costs $25 (not including GST)?


b) A meal costs $45.60 including GST. How much GST was paid?

VAT: Values added tax.
Similar to GST but in other countries.

5) Graphing Tax Rates
Make sure axes are labelled and axes are to scale.













6) Budgeting
A financial plan.
Can be in the form of a weekly, monthly or yearly plan.
Looks at all income earned and expenses spent on.
Budges can determine a surplus or a deficit.

e.g:

Annual item income: Budget annual amount:
Nick: $14,820
Daniella: $15,080
Total: $29,900
0
2
4
6
8
10
12
14
16
18
0 10 20 30 40 50
Tax
Tax
Taxable income (000)
T
a
x

p
a
y
a
b
l
e

(

0
0
0
)


Expenditure: Amount:
Home loan $9,000
Insurance (home) $255
Council rates $320
Water $300
Food
electricity
$4,940
$640
telephone $450
car registration $165
green slip $405
car repayments $1,440
car insurance $290
car running $1,820
clothes $960
entertainment $3,640
other $2,600
total $27,225
expected surplus

$2,675

Insufficient funds by $3325

Credit and Borrowing
1) Flat Rate Loans (simple interest)
Type of interest calculated on the full amount borrowed/invested over
the full term of the loan.
Formula: I = PRN.
I = interest earned.
P = principal amount borrowed.
R = percentage rate; expressed as a decimal.
N = time.
e.g Calculate the simple interest on $44,000 at a flat rate of 12% p.a. over 18
months.
I = ? I = $7,920
P = 44, 000
R =
N = 18 months
e.g calculate simple interest on $6000 at a flat rate of 7% p.a. over 11 months.
I = ?
P = 6000
R =
N = 11

2) Compound Interest
Compound interest formula:

Compounding: when the interest is worked out for a time period and
added onto the starting amount.
If the compounding cycle is different we must convert the rate and time
period to the same compounding cycle.

Rate p.a. Time period
Monthly
Quarterly
Half yearly

e.g Use the compound interest formula to calculate the amount earned on
$500 over 2 years at 8% interest compounding annually.

A = ?
P = 500
r = 0.08
n = 2
A = $583.20
e.g Use the compound interest formula to calculate the amount earned on
$3500 over 3 years at 12% interest compounding monthly.

A = ?
P = 3500
r =
n =

3) Annuities and Loan Repayments

Annuity is the sequence of periodic payments made on a loan
Reducible Interest is where the interest charged on the amount owing
to the institute decreases as the period of the loan goes on. (Term used
in home loans) insert home loans table

Future Value of an Annuity
This is the sum of all payments plus the interest earned on an investment.


4) Depreciation

The decrease in value of equipment over time
Current value is what a piece of equipment is worth at any particular
time
Similar to compound interest except the value is decreasing and
therefore the amount of depreciation is subtracted each year.
Formula: S = V0 (1 r)
n

S = current value
V0 = purchase price
r = rate of depreciation per period
n = number of periods

Straight Line Method
Calculates the decreased value of an asset apportioning the same
amount of depreciation each period
Formula: S = V0 - Dn
S = salvage (current) value of the asset
V0 = purchase price of the asset
D = amount of depreciation apportioned per period
N = total number of periods

Declining Balance Method
Calculates depreciation looking at the assets value at the end of each
period
Formula: S = V0 (1 r)
n

S = salvage (current) value
V0 = purchase price
r = percentage interest rate per period, expressed as decimal
n = number of periods



5) Shares
Shares: part ownership in a company.
Face or par value: shares in a company when first issued.
Market value: Price of the share being traded on the stock exchange is
called the market price.
Dividend: profit returned to shareholders.
Yield: theoretical return on the money invested.




Brokerage: fee charged by stock brokers.
Stamp duty: tax on buying and selling shares.
When buying shares - Total cost: cost of shares + brokerage+ stamp duty
When selling shares total earning: cost of shares brokerage- stamp
duty.

6) Calculating Stamp Duty
Round the cost up to the nearest 100.
Always round up.
e.g:
352
702 = 800
30 = 100
2375 = 2400
Divide by 100 to find how many hundred parts there are.
e.g:

2400
Multiply by the stamp duty cost per part.
e.g if 15c per 100 part
a) 15c per 4 parts =
b) Per 24 parts =

7) Dividends

e.g:
A dividend of 34 cents per share is paid on Coles shares with a market value of
$8.02. Find the percentage yield.

e.g:
Calculate the amount of dividend of 1500 shares with a face value of 50 cents if
the dividend is 13%.

Dividend per share: 13% of 50 cents = 6.5 cents
Total dividend:



8) Inflation
Inflation is the rise in cost of consumer goods and services, and usually
expressed as a percentage.
Inflation rate can change year by year, or constantly over a period of
time (n).

e.g the price of a camera increases by 4% per year over 3 years after it
was bought for $1200. How much is it now worth?
P = 1200
r = 4%
n = 3
A =

A = 1349.84

e.g A house was bought for $50,000 and is now worth $75,000 after 5
years. What is the average constant inflation rate per year?
P = 50 000
A = 75 000
n = 5
75 000= 50 000

r = 8.45%