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Commerce Yearly Notes

Personal Finance
Income The amount of money received by an individual, household, company or
government from any source
Savings Money or other financial assets that are stored for future use
Wages Money paid on a regular basis for a period of work or services. Each hour worked
above the number stated in an award is considered overtime and must be paid at a higher
rate referred to as penalty rates
Award Minimum rate of pay and working conditions specified for a particular job and set
by an industrial court
Overtime Time worked over and above normal hours of work
Penalty rates Higher than normal wage rates to compensate for working outside normal
Salary Income paid on a yearly basis
Some salary owners earn fringe benefits
Fringe benefits Payment of non-income items received in addition to normal wages or
Flexitime Working a set number of hours but using different start and finish times than
those normally set
Rostered day off A day off to compensate for longer hours worked during a week or
Expense accounts Allows a person working for a firm to entertain clients who may have
business with the company and can be used for business trips and other business expenses
Profit The reward for risk-taking, after selling something at a higher price than it cost to
Entrepreneurs People who own and run businesses
Income can be gained from investing (see investing notes)
Income can be gained from renting or hiring property
Fee Set charge for completion of a job or task. Fees are often regulated by professional
associations i.e. Australian Medical Association.
Commission Person acting as an agent or middleman is paid a commission. They usually
bring buyers to sellers or sell the product for a seller. People who work on commission basis
are paid a base amount known as a retainer.
Royalty Money paid to a creator for use of their copyrighted/patented intellectual
Social Security Benefits Wealth disparity is Australia is combated by the governments
taxation system. Some tax money is used to help people who are unemployed,
disadvantaged, disabled and underpaid.

Spending and Saving Income
Savings represent the amount of income not spent immediately. May be kept for future
spending or for future investments
Spending patterns vary based on personal circumstances i.e. health, financial state,
employment, loss of income, age, wealth
Borrowing money is based around consumer credit laws that give consumers protection
when they enter into credit contracts
Three types of credit contracts:
Credit sale contract Person who sells you goods or services provides the credit
Loan contract For the loan of money
Continuing credit contract An example might be a credit card or charge account at a
department store
Credit contracts must be:
Easy to read and understand
State the rights and responsibilities of the borrower
Set out all the costs involved
Interest is the price you pay for using someones money
Fixed interest is set when the loan is taken and does not change
Variable interest is based on the changing interest rates
Buying on credit is a normal part of a consumers way of life but it does require some
responsibility and wise management. The most important things to remember are: you have
to pay for the goods sooner or later, plus interest charges you must sign a contract before
the credit is providedread it carefully and if you do not understand what your
responsibilities are, then before you continue, find out: the total amount of the credit (or
the limit for cards) the credit charge and when it is payable the total cost the annual
percentage rate of interest instalment paymentshow much per instalment and how
many what happens if you fail to make your instalment payments.
A budget is a means of planning ahead and keeping long-term as well as short term goals in
Personal Budgets and Setting Goals:
Step 1: Set your goals, whether long term, short term or both.
Step 2: List your sources of income. This includes your regular income sources, pocket
money, jobs and all of money that you are sure of receiving. Keep a track of any money that
you receive that you did not expect.
Step 3: List of all of the expenses that you know you must pay. This is a very important
process, so think carefully.
Step 4: Record when your income and expenses are due. Have a section for each month of
the year, and perhaps each week, and write in the items in their proper section.
Step 5: Plan to save a regular amount and keep a record of this in your budget.
Step 6: Add a safety valve in case of unexpected expenses. A good budget will be able to
handle this. You can add more to your savings for this purpose. Finally, always keep your
budget in mind and keep it up to date.
Insurance is a way of protecting yourself against risk.
Insurance policy A contract that sets out terms and condition of insurance
Premium Amount of money payable for insurance.
Actuary A person who calculates odds of something happening. Insurance companies use
actuaries. As the risk of something bad happening goes up, so does the premium.
Property Insurance Protect you from loss and damage to property. Insurance provides
financial compensation if loss or damage to property occurs. Known as indemnity.
Companies have assessors who evaluate value of loss or damage
Insured needs to honestly disclose all information relevant to a claim and needs to own or
have an interest in the property being insured.
Bankrupt When a persons debts outweigh their assets and are unable to pay debts.
Receiver Person/company appointed by court to take charge of financial affairs of an
Insolvent When a company owes more than it owns
Liquidated A company is wound up because it cannot afford to continue trading

Investing money
Banks offer many investment accounts with different features. Term deposit accounts are
used by people who want interest on deposits but do not necessarily want to have daily
access to their funds. They agree to leave money in the account for a specified time and earn
higher interest than normal.
Credit unions are owned by the people who save and borrow with them. They offer a range
of investment accounts. The greater the money invested, the higher the rate of interest

You cannot buy/sell shares by yourself, so you need to go through a stockbroker
Real estate tends to appreciate in value over time, however sometimes property might lose
value due to random factors
Superannuation is an investment for retirement. People contribute money to a super fund
regularly and then collect it when they retire, wither all at once or in instalments.
Managed funds A managed fund is putting your money with a company that has financial
expertise. They then invest the money and pay you the dividends based on the success.
Speculation A person with money may gain income by buying an item in the hope of selling
it later for a higher price. It is risky but can be highly rewarding. Includes antiques, real
estate, jewellery and even wine.

Putting money to use with the aim of financial gain
Aim is to build up an investment portfolio
A planned list of a person/companys investments (Investment Portfolio)
Investment options include:
Depositing money in investment accounts
Buying shares
Life insurance
Managed funds
Buying and selling property
Buying and selling assets
Ethical investments are investments that involve socially responsible behaviour on behalf of
the company or organisation.
Some ethical investment brokers include Australian Ethical Investments Association, the
Ethical Business Network and the Ethical Investment Services company
Financial markets are complex. Companies/Individuals may operate in financial markets to
buy/sell financial products i.e. shares, government bonds, debentures, unsecured notes,
insurance policies and invest in superannuation or managed funds.
Stock market provides means for companies/individuals to buy/sell shares. All
buying/selling is carried out by Australian Stock Exchange (ASX).
Shares are bought/sold through a stock broker who acts as an agent who does what a client
Only public companies are listed on ASX and have to conform to Australian Securities and
Investments Commission (ASIC)
Other stock market investments:
Government bonds are issued to people who lend money to the government in exchange
for a rate of interest. These bonds and treasury notes (short-term bonds) are traded like
Debentures are like loan certificates. They are issued to people or organisations who lend
money to companies and receive interest in their investment. Unsecured notes are like
debentures, except holders do not have security over the companys assets if the
company goes into liquidation. They receive higher interest because there is greater risk.
Options are contracts that give the buyer the right to buy/sell a parcel of shares at a
predetermined price within a given time. For this right the buyer pays a premium, and to
exercise that right the buyer exercises that option. Options are traded like shares.
Life insurance is a protection of yourself and your family against loss of income.
Life insurance generally guarantee the payment of a sum of money on the death of the
insured or when the insured reaches a certain age.
They operate on the principle of utmost good faith, which means the insured has to disclose
all relevant details about themselves i.e. occupation, health etc.
It is possible to surrender a life insurance policy before it is used and collect the cash. The
surrender value is very often less than the amount of premiums already paid, so it is wise to
think carefully before surrendering the policy. Bonuses are also likely to be lost.
Superannuation is a scheme that allows you to save for your retirement. You pay a
percentage of weekly income into a super scheme. Your employer is also obliged to pay
super on tour behalf. This is currently 9% of your income. You get a tax break on your
money, however you do not see your money until retirement age.
Super is either paid to you as a lump or a pension.
The funds are supervised by a fund manager such as AMP, BT, Rothschild and First State
Super. The fund manager invests the money to maximise investment i.e. property, shares
and government bonds.
Managed funds are similar to super except people and companies may wish to invest the
money and are unsure where to invest it. Thee managed funds will invest the money and
declare a rate of return, as a percentage of money invested.
Property market is popular among investors, but there is no guarantee of success. Property
prices are subject to change based on state of the economy.
Rate of return on an investment = profit from investment/original investment x 100/number
of years
Investments with higher risk generally have higher return than safe investments.
It is recommended to spread the risk in investment over different investments in different
It is important to keep good records of investments and returns to analyse trends and make
informed decisions based on the analysis.

Consumer Choice
Commerce involved interchange of goods and services for money
Retail Stores Use advertising, personal selling, customer comfort, convenience and an
effective store layout to encourage purchases.
Factory outlets Do not have some of comforts and conveniences of retail stores, may not
sell brand names and are therefore cheaper
Local markets Get bargains without traditional overhead costs
Door to door Salesperson visits home. Generally uses high pressure sales techniques and
exaggerated claims, similar to a telemarketer.
When contract is signed there is a ten-day cooling-off period before the transaction is
binding. Does not apply to cash transactions
Mail order and selling online are other forms
Goods are attractively packaged, however they cause large amounts of household waste.
Caveat emptor means buyer beware. ACA (Australian Consumer Association) was formed in
Consumers have a right to safety in their products.
Advertising must be correct and factual. Cannot be misleading or false

All foodstuffs must be packaged so they cannot deceive the customer.

Warranty is a written promise given by the dealer or manufacturer that the product is free
of faults. If the product develops a fault within a period of time the dealer/manufacturer will
make good the fault, repair or replace the item. There is also an implied warranty. You are
entitled to a refund if the goods are faulty, unfit for purpose, do not match description, and
were bought on misleading info.
Unordered goods are allowed to be kept if there is no response within three months. You
must not throw the goods away, damage them, must write a letter to the seller.

Consumer Claims Tribunal
Obtain a claim from Office of Fair Trading
Hearing is attended by consumer, trader and a referee from the tribunal
Claims dealt with by Tribunal must be for less than $10,000, lodged within three years of
transaction and must arise from supply of faulty repairs, goods and unsatisfactory work.
Running a Business

Guidelines for success

Selecting business opportunities
Market research Research chosen market and analyse to select what to sell and when
Location Research demographics of the area you consider. Make sure you are close to
customers, supplier, amenities/services and transport/parking.
Competition Consider competition and analyse whether there is a demand for product in
the area
New or existing business Start from scratch or buy existing? Setting up new business can
be exciting, however you need to build up reputation, quality and wait a while to see if it is
successful or not. Buying an existing business means there is a ready cash flow, however you
have to adhere to standards of previous management.

Sole traders are business with one owner. Owner is liable for all business debts. He has
unlimited liability. If debts are greater than value of business the owners personal
belongings are seized