Personal Income Overview

Questions and Answers

What is passive income?

Income earned solely from salaries

Income earned from active work

Income that requires effort or time to earn

Income earned without much effort (correct)

Disposable income is the income available after taxes have been deducted.

True

What are two sources of personal income?

Salary/Wages and Investments

A salary is usually a __________ amount of money paid monthly to skilled workers.

set Signup and view all the answers

Which option describes a factor that can affect the interest rate on a bank account?

The amount of money invested Signup and view all the answers

Define net worth in the context of personal finance.

Net worth is the difference between total assets and total liabilities. Signup and view all the answers

Match the following types of income with their descriptions:

Salary = Set monthly payment Wages = Hourly compensation Interest = Earnings from deposits Rental income = Earnings from property leasing Signup and view all the answers

If a person's salary is R8000 and they pay R400 in tax, their disposable income is __________.

R7600 Signup and view all the answers

Which of the following is considered a type of passive income?

Investment income from savings accounts Signup and view all the answers

A personal statement of net worth shows the calculation that reflects a person's total liabilities only.

False Signup and view all the answers

What is the profit or loss in a business?

The difference between income and expenses. Signup and view all the answers

_____ income is earned through investments and is considered passive income.

Investment Signup and view all the answers

Which of the following statements about business expenses is true?

Cost of sales is also known as direct costs. Signup and view all the answers

Match the types of income with their definitions:

Sales = Money earned through the sale of goods or services Commission Income = Income earned from selling someone else's property Rental Income = Income from renting out property Investment Income = Money earned through financial investments Signup and view all the answers

Gross profit is calculated by deducting total expenses from the selling price.

False Signup and view all the answers

What does a bank typically require when considering a loan application?

Personal statement of net worth. Signup and view all the answers

What is the main source of passive income for Mr. Singh?

Rental income from the Govender family Signup and view all the answers

A personal budget can help individuals manage their expenses effectively.

True Signup and view all the answers

What is the monthly shortfall in expenses faced by Mr. and Mrs. Marsden?

R2500 Signup and view all the answers

Mr. Singh's rental income is calculated by subtracting his __________ from the rental he charges.

expenses Signup and view all the answers

Match the following personal expenses with their descriptions:

Rent or bond repayments = Payment for housing Medical fees = Costs for healthcare services Transport costs = Expenses related to travel Entertainment = Expenditures for leisure activities Signup and view all the answers

Which of the following is NOT considered a personal expense?

Rental income from property Signup and view all the answers

An individual’s net worth is calculated by subtracting liabilities from assets.

True Signup and view all the answers

List two items that contribute to personal expenses.

Food, Electricity Signup and view all the answers

Study Notes

Personal Income

Personal income includes earnings from salary/wages and investment income.
Disposable income is remaining earnings after tax is deducted, calculated by subtracting tax from total income.
Example: A salary of R8000 minus R400 tax results in a disposable income of R7600.

Types of Personal Income

Salary/Wages:
- Salary is a fixed monthly amount for skilled workers.
- Wages are typically hourly pay for part-time, semi-skilled, or casual workers.
- Earnings vary based on job type and market demand.
Investment Income:
- Known as passive income; requires little to no effort to earn.
- Interest from savings accounts (e.g., 10% p.a.) depends on investment amount, duration, and account type (e.g., notice accounts).
- Property investment involves buying for rental income, with the landlord leasing to tenants.
Personal Statement of Net Worth:
- Displays an individual’s assets and liabilities, indicating overall wealth.
- Banks may request this for loan applications, breaking it down into current and fixed assets, and liabilities.

Business Income

Essential for business survival and profit generation.
Sources of business income include:
- Sales: Revenue from goods/services sold.
- Investments: Passive income from savings or shares.
- Rental Income: Earnings from leasing business properties.
- Commission Income: Earnings based on a percentage of sales, common in real estate.

Business Expenses

Costs incurred running a business, key in determining profit or loss.
Cost of Sales: Direct costs related to production, e.g., material and labor costs.
Gross Profit: Revenue from sales minus cost of sales, indicating profit before other expenses.
Example: Producing shirts with costs of R25 each, sold for R75 results in a gross profit of R25.

Personal Expenses

Living costs differ among individuals based on lifestyle but generally include:
- Housing (rent or bond)
- Food and schooling
- Utilities (water, electricity, phone)
- Transportation and clothing
- Medical fees and insurance
- Entertainment costs

Financial Management

A deficit occurs when personal expenses exceed income, leading to debt.
Example: Mr. and Mrs. Marsden earn R16,000 but spend R18,500 monthly, leading to a shortfall of R2,500.
Excessive reliance on credit can lead to financial instability; managing income and expenses is crucial.
Creating a budget is a key strategy for financial control.

Personal Statement of Net Worth

Functions like a business balance sheet, showing what individuals own (assets) versus what they owe (liabilities).
Provides a clear picture of an individual's financial health and aids in decision-making related to spending and savings.

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Description

Explore the concept of personal income, its sources, and types in this quiz. Understand the distinction between gross income and disposable income and learn how taxes affect individual earnings. Test your knowledge on salaries, wages, and investment income.