WHAT IS FINANCE?

IRA or pension, in order to be financially ready to

retire.
• Finance is largely about the determination and
evaluation of cash flows and evaluations such as Tax Planning: entails setting up your finances to
real property, shares of stocks in a corporation, reduce your taxable income as much as possible by
the payments left on a home mortgage, availing utilizing legal tactics.
of bank loans and the personal decision to retire
Estate Planning: Involves creating a will and
early
establishing trusts to guarantee that your desires are
FINANCE IN YOUR PERSONAL LIFE carried out. It also involves deciding how your assets
will be divided after your death.
Finance can also help you make good financial
decisions in your personal life. Consider these MAIN AREAS OF PERSONAL FINANCE
common activities you will probably face in your life:
Earning Income
- Finance your daily living expenses.
• use to support ourself and our family
- Borrow money to buy a new car.
• use to pay daily expenses
- Make credit card payments.
- Save for retirement. • foundation of financial planning
- Invest your 13th month bonus. Common sources are;
- Plan for a wedding
- Provide for your children's education • salaries
• bonuses
WHAT IS PERSONAL FINANCE? • hourly wages
• The management of a person ' s or household' s • pension
financial choices, such as budgeting, saving, • dividends
investing, and making future spending plans, is
Spending
referred to as personal finance. To reach financial
objectives and guarantee long-term financial • Spending is an integral part of personal finance,
stability, it entails tasks including managing but it requires a mindful approach to ensure
income, spending, debt, and financial planning financial well-being.

Personal banking: This refers to routine banking

activities such as opening and utilizing checking or
savings accounts to handle your finances, settle
debts, and save savings for the future. Saving
Debt/Credit Card Management: Paying off balances • According to Fitzsimmons (1950), "It refers to the
on time will help you avoid excessive interest rates process of keeping some amount from the
and debt by using your credit cards and loans current income for the purpose of taking care of
responsibly. future and wants ".
Savings and Investment: To increase your wealth • It is the portion of income not spent on current
over time, you should save aside money on a regular expenses.
basis and make investments in stocks and bonds. Common Forms of Saving Include:
Risk management: A safeguarding your assets and • physical cash
yourself by purchasing insurance to cover unforeseen • savings bank account
circumstances, such as health, life, or property • checking bank account
insurance.
• money securities
Retirement Planning: The process of putting money
aside and purchasing retirement goods, such as an
Investing • Prioritize retirement over paying for college
• Steer clear of lifestyle creep
• relates to the purchase of assets that are
experience to generate a rate of return with the IN YOUR 50s
hope that overtime the individual will receive
back more money than they originally invested • Here are some numbers to consider
• Get an estimate of your retirement income
Protection • Take advantage of catch-up contribution
• Personal protection refers to a wide range of IN YOUR 60s
products that can be used to guard against an
unforeseen and adverse event • Check if these numbers add up
• Earn just enough to avoid starting retirement
How to Think About Money Level 1 to Level 3: account withdrawals
Level 1: It is not just about spending! • Invest for retirement with long term focus
• Borrow Smart
Level 2: Consider Opportunity Cost.
Age: Mid-Twenties Individual
Level 3: Think About Investing
LIFESTYLE: fast, aggressive with a steady source of
earnings, capacity for risk is high. Need disciplines
PERSONAL FINANCE PLANNING payroll savings to buried nest egg.

Steps in setting initial financial goals: INVESTMENT PORTFOLIO: Mostly in corporate

equity shares, some in bonds; quite small cash or
• Minimize Positive Cash Flows liquid investments.
• Establish savings Goals - Amount and Time
Age: Early-Thirties to Early Forties Individual
Frame
• Build up a separate fund for investment LIFESTYLE: Midlife crisis, tuition for children in
school looming children couples, capacity for risk is
PLAN DEVELOPMENT
still quite high, risk options diminished.
Create a Budget
INVESTMENT PORTFOLIO: Lesser investment in
A. 50% | B. 30% | C. 20% equity securities more bonds, same level of cash and
money market fund.
• Build an emergency Fund
• Pay off costly credit and debt Age: Mid-fifties
• Save for retirement LIFESTYLE: Many still reeling from college tuition and
KEYS STEPS TO TAKE AT DIFFERENT LIFE STAGES started thinking about retirement and the need for
income protection.
IN YOUR 20s
INVESTMENT PORTFOLIO: Shift from equity
• Start saving at least 10% of your gross salary as securities to bonds; same level of cash and money
soon as possible market fund.
IN YOUR 30s Age: Mid-sixties and Beyond
• Just getting started? LIFESTYLE: Enjoying retirement through leisure
• Don’t cash out when you change job activities but also guarding against major medical
costs. Risk capacity is very small or zero

INVESTMENT PORTFOLIO: More fixed-income

IN YOUR 40s investment lesser equity securities; higher cash and
money market fund.
• Fire up online retirement calculator
KEYS TO SUCCESSFUL SPENDING 10 percent goal by cutting some categories a lot and
others not at all. You need to set priorities make
advising people how and where to spend their money
choices about where you want and don't want to
is a risky undertaking, because most people like to
spend your money. What you spend your money on is
spend money and hate to be told what to do.
sometimes a matter of habit rather than of what you
For most people, spending money is a whole really want or value.
lot easier and more fun than earning it. Far
TURNING YOUR BACK TO CONSUMER CREDIT
be it from us to tell you to stop having fun
and turn into a penny-pinching, stay-at-home BUDGETING TO BOOST YOUR SAVINGS
miser. Of course, you can spend money. But
REDUCING YOUR SPENDING
there is a world of difference between
spending money carelessly and spending
money wisely.
MANAGING FOOD COST
FOUR PRINCIPLES OF SPENDING
EATING OUT FRUGALLY
1. Living Within Your Means: This means spending
only as much as you earn or less, rather than • Avoid beverages, especially alcohol.
relying on debt to cover expenses. It involves • Favor fast casual restaurants
creating a budget and sticking to it, so you can • Consider buying prepared food and taking it
avoid unnecessary debt and financial stress. home
Essentially, it encourages responsible spending • Order vegetarian
based on what you can afford.
EATING HEALTHY AT HOME WITHOUT SPENDING A
2. Finding the Best Value: This principle is about
FORTUNE
getting the most for your money by comparing
prices, quality, and features before making a
purchase. It involves looking beyond the price tag
SAVING ON HOUSING
to consider the long-term value of a product or
service, so you make informed choices that REDUCING RENTAL COST
provide the best balance of cost and quality.
3. Do Not Waste Money on Brand Names: This • Move to a lower cost rental
encourages avoiding paying a premium for well- • Share a rental
known brands when a less expensive, generic or • Negotiate your rental increases
store-brand option may offer similar quality. This • Buy rather than rent
principle suggests focusing on the functionality
or quality of a product rather than its brand name,
which can help save money. DEBT MANAGEMENT
4. Prioritize Needs Over Wants: This principle
introduction:
means focusing on essential expenses like
housing, food, utilities, and healthcare before • Debt helps us to achieve our goals, grow
spending on non-essential, discretionary items. It business, improve our skills, or buy a home.
encourages evaluating purchases to determine if
• Debt can also lead to an unfulfilling, stressful
they fulfill a true need or are simply a desire,
existence.
helping individuals make choices that support
their financial goals. DOWNSIDE OF BEING BURIED IN DEBT
ELIMINATE THE FAT FROM YOUR SPENDING According to J.L Collins (Simple Path to Wealth)
If you want to reduce your overall spending by, say, 10 1. Your lifestyle is diminished.
percent, you can just cut all your current 2. You are enslaved to whatever source of income
expenditures by 10 percent. Or, you can reach your you have.
3. Your stress levels build. PERSONAL LOANS
4. You endure the same type of negative emotions
• Personal loans are used for more than weddings.
experienced by an addict.
Such as to repay medical debts, take on home
5. Risk turning to self-destructive.
improvement projects, fund a vacation, or
Examine what aspects are worth financing with provide financing for consumer purchases.
acceptable interest rates.
• The problem with this type of debt is that you are
REASONABLE DEBT living beyond your means

• Pay off the debt on schedule.

• Manageable amount and interest rate.
• Not beyond your means to repay it and used to
improve your standard of living, increase income,
or accomplish a short-term goal.

DEALING WITH DEBT

2 Types of Debt

• Bad Debt (Consumer Debt)

• Good Debt

MORTGAGE LOAN

A Mortgage is a loan taken to purchase a home. For

most, this is the largest debt they will have.

The monthly Mortgage payment is not only

associated with owning a home. All the monthly
expenses for your home, added together. Addition to
any maintenance, repairs and improvements,
homeowners must consider the following:

• Insurance: Mortgage companies will require

you to carry homeowners’ insurance. Property

• Taxes: These are naturally paid once per year,

and the amount will vary depending on where
you live and the value of your property.

• Homeowners Association (HOA) Fees: The

more amenities in your community the higher
the HOA fees.

SLIPPERY-SLOPE DEBT

Debts with high interest rates are extremely difficult

to pay off, due to compounding interest. As you take
your first steps toward accumulating these kinds of
debt, it often hampers your future decisions, making
it easier to take on more and more debt.