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Chapter 1 - Overview To Personal Finance

The document provides an overview of personal finance, emphasizing the importance of understanding money management, credit, and various financial concepts such as income, savings, retirement, investments, and budgeting. It outlines objectives for students to grasp basic personal finance terminology and its role in achieving financial security. Key topics include strategies for saving, debt management, and the significance of creating a budget to reach financial goals.

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Ma'am Katrina Marie Miranda
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36 views25 pages

Chapter 1 - Overview To Personal Finance

The document provides an overview of personal finance, emphasizing the importance of understanding money management, credit, and various financial concepts such as income, savings, retirement, investments, and budgeting. It outlines objectives for students to grasp basic personal finance terminology and its role in achieving financial security. Key topics include strategies for saving, debt management, and the significance of creating a budget to reach financial goals.

Uploaded by

Ma'am Katrina Marie Miranda
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Overview to Personal Finance

Taking Charge of Your Life:


Understanding Money and Credit

Katrina Marie M. Miranda, MBA


Instructor, Elective 1
Living in the land of the
unknown.
------
Ignorance is bliss.
------
The less I know the easier
to deny responsibility for
bad financial decisions.
Objectives:
At the end of the lesson, the students should be
able to:

•Introduce basic personal finance concepts and


terminology.
•Understand personal finance topics and the
important role it plays in living richer lives.
What is Personal Finance?
• Personal finance is the use of financial
management principles with respect to
individual or family unit finances to manage
money, budget, save and spend while
taking into account various future risks and
life events.
Personal Finance

1. Income
2. Savings
3. Retirement
4. Investments
5. Credit
6. Debt Management
7. Real Estate
8. Insurance
9. Budgeting
It’s not the size of the
paycheck that
matters.
Income

• Income Sources
– Employer
Paycheck 30k 60k 90k

10 years 395,000 790,800 1,186,300


– Interest Income 20 years 1,103,600 2,207,100 3,310,700
– Investment 30 years 2,371,700 4,743,500 7,115,200

Income Source: BALANCE (factoring a 6% annual merit base raise).

– Dividend Payments
– Freelance Income
– Side Hustle Income
Prioritize
Savings
Savings
• Reasons to save money include:
– For an emergency
– For holidays and presents
– For experiences
– For the future
• How much should you save?
– Depends on your financial goals and lifestyle
choices.
• Where should you save?
– Savings accounts, certificates of deposits,
investment
and retirement accounts or peer-to-peer lending.
Emergency Fund
---
Not a matter of if but a
matter of when.
Savings Principles
There are many options to save money so
which
option is right for you?
•Determine you’re saving for.
•Decide on how much access to savings is needed
called liquidity.
•Figure out how much money needs to be deposit.
•Choose an account with the best interest rates,
lowest fees and best liquidity.
How Much to Save?
• Save at least six months of expenses in an
emergency account.
– Start by saving 1000 in 90 days. That’s roughly 11 a
day.
• What’s the magic retirement savings number? Is
it 3%, 5%, 10% or more?
– Depends on your lifestyle choices and spending
habits.
– The more you save today the sooner you can retire
and the more secure you’ll be when you’re unable to
work.
Retirement
• Through planning and sound financial management retirement
can be achieved sooner.
• The amount needed to retire differs from one person to another.
• Start saving and investing earlier to achieve retirement sooner.
Investment Vehicles
Bonds - A debt security, similar to an IOU. When you buy a bond, you are lending money to the
issuer.
•Lower risk than many investment options, although risk varies depending on issuer and other factors.
•Tend to provide greater stability than stocks and higher interest rates than savings accounts.

Stocks - An instrument that signifies an ownership position (called equity) in a corporation, and a
claim on its proportional share in the corporation's assets and profits.
•Stock market can go up and down in a single day so stocks are seen as a riskier investment than bonds or
mutual funds but also offer potential higher returns.
•Investing in stock market is no guarantee you’ll make money and there is always a risk of losing all the
money invested.

Mutual Funds - A mutual fund is a company that pools money from many investors and invests
the money in securities such as stocks, bonds, and short-term debt.
•Although you can choose the specific level of risk based on the type of fund you choose, returns are not
guaranteed.
•Mutual funds can be subject to management fees.
Time can work for
you
or work against you.
The Power of Time - Savings
Long term savings = more in savings through compounding of
interest.

How long will it take for your money to double?


•The Rule of 72 is a simple way to figure out how long it will take for
your money to double with compound interest.

72 divided by the interest rate = the number of years needed to double your money

•Example: 10% interest rate and want to know how long it will take
to double your money would be:

72 divided by 10 = 7.2 years


The Power of Time – Credit

Long term debt = more interest


payments
Available Credit Turns to Debt

1. Having credit is okay but using credit can


easily lead to debt.
1. Don’t incur debt in the first place.
2. Paying off debt will give you the highest
return.
3. Save for emergencies to prevent you
from using credit and taking on debt.
Debt Management
1. Credit Counseling is a helpful resource but not the
same as debt management programs.
2. 3 debt reducing tools: Debt-consolidation, debt-
management plans and debt-settlement.
1. Debt management agencies cannot negotiate
lower payments. Agency fees may be different.
2. Reach out to your creditors first and negotiate a
repayment plan or settlement.
3. Debt-management plans are reported to credit
bureaus but are not factored into credit scores.
Debt Management
6. Debt settlement plans are reported to credit
bureaus and do impact credit scores.
7. You can get out of debt yourself. Create your
own plan, stop spending and prioritize debt
repayment.
8. Debt consolidation doesn’t always save you
money.
9. Do not avoid debt collection calls or letters.
Answer Them!
10.Bankruptcy may be an option.
Real Estate
1. Buying a Home
1. Importance of Income, Credit and Down Payment.
2. Mortgages
• Fixed Rate and Adjustable Rate Mortgages (ARM)
• FHA and VA Home Loans
3. Find a Lender and Shop Around
• Inquire with banks and credit unions for best rates and lower fees.
4. Analyze your budget and know how much you can afford not
what
mortgage lenders will approve.
• Read all the documents received and ask questions.
• Understand homeowner’s insurance.
• Know the tax advantages of home ownership.
• Make biweekly payments or additional principal payments.
Insurance
1. Insurance is the equitable transfer of the risk
of a loss, from one entity to another in
exchange for payments also known as a
premium.
2. is an important part of a
financial
Insurance .
plan to protect loved ones; preserve
healthy
wealth and financial stability.
•Types of insurance includes:
• Medical, Auto, Life, Property, Disability or
Accidental
•Know insurance products, components and
terms.
Budgets and Spending Plans
• Budgets are defined as a financial or spending plan.
• Help achieve quantifiable financial goals.
• Tool to measure performance and cope with
potential adverse situations.
• Reasons for budgeting.
• Creates a framework to reach milestones and
achieve
quantifiable goals.
• Help you buy things you need and want through
prioritization.
• Allocates resources and reduce waste.
• Supports reaching your dream lifestyle.
Create a Budget
1. Calculate your income and expenses.
2. Make a list of all income sources and calculate total monthly income.
3. Keep a record of one month’s fixed expenses and discretionary
spending.
4. Organize based on categories and total expenses such as housing,
transportation, food, utilities, credit card payments, etc.
5. Using paper or a spreadsheet, calculate your income compared to your
expenses.
6. Analyze the results and calculate how much you can save and how
much
more you can pay towards debt.
1. Determine where you can decrease fixed expenses and cut spending to
free up money to prioritize debt repayment and grow savings.
2. Adjust your budget accordingly as financial goals are met.

Download Budgeting Worksheet.

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