Financial Literacy: Budgeting and Investments

• Financial literacy involves making informed financial decisions.

Key aspects of financial literacy

• Budgeting: Planning how to spend money.
• Saving: Setting aside money for future needs.
• Investing: Allocating assets for profitable returns.
• Debt management: Paying off debt properly.
• Financial planning: Setting long-term goals and creating roadmaps to achieve them.

Time Value of Money

• Money is worth more today than in the future due to its potential to earn interest.
• Present Value (PV): The current value of a future sum of money at a specific return rate.
• Future Value (FV): The value of a sum of money at a specific rate of return in the future.
• Interest Rate (r): A percentage reflecting the growth of money over time.
• Simple Interest: Calculated as Principal amount x rate x time.
• Compound Interest: Calculated using the formula PV = FV / (1 + r/m)^(nm), where m represents the number of compounding periods per year (annually, semi-annually, or quarterly).

Inflation

• Inflation refers to the rising prices of goods and services over time.

Effects of Inflation

• Decreased value of money.
• Saving devaluation.
• Uncertainty in business.
• Wage-Price Spiral.
• Relationship with Time Value: There is a negative or reverse relationship between the time value of money and inflation.
• Nominal Interest Rate: The rate before inflation adjustment.
• Real Interest Rate: The rate after inflation adjustment. Real rate ≈ Nominal % - Inflation %.

Budgeting

• Budgeting involves creating a plan for using money wisely.
• Key aspects of budgeting include financial control, goal setting, and debt management.
• Income: Identifying earnings from all sources.
• Expenses: Fixed expenses (e.g., insurance, taxes, loans) and variable expenses (e.g., groceries, utilities, subscriptions).
• Saving: Setting aside money for emergencies, goals, or retirement.
• Investment: Putting money in assets to grow wealth.

Steps of Budgeting

• Identify and calculate total monthly income from all sources.
• List monthly expenses as fixed, variable, or irregular.
• Categorize and prioritize needs versus wants (e.g., car maintenance, medical bills, annual subscriptions).
• Set financial goals.
• Allocate funds to each category.
• Review and adjust the budget regularly.

SMART Goals

• Specific: Define what you want to accomplish (Why, Who, How).
• Measurable: Quantify how much or how often (How/When).
• Achievable: Ensure the goal can be turned into an action plan.
• Relevant: Make sure the goal is worthwhile and the timing is right.
• Time-bound: Set a deadline for achieving the goal.

The 50/30/20 Rule

• Allocate after-tax income as follows: 50% to needs, 30% to wants (e.g., personal care), and 20% to saving/debt.

Notes on Budgeting

• Housing expenditures should not exceed 30% of income.
• Bundling insurance expenditures can save money.
• Aim to have an emergency fund covering 3-6 months' worth of living expenses.

Credit

• Credit is an agreement where a borrower receives something now and agrees to pay later with interest.
• Benefits: Credit provides the ability to have money, borrow, and pay it back.

Types of Credit

• Installment Credit: Involves a lump sum, fixed payments of loan and interest, and a set period.
• Revolving Credit (credit card): Allows drawing funds as needed with a limit, minimum monthly payments, and paying only the used amount.
• Open Credit: Requires payment at the end of the billing cycle with no set limit (e.g., utility bills, cell phone bills).
• Factors affecting Credit :- Credit history, current income, employment status, and outstanding debts.

Credit Bureaus

• Credit Bureaus: Organizations that collect and maintain credit information such as the National Credit Bureau (NCB).
• Inquiries: Information gathered includes personal information, credit accounts, payment history, and public records.

Factors Influencing Credit Score

• Payment History: Aim for on-time payments.
• Amount Owed: Maintain a low balance.
• Length of Credit History: Having a longer credit history can be beneficial.
• Credit Mix: Having diverse types of credit accounts.
• Credit Score Range: Aim for a score between 300-800.
• Impact: A higher credit score leads to lower interest rates and easier access to bank loans.
• Credit Rating Agencies: Entities that assign credit ratings to borrowers.

Cost of Credit

•   This is determined by the Annual Percentage Rate (APR), which includes interest and fees.

Credit Traps

• Credit Traps involve short-term, high-interest loans, and High-Interest Rate Traps.

Types of Credit

• Standard credit cards and rewards credit cards (cash back, travel rewards, points-based).

Managing Credit

• Pay on time.
• Maintain low credit utilization, which means using a small portion of available credit.
• Review your credit report regularly.

Non-Credit Options

• Layaway plans and Rent-to-own agreements.

Credit Problems

• Missed payments can lead to debt accumulation.
• Maxing out credit cards is bad
• Solutions: Debt consolidation.

Collection Agencies

• These are intermediaries for overdue debts.
• Lien: A legal claim on an asset as collateral.
• Government Regulation of Interest Rates:- Interest rates set by the government should not exceed 15% per year, while financial institutions may have rates up to 25% per year.

How To Increase Credit Score

• Pay debt on time, avoid exceeding your credit limit, have a long credit history.
• Pay at least the minimum amount to avoid a bad credit history.

Loans and Debt

• Definition: Borrowed money that will be repaid with interest over a specific time.
• Good Debt: Increases in value (e.g., mortgage, student loan).
• Bad Debt: Decreases in value (e.g., credit card debt).

Importance of Debt Management

• Avoiding financial stress.
• Maintaining good credit.
• Achieving long-term goals.
• Interest: The cost of borrowing, expressed as a percentage of the principal.
• Debt Repayment Strategies that are often recommended are the Snowball Method and the Avalanche Method
• Snowball Method: Focuses on paying off the smallest debts first to gain motivation.
• Avalanche Method: Prioritizes paying off the debts with the highest interest rates first to save money on interest.

Debt Consolidation

• Combining debts to lower the interest rate, beneficial when having several high-interest debts,

Refinancing Loans

• Refinancing involves changing the conditions of a loan (e.g., extending the repayment time, changing to a variable interest rate).

Steps for planning Loan Repayment

• Assess debts by creating a list.
• Set priorities for which debts to pay off first.
• Budget for debt repayment by setting aside money and adjusting the budget as needed.
• Track progress regularly.

Debt Traps to avoid

• High-interest loans and Co-Signing Loans.
• Minimum payments may extend the loan period and increase the total interest paid.
• Co-signing loans can affect your credit score if the primary borrower runs away.

Risk

• There is uncertainty that investors are willing to take, future uncertainty about deviation of outcome
• Risk can be predicted by data

Types of Risk

• Liquidity risk - sovereign risk - Insurance and business risk - Default risk (fail in repaying loan)
• ↑ Risk correlates ↑ Returns
• Uncertainty : Inability to predict outcomes
• No history & data

Risk Management

• Avoiding risk (safest but may mean lost opportunity)
• Reducing risk and minimize loss for investment of time, supply, or effort
• Retaining risk (Minimize the damage from loss)
• Transferring risk (No need to deal with consequences of loss alone, but expensive)

Insurance

• This is a contract to transfer risk by paying a premium to an insurance company
• The concept is that insurance works by pooling and diversifying risk

Key Entities of an Insurance Policy

• The insured (person who buys), insurer (insurance company), agent (person who helps you buy), and underwriter.
• An underwriter decides the risk & premium
• Premium is the amount paid regularly to the insurance company.
• Deductible: Amount you pay before the insurance covers costs.
• Co-pay: fixed amount paid by insured & co. cover the rest %

Health Insurance

• Health insurance helps with medical bills through a monthly premium.
• Coverage schemes include universal coverage and civil servant medical benefit schemes.

Life insurance

• Life insurance provides a death benefit to the insured's beneficiaries and can help pay for expenses.
• It is for people with large debts or those who have dependents.
• Term Life Insurance: Covers a specific term of time (e.g., 5-30 years).
• Whole Life Insurance: Covers the insured for their entire life, but you don't get any money back if Alive

Factors Impacting Life Insurance

• Age, health, job, and coverage.
• As age and your job risk increases, premiums increases as well.
• Impact to Premium due to medical condition is that premiums decrease

Insurance Tax Benefits

• You can deduct annual tax with a maximum THB 100,000 for both life and health insurance.
• Max deduction for life is 10 years of coverage.

Auto Insurance

• Mandatory is liability insurance and optional add-ons are uninsured motorist coverage

• Homeowners and Renters Insurance covers residence, personal property, and liability.

• Home owner insurance complex and expensive than renters.

Investment

• Investments involves purchasing financial products to increase wealth over time.
• Short-term investments carries less risks while long-term investments means there are more risk but possible more outcome

Basics

• Investors must have risk tolerance or their level they're willing to take and risk aversion is their tendency to avoid risks and hate on risky invest.
• Plan your Personal investment plan to develope investment growth over time and personal collection

Factors affecting Investment

• Volatility which is the frequency of price and value fluctuation
• The rate of return (amonut earned given specific period (%))
• Risk is level of investment deviation from rate of return
• Liquidity: which is how easy assets can exchange to money without lossing value

Types of investments

• Stocks are part of a co. and will receive dividends when profitable
• Bonds are loan to the co. and have profit but will receive interest payments

Real estate

• Residential Properties - Commercial Properties - Rental Properties Value Appreciation Rental Income

Commodities: investment in tagible assets

• pro overcome inflation
• con Significant price fluctuation Crytocurrencies pro high returns con Volatility
• REIT (investors invest to co. that manages income-producing real estate)
• Property fund (investing in estates to gain rental income and capital appreciation)
• Infrastructure fund (investing in infrastructure projects)

Benefits of Investing

• Increase Wealth Earn steady income Beat inflation Tax exempt

Investment Information

• Keep checking Online resource, Annual reports prospectuses for co's performace, law, etc

Factors Affecting Value of Investment

• Price > stock
• Economic indicators (business cycle fluctuations)
• The Product Innovation and all the cost associated

Strategy Of Dollar-Cost Averaging Plan

• You invest same amount of money in target security over a certain period and expect certain return and reduce risk factors involved.

Renting a house Vs. Owning A Home

• Renting is more of throwing money away and you also have homeowner HOA and will move when you're asked.

• Owning lets you have a pride in your belongings where payments is lower, but includes more costly factors

• Home mortgages are given in order to maintain wealth through real estate and the exchange with payments of principle and interest

• Fully amortizing amount will stay the same and payed of after the life of the loan and will include credit score requirements and intrest

Rate Mortgages

• can be fixed amount rates or float rates The Rate would then be + MRR, MLR, MOR and based on the individuals profile over time.

• MRR: Minimum Retail Rate (for those that are dividuals)

• MLR: Minimum Loan Rate (small business)

• MOR: Minimum Overdraft Rate (large business)

• Mortgages can be interest-only loans and Reverse Mortgages

• With car loans, balloon Payments, the monthly payment is smaller to help manage cash flow, but final amount in 1 lump-sum Payment