Financial Literacy Guide PDF

FINANCIAL LITERACY IS... the ability to understand and effectively use various financial skills, including personal/business financial management, budgeting, and investing. It involves knowledge of financial concepts such as income, expenses, assets, liabilities, bud...

FINANCIAL LITERACY IS... the ability to understand and effectively use various financial skills, including personal/business financial management, budgeting, and investing. It involves knowledge of financial concepts such as income, expenses, assets, liabilities, budgeting, saving, and investing. IMPORTANCE P OF FINANCIAL LITERACY Effective Financial Management Access to Capital Risk Management IMPORTANCE P OF FINANCIAL LITERACY Business Growth and Expansion Empowerment and Independence Long-Term Financial Security “KNOWLEDGE IS POWER” — Meditationes Sacrae (Francis Bacon, 1597) TOPIC 2 WHAT IS BUDGETING? The process of creating a plan to manage and allocate financial resources based on anticipated income and expenses over a specific period.  WHAT ARE THE BENEFITS OF BUDGETING? 1. FINANCIAL CONTROL & PLANNING  WHAT ARE THE PURPOSES OF BUDGETING? 2. RESOURCE ALLOCATION  WHAT ARE THE PURPOSES OF BUDGETING? 3. RISK MANAGEMENT  WHAT ARE THE PURPOSES OF BUDGETING? 4. PERFORMANCE EVALUATION QUESTION HOW DO YOU BUDGET?  PRACTICAL BUDGETING TIPS 1. ENVELOPE SYSTEM It emphasizes the use of physical envelopes to allocate and track spending for different categories, promoting accountability and disciplined spending habits PRACTICAL BUDGETING TIPS 2. ZERO-BASED BUDGETING is a budgeting technique used by businesses to allocate resources based on needs and priorities.  PRACTICAL BUDGETING TIPS 3. PAY YOURSELF FIRST It emphasizes the importance of prioritizing savings by setting aside a portion of income before covering other expenses, thereby ensuring consistent progress towards financial goals  PRACTICAL BUDGETING TIPS 4. 50/30/20 RULE Suggests dividing your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings or debt repayment. PRACTICAL BUDGETING TIPS 5. INCOME-SAVINGS = EXPENSES is a budgeting approach which you prioritize savings by deducting your savings goal from your income first, and then allocate the remaining amount towards expenses.  PRACTICAL BUDGETING TIPS 6. 80/20 RULE Suggests allocating 20% of your income towards savings or investments, while using the remaining 80% for expenses, including both needs and wants.