Power From Your Money PDF

CHAPTER 2 Power From Your Money By: MISS SITI RAWAIDAH BINTI MOHD RAZIKIN o1 CONTENTS Discuss personal financial goals Identify the importance of setting personal financial goals Elaborate how to k...

CHAPTER 2 Power From Your Money By: MISS SITI RAWAIDAH BINTI MOHD RAZIKIN o1 CONTENTS Discuss personal financial goals Identify the importance of setting personal financial goals Elaborate how to know one’s personal net worth Describe the personal net worth Discuss the steps to derive personal net worth Prepare a personal budget Identify the importance of preparing a spending plan and managing cash flow Practice a personal budget Identify the importance of living within one’s financial means Determine the importance of the saving habit and how to do it Outline a good financial management o2 Personal Financial Goals Your financial goals will help you When setting your financial goals: determine where your money will come from and what it will go Pay attention to what you value and believe in life. towards. Understand what your values and beliefs are, you will find it easier to set financial goals that you can achieve. Writing down financial goals will increase your chances of achieving them. Your financial goals must be as specific as possible. Break down your goals into those that are short-term, medium-term and long-term. o3 Simple Steps in Setting Your Financial Goals Identify and write down your goals e.g. STEP 1 Buying a new car Examples: Short-term Goals (less than 1 year) Break down your To save RM5,000 in six months. goals into those that To pay the deposit for a new car. are short-term, STEP 2 medium-term and Medium-term Goal (1-3 years) long-term. To pay the deposit of RM 20,000 for my first house. Long-Term Goal (more than 3 years) To save RM100,000 within five years for my retirement account. o Importance Of Setting Personal Financial Goals 4 In life, there are many uncertainties that you might face. From a minor breakdown of your vehicle to the more serious death of the sole breadwinner in your family, unexpected events are well, unexpected. Saving for an emergency fund Have an equivalent of at least 6 months’ worth of your basic living expenses in your emergency fund o5 Assets and Liabilities: What You Own And Owe What you owe (liabilities) Include all types of What you own (assets) loans, whether to Include items such your bank, family or as cash, savings, friends, real estate, unit credit card debt and trusts or shares in payments that are companies. due, such as house rental and utility bills. o Knowing Your Net Worth 6 TOTAL TOTAL NET WORTH ASSETS LIABILITIES Positive net worth if you own more than what you owe. (This means that you are in a healthy financial position) Negative net worth if you owe more than you own. (You are actually in financial trouble and may be made a bankrupt) So how is it possible for someone with a positive net worth to get into problems? Assets that are not liquid! When assets are not liquid (easily converted into cash) there could be potential problems looming ahead. o7 Steps To Derive Personal Net Worth Step 1 List the things of value that you own Step 2 Total up your assets Step 3 List the things that you owe to others Step 4 Total up your liabilities Step 5 Assets – Liabilities o Personal Budget: 8 When you prepare your personal budget: Refer to your financial goals. Compare your budget to your financial goals to see whether or not you are achieving them. Estimate your income for the budget period Put aside at least 10% of your income for your savings (20-30% of your income as savings will be better Put aside some money for your emergency fund Estimate fixed expenses for the budget period. Include house rental and etc. Also estimate variable expenses for the period. Aside from that, estimate your discretionary expenses o Personal Budget: 9 To prepare a successful budget, remember Be patient and disciplined Set aside an amount of Be realistic money to enjoy yourself Be flexible 10 Importance Of Preparing A Spending Plan And Managing Cash Flow Preparing your personal budget is not the end Total Total CASH of the process. You need to monitor your cash cash SURPLUS actual spending every day, especially where received outflows or your money is going during during Another term used for this is managing cash time time CASH flow period period DEFICIT CASH That is fantastic! Put the money away in your savings. SURPLUS Try postponing any purchases or payments for the time being. CASH DEFICIT Try not to use your emergency fund unless it is absolutely necessary 11 Personal Budget 12 Importance Of Living Within One’s Financial Means Knowing your needs and Needs wants A need is something you must have, that you cannot do without. E.g. food. Wants A want is something you would like to have, which is not absolutely necessary E.g. Jewellery When you live within your means, you are spending money based on the money you have. At the same time, you are putting aside money as savings to meet your financial goals. 13 Importance Of The Saving Habit And How To Do It Is it something When you want to that I need? buy something, Check if you have previously ask yourself – Can I afford the allocated to spend on this item or money to buy it? have already overspent your cash for that month. If it is a want, consider not buying so that you can put more into your savings. Making sensible purchasing choices and spending wisely will prevent you from creating financial difficulties 14 Outline A Good Financial Management Setting financial goals are important to achieve security and financial freedom. Saving for an emergency fund should be one of your financial goals. Preparing a budget and tracking your cash flow is part of an ongoing process that requires patience, discipline and flexibility. THANK YOU