Personal Finance PDF

PEBSBAFM 005– 005– PERSONAL FINANCE MODULE 1: PERSONAL FINANCE AND THE BASICS OF MONEY Rich -means different things to different people. -Some define wealth as owning many expensive possessions and having a high income. -People may associate being rich with not having to worry about fin...

PEBSBAFM 005– 005– PERSONAL FINANCE MODULE 1: PERSONAL FINANCE AND THE BASICS OF MONEY Rich -means different things to different people. -Some define wealth as owning many expensive possessions and having a high income. -People may associate being rich with not having to worry about finances or being able to pay bills. -able to contribute to organizations that matter to them. How people get rich also varies. -Starting a successful business or pursuing a high paying career are common paths to wealth. -frugal living and wise investing can also result in long-term financial security -Most individuals would like to handle their finances so that they get full satisfaction from each available dollar. -To achieve this and other financial goals, people first need to identify and set priorities. Both financial and personal satisfaction are the result of an organized process that is commonly referred to as personal money management or personal financial planning. Personal financial planning -the process of managing your money to achieve personal economic satisfaction. -This planning process allows you to control your financial situation. -Every person, family, or household has a unique financial position, and -any financial activity therefore must also be carefully planned to meet specific needs and goals. Advantages of personal financial planning include: Increased effectiveness in obtaining, using, and protecting your financial resources throughout your lifetime. Increased control of your financial affairs by avoiding excessive debt, bankruptcy, and dependence on others for economic security. Improved personal relationships resulting from well-planned and effectively communicated financial decisions. A sense of freedom from financial worries obtained by looking to the future, anticipating expenses, and achieving your personal economic goals. Personal financial activities involve three main decision areas: (3’S) PEBSBAFM 005– 005– PERSONAL FINANCE  PEBSBAFM 005– 005– PERSONAL FINANCE Figure 1.1 The Financial Planning Process (D.D.I.E.C.R) 1. Determine current financial position 2. Develop your financial goals 3. Identify alternative courses of action 4. Evaluate alternatives 5. Create and implement your financial action plan 6. Review and revise the financial plan The financial planning process is a logical, six-step procedure that can be adapted to any life situation. TYPES OF FINANCIAL GOALS 1. TIMING OF GOALS What would you like to do tomorrow? (S.I.L)  short-term goals – less than 1 year  intermediate goals – 1-5 years.  long-term goals – 5 years and beyond Long-term goals should be planned in coordination with short-term and intermediate ones. Setting and achieving short-term goals is the basis for achieving long-term goals. For example, saving for a down payment to buy a house is an intermediate goal that can be a foundation for a long-term goal: owning your own home. Goal frequency is another ingredient in the financial planning process. Some goals, such as vacations or money for gifts, may be set annually. 2. GOALS FOR DIFFERENT FINANCIAL NEEDS A goal of obtaining increased career training is different from a goal of saving money to pay a semi-annual auto insurance premium. Consumable-product goals usually occur on a periodic basis and involve items that are used up relatively quickly, such as food, clothing, and entertainment. Such purchases, if made unwisely, can have a negative effect on your financial situation. GOAL-SETTING GUIDELINES -Goal setting is central to financial decision making. Your financial goals are the basis for planning, implementing, and measuring the progress of your spending, saving, and investing activities. -Your financial goals should take as S-M-A-R-T approach, in that they are -An old saying goes, “If you don’t know where you’re going, you might end up somewhere else and not even know it.”  S— specific,  M— measurable  A— action-oriented,  PEBSBAFM 005– 005– PERSONAL FINANCE  R— realistic,  T— time-based Influences on Personal Financial Planning (L.E.P) Personal Financial Activities: (factors) -life situation, -economic factors, -personal values Figure 1.4 Life situation influences on your financial decisions MODULE 2: FINANCIAL ASPECTS OF CAREER PLANNING CAREER CHOICE FACTORS -As with other personal financial decisions, career selection and professional growth require planning. The average person changes jobs, or even careers, five or more times during a lifetime. Most likely, therefore, you will reevaluate your choice of a job on a regular basis. Job An employment position obtained mainly to earn money, without regard for interests or opportunities for advancement. Career A commitment to a profession that requires continued training and offers a clear path for occupational growth TRADE-OFFS OF CAREER DECISIONS Career choices require periodic evaluation of trade-offs related to personal, social, and economic factors. For example:  Some people select employment that is challenging and offers strong personal satisfaction rather than employment in which they can make the most money.  Some people refuse a transfer or a promotion that would require moving their families to a new area or reducing leisure time.  Many parents opt for part-time employment or flexible hours to allow more time with children.  Many people give up secure job situations because they prefer to operate their own businesses.  PEBSBAFM 005– 005– PERSONAL FINANCE CAREER TRAINING AND SKILL DEVELOPMENT -Your level of formal training affects financial success. -More education increases your potential earning power and reduces your chances of being unemployed. The training you obtain may be viewed in two main categories: (T.G) 1. Technical skills. -Specialized career training refers to technical skills for a specific profession. -This training includes competencies in fields such as information technology, accounting, law, engineering, health care, education, real estate, insurance, and law enforcement. 2. General skills. -In addition to technical training, managers, employers, and career counselors stress the importance of traits adaptable to most work situations, sometimes called social intelligence. -While some of these abilities can be acquired in school, others require experience in work or organizational settings. CAREER DECISION MAKING (P.S) Changing personal and social factors will require you to continually assess your work situation.  PERSONAL FACTORS -Passion, Personality, Goals, Values, Options, Potential Salary, Job Prospects and outlooks, Educational Costs and training, Resources, and learning opportunities.  SOCIAL FACTORS -Childhood fantasies, Culture, Gender, Interests, Life Roles, Personality Type, Previous Experiences, Skills, Abilities, & Talents, and Social and Economic Conditions Figure 2-1 Stages of career planning and advancement -Your career goals will also affect how you use this process. If you desire more responsibility on the job, for example, you may obtain advanced training or change career fields. This process is a suggested framework for planning, changing, or advancing in a career. CAREER OPPORTUNITIES: NOW AND IN THE  PEBSBAFM 005– 005– PERSONAL FINANCE FUTURE (S.E.I) 1. Social Influences - connection 2. Economic Conditions – employment opportunities 3. Industry Trends – flexible workplace (part-time, BPO) EMPLOYMENT SEARCH STRATEGIES 1. Part-time Employment. -Working as a “temp” can give you valuable experience as well as contacts in various employment fields. 2. Volunteeer Work. -Involvement in community organizations and government agencies can provide excellent opportunities to acquire skills, establish good work habits, and make contacts. These activities will help you obtain organizational skills. 3. Internships -Most colleges and universities offer cooperative education and internships as part of their academic programs. 4. Campus Projects. -Class assignments and campus activities are frequently overlooked as work-related experience. You can obtain valuable career skills on campus from experience in: Using Career Information Sources Career planning and advancement, like other financial decisions, are enhanced by the use of current and relevant information.  Library Materials.  Community Organizations  Media Career Information.  Professional Associations  Online Sources.  Business Contacts  Career Development Office. IDENTIFYING JOB OPPORTUNITIES -Before you apply for employment, you need to identify job openings that match your interests and abilities. 1. Advertisements 2. Career Fairs. -Career fairs, commonly held on campuses and at convention centers, offer an opportunity to contact several firms in a short time span. 3. Employment Agencies. -Another possible source of job leads is employment agencies. These for-profit organizations match job hunters with prospective employers 4. Job Creation. -Job creation involves developing an employment position that matches your skills with the needs PEBSBAFM 005– 005– PERSONAL FINANCE of an organization. -applied, absorbed, freelancing  PEBSBAFM 005– 005– PERSONAL FINANCE MODULE 3: MONEY MANAGEMENT STRATEGY: FINANCIAL STATEMENTS AND BUDGETING SUCCESSFUL MONEY MANAGEMENT -Money management refers to the day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security. -daily spending and saving decisions are the center of financial planning -maintaining financial records and planning your spending is essential to successful personal financial management DAILY DECISION MAKING In terms of money management decisions, examples of trade-off situations, or opportunity costs, include the following: Spending money on current living expenses reduces the amount you can use for saving and investing for long-term financial security. Saving and investing for the future reduce the amount you can spend now. Buying on credit results in payments later and reduces the amount of future income available for spending. Using savings for purchases results in lost interest earnings and an inability to use savings for other purposes. Comparison shopping can save you money and improve the quality of your purchases but uses up something of value you cannot replace: your time. COMPONENTS OF MONEY MANAGEMENT 1. Storing and maintaining personal financial records and documents 2. Creating personal financial statements (balance sheets and cash flow statements of income and outflows) 3. Creating and implementing a plan for spending and saving (budgeting) A SYSTEM FOR PERSONAL FINANCIAL RECORDS Invoices, credit card statements, insurance policies, tax, forms, and other documents are the basis of financial record keeping and personal economic choices. An organized system of financial records provides a basis for: Handling daily business affairs, including payment of bills on time. Planning and measuring financial progress. Completing required tax reports. Making effective investment decisions. Determining available resources for current and future buying. PERSONAL FINANCIAL STATEMENTS -know current financial situation -tells you the starting point of your financial journey  PEBSBAFM 005– 005– PERSONAL FINANCE PURPOSE: Report your current financial position in relation to the value of the items you own and the amounts you owe. Measure your progress toward your financial goals. Maintain information about your financial activities. Provide data you can use when preparing tax forms or applying for credit.