1 Introduction to Personal Finance.pdf

Introduction PERSONAL FINANCE to CHAPTER 1 Learning Outcomes 01 Define and understand the importance of personal finance. Understand the concept of financial literacy. 02 Create and formulate financial goals. 03 Understand the importance of having your...

Introduction PERSONAL FINANCE to CHAPTER 1 Learning Outcomes 01 Define and understand the importance of personal finance. Understand the concept of financial literacy. 02 Create and formulate financial goals. 03 Understand the importance of having your own personal 04 financial goals.  What is PERSONAL FINANCE? PERSONAL FINANCE is the process of planning and managing personal financial activities to reach your financial goals.  What is PERSONAL FINANCE? Personal finance is the financial management of an individual or a household. It includes budgeting, saving, investing, insurance, and retirement planning. Personal finance is more than managing your money so you can meet your financial goals. (Robert Kiyosaki, CASHFLOW, Rich Dad 2017)  ELEMENTS OF PERSONAL FINANCE INCOME SAVING AND INVESTING 1st Income is what is earned or received in a given period. 3rd When incomes are larger than expenses, there is a budget surplus, and that surplus can be saved or invested. SPENDING PROTECTION 2nd Expenses are costs for items or resources that are used up or 4th Protection insurance is an umbrella term typically used to describe insurances which consumed in the course of daily living. provide cover for you and your loved ones in the event of your death or illness, such as life insurance, income protection and critical illness insurance.  Importance of Personal Finance  Adult Filipinos who are knowledgeable on basic financial concepts According to a World Bank Survey in 2019 25% The Philippines scored in the bottom BOTTOM 30 out of 144 countries surveyed on financial literacy. According to a global study by Standard & Poor’s [S&P Global 30 Ratings]  Financial Knowledge or Financial Thinking means a working familiarity with basic finance and accounting practices, including the ability to read and understand fundamental financial statements, including balance sheets, income statements and cash flow statements. Financial Planning-is the process of taking a comprehensive look at your financial situation and building a specific financial plan to reach your goals. “practice of putting together a plan” Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. Financial Health-The state and stability of an individual's personal finances and financial affairs. “you make enough to live comfortably”  EFFECTS OF LACK OF FINANCIAL KNOWLEDGE 01 02 03 04 Prohibits individuals from Decreases the chances Handicaps anyone Magnifies the physical becoming productive of assessing financial seeking to be financially and mental issues members of the risks or opportunities. secure. For example, associated with being in economy and society in This makes financial financial illiteracy can debt and lessens the the same way that the choices riskier and increase the chances of chances of finding an inability to read or write potentially damaging. losses due to fraud or appropriate debt solution. disadvantages scams. generations.  COMMON MISCONCEPTIONS ABOUT MONEY Money Equals Happiness All Debts are bad While financial stability is important, studies Low-interest debt for appreciating show that beyond a certain point, increased assets like education or a home can wealth doesn't necessarily lead to increased be strategic. It's important to consider happiness. the purpose and terms of the debt. I Don't Need to Worry About Money Yet Ignoring Small Expenses Doesn't Matter Building good financial habits early on can set Small, recurring expenses can add up over a strong foundation for your future. time and impact your overall financial health. Focusing Only on the Present Credit Cards are Free Money Considering your future financial goals, like Some people view credit cards as a source of traveling, starting a business, or buying a free money, leading to overspending and home, can motivate you to make better accumulating high-interest debt. In reality, credit financial choices now. cards involve borrowing money that you're required to pay back, often with interest. You Can't Improve Your Financial Situation Feeling stuck in a certain financial situation Budgets Restrict Freedom can lead to complacency. With proper planning, Some view budgets as restrictive, but they're education, and effort, individuals can improve actually tools that provide clarity and control over their financial circumstances over time. your finances.  FINANCIAL VALUES Security: prioritizing financial stability, emergency funds, Minimalism/Simplicity: Seeking financial contentment and having a safety net in case of unexpected expenses through minimalistic living and reducing unnecessary or setbacks. expenses. Legacy: Prioritizing the long-term impact of your financial Freedom: seeking financial independence and the ability choices on your heirs, community, or causes you support. to make choices without being constrained by financial Environmental Responsibility: Making financial decisions limitations. that align with environmentally conscious values. Delayed Gratification: Valuing long-term rewards over short- Family and relationships: valuing financial support for term pleasures, focusing on saving and investing for the your family's well-being, such as saving for children's future. education or providing for elderly parents. Giving and Philanthropy: Allocating funds for charitable contributions and making a positive impact on causes you Adventure: valuing experiences and being willing to care about. spend on travel, hobbies, and other enriching activities. Quality of Life: Focusing on improving your overall well- being and comfort through spending on health, comfort, and Education: investing in personal growth and learning personal enjoyment. through education and self-improvement. Career and Entrepreneurship: Valuing investments in career development, starting a business, or pursuing opportunities for financial growth. FINANCIAL A financial goal is a target to aim for when managing GOALS your money. SHORT-TERM These are smaller financial targets that can be reached within a year. This includes things like a new television, computer, or family vacation. MID-TERM Typically, mid-term goals take about five years to achieve. A little more expensive than an everyday goal, they are still achievable with discipline and hard work. LONG-TERM This type of goal usually takes much more than 5 years to achieve. Some examples of long-term goals are saving for a college education, retirement, or a new home.  Examples of FINANCIAL GOALS Strive for Save for Homeownership Pay Off the Car Retirement Invest in a Pay Off Debt College Education Fund Start an Emergency Fund Plan for Fun THE SMART WAY S SPECIFIC “I wish to plan for my retirement, so that I am financially independent.” MEASURABLE M “I wish to buy a new car which costs P1 million.” ATTAINABLE A It should not be an out-of-reach dream. REALISTIC & RELEVANT R You can’t say I will build my retirement goals by investing in the last 5 years of my job. TIME-BOUND T “I want to buy a car in 5 years or I want to buy a house in 2030.” RESOURCES https://corporatefinanceinstitute.com/resources/wealth- management/personal-finance/ NEXT LESSON Wealth or Money https://www.retirewise.in/setting-smart-financial-goals/ https://www.bsp.gov.ph/SitePages/MediaAndResearch/Speeche sDisp.aspx?ItemId=993 Management https://www.lawinsider.com/dictionary/financial-knowledge