Personal Finance Notes PDF

Topic 1 Bonuses, Wages, Pension, and Dividends) Finance - is largely about determination 2. Spending and evaluation about cash flows and - Inclu...

Topic 1 Bonuses, Wages, Pension, and Dividends) Finance - is largely about determination 2. Spending and evaluation about cash flows and - Includes all types of evaluation such as real property, shares of expenses an individual incurs stocks in corporation, the payments left on a related to buying goods and home mortgage, availing of bank loans, and services or anything that is personal decision to retire early. consumable. (Rent, Mortgage payment and Common Activities you will probably face in taxes, food, entertainment, your life: travel and credit card payments) 1. Finance your daily living 3. Saving 2. Borrow money to buy a new car - Refers to excess cash that is 3. Make credit card payments retained for the future 4. Save for retirement investing or spending. (Cash, 5. Invest your 13th month bonus savings bank account, 6. Plan for a wedding checking account, money 7. Provide for your children’s education securities) 4. Investing The Basic of Personal Finance - Refers to the purchase of assets that are expected to Personal Finance - is defined as all generate a return with hope financial decisions and activities of an that overtime the investor will individual or households. receive back more money that they originally invested. Matters of Personal Finance included, but (Stocks, bonds, mutual are not limited to: funds, real estate, private companies, commodities and - Estate planning art) - Debit/Credit card management 5. Protection - Risk management - Personal Protection refers to - Savings and Investment a wide range of products that - Personal Banking can be used to guard against - Retirement planning and tax an unforeseen and adverse planning event. (Life insurance, health insurance, estate planning) Main Areas of Personal Finance: Financial Success and Happiness 1. Income - Source of cash flow that an Wealth and Well-Being: individual receives and the uses support themselves and Relationship between wealth and happiness their family. (Salaries, isn’t straightforward. Wealthier individuals tend to be happier, there’s a point beyond fulfilled in the work you do. Happy which additional income doesn’t significantly individuals are less likely to burn out and increase life satisfaction. tend to be more productive because they genuinely enjoy their tasks Basic psychological needs — such as belonging and competence — are not Strive for a balance: Pursue financial goals necessarily fulfilled by money alone. Valuing while nurturing your well-being, money above all else may not lead to relationships, and personal growth. greater happiness; in fact, it might have the opposite effect. The Roadmap to Financial Freedom Financial Success and Happiness Budgeting: Understand your income and expenses. Create a budget that allows you The 3 Aspect of Wealth: to save and invest. 1. Managing your Finances Saving and Investing: Set aside a portion - How you think about and of your income for savings and investments. handle money contributes to Compound interest can work wonders over your well- being. Being time. financially responsible, saving, and investing wisely Debt Management: Address any existing can positively impact your debt strategically. Prioritize high-interest happiness. debt and work toward paying it off. 2. Managing your Career Emergency Fund: Build an emergency - Career satisfaction matters. fund to cover unexpected expenses. Finding purpose and fulfillment in your work can Financial Education: Continuously learn lead to greater happiness, about personal finance, investing, and even if it doesn't always wealth-building. correlate directly with income. Giving Back: As you achieve financial stability, consider supporting causes that 3. Managing your Attitude matter to you. - Your mindset matters. Cultivating gratitude, BUILDING BLOCKS TO ACHIEVING resilience, and a positive FINANCIAL SUCCESS outlook can enhance both financial success and overall Live Within Your Means: life satisfaction. This strategy is the foundation of all good financial habits. In fact, there will be no point Balancing Happiness and Success: in setting financial goals until you can True success isn't solely determined by consistently live beneath your means. financial achievements. It's about feeling Spend less than you earn and avoid Use leisure time productively. Consider unnecessary debt. reading financial articles or learning new skills instead. Pay Yourself, You Deserve It: Treat saving as a non-negotiable expense. Balance Your Checkbook Regularly: Set aside a portion of your income for Keep your financial records accurate. savings before paying other bills. Prioritize Reconcile your bank statements regularly. your financial future by paying yourself first. Shop Without Your Credit Cards: Give Yourself a Consistent Raise: Use cash or debit cards for purchases. It Regularly increase your savings rate. reduces impulsive spending and keeps you Whenever you receive a raise or bonus, accountable. allocate a portion of it toward savings or investments. Pay More Than the Minimum on Your Credit Cards: Buy Value: Aim to pay off credit card balances in full Focus on value rather than price. Make each month. High-interest debt can hinder informed purchasing decisions by financial progress. considering long-term benefits and quality. Dust Off That Business Idea You've Been If You Have to Borrow, You Can't Afford Putting Off: It: Explore entrepreneurial opportunities. Your Avoid unnecessary debt. Borrowing should business idea could be a path to financial be reserved for essential investments (e.g., independence. education, home) rather than lifestyle expenses. Learn to Say "No" to Yourself: Delay gratification when necessary. Pay Your Bills Ahead of Time: Prioritize long-term goals over short-term Set up automatic bill payments or pay bills desires. as soon as they arrive. Avoid late fees and maintain a positive credit history. Learn to Say "No" to Your Kids: Teach children about responsible money Read One Financial Book Each Year: management. Avoid spoiling them with Continuously educate yourself about unnecessary purchases. personal finance. Books provide valuable insights and strategies. Buy Term and Invest the Difference: Consider term life insurance instead of Track Your Spending: expensive whole life policies. Invest the Use budgeting tools or apps to monitor your saved premiums wisely. expenses. Awareness helps you make better financial choices. Start a Retirement Savings Plan: Spend Less Time Watching TV: Contribute consistently to retirement Avoid frequent car upgrades. Save on accounts (e.g., 401(k), IRA). Take depreciation and maintenance costs. advantage of employer matches. Learn to Love the House You Live In: Refresh Your Emergency Fund on a Prioritize functionality and comfort over Regular Basis: excessive square footage or luxury. Ensure your emergency fund covers 3-6 months' worth of living expenses. Replenish it as needed. Save for Specific Goals: Set aside money for short-term and long-term objectives (e.g., vacations, home purchase, education). Know What You're Paying: Understand fees, interest rates, and investment costs. Make informed financial decisions. Give to Others: Practice generosity. Giving back fosters a positive mindset and strengthens your community. Become the Go-to Guy/Girl at Work: Excel in your career. Continuous improvement can lead to promotions and salary increases. Get to Work 15 Minutes Early Each Day: Show commitment and dedication. It reflects positively on your work ethic. Cut Down on Your Spending Allowance: Evaluate discretionary spending. Redirect those funds toward savings or debt reduction. Cut Down on Restaurant Meals: Cooking at home saves money and promotes healthier eating habits. Drive Your Car a Few Years Longer: TOPIC 2: Establishing your Financial 2. Identify your spending habits Foundations 3. Consider your long-term objectives 4. Decide on ways to achieve them Financial planning process: 5. Document your plan 1. Assessing current financial institution What are the key components of a 2. Identifying financial goals financial plan? 3. Developing a financial plan 4. Implementing the financial plan Goal: Ensure a comfortable and financially 5. Monitoring and Adjusting the stress free life. financial plan Steps to explore financial goals: Developing a financial plan: 1. Calculate your net worth 2. Identify your spending habits 1. Flexibility 3. Budgeting, saving, and investing 2. Liquidity each month 3. Protection 4. Minimizing Taxes Focus area: 1. Emergency saving A Financial plan is always an advantage for 2. Retirement plan those who want to manage their finances in 3. Risk management ways that are best suited for them. 4. Tax minimization plan 5. Long-term investment strategy You can create one at any time, whether you’ve just joined the workforce or you’ve What are the 5 key areas of Financial been working for years. Planning: What is the purpose of a financial plan? 1. Estate planning 2. Retirement planning A financial plan should help you make the 3. Sef-protection/risk management best use of your money and achieve 4. Tax planning long-term financial goals such as: 5. Investment planning 1. Investments Implementing the Financial Plan 2. Sending your children to college 1. Stick to it 3. Buying a bigger home 2. Your financial plan is the tool used to 4. Leaving a legacy achieve goals 5. Enjoying a comfortable 3. Keep goals in mind and work retirement towards them How to create a financial plan? 1. Calculate your net worth Financial plan implementation is the your plan in response to these changes to process of putting into action the strategies maintain progress toward your goals. and steps outlined in a financial plan to achieve specific financial goals. Signals to adjust existing plans Key steps; New Job: Results in added income, new 1. Taking concrete steps towards expenses, or new opportunities. achieving financial objectives. 2. Monitoring progress and adjusting Income Change: Affects your ability to pay the plan as needed. expenses, pay off debt, or save. Action Steps: Major Life Events: Marriage, children, or 1. Opening and funding investment divorce that change financial objectives, accounts. Paying off debt. spending needs, and obligations. 2. Creating a budget. 3. Increasing savings. Health Adversities: Redirecting income 4. Reducing expenses and spending away from existing goals. Steps in the Financial Plan Income Windfall: Inheritance or insurance Implementation Process: payment that affects your efforts to reach financial goals, such as by providing more 1. Identifying Financial Goals money for investing. 2. Assessing the Current Financial Situation. 3. Creating a Budget 4. Investment Planning 5. Retirement Planning 6. Estate Planning MONITORING AND ADJUSTING THE FINANCIAL PLAN Regular Plan Reviews Regularly reviewing your financial plan is crucial for staying on track toward your financial goals. Conduct periodic reviews to assess your progress and make necessary adjustments. Adapting to Changing Circumstances Life events, such as marriage, having children, or career changes, can impact your financial plan. Be prepared to adjust  - Live as a retiree without being a Topic 3: Cash management, Budgeting financial burden on family or the and Savings government. PERSONAL BUDGETING Setting up systems and using tools to help you meet both short-term and long- Budgeting - is the process of creating a term goals: plan to manage your income. This plan, often referred to as the budget, helps you - Set monthly and annual goals (in allocate your money towards various needs, conjunction with spouse if such as paying bills, saving up for the future applicable). and covering discretionary spending. - Track expenses throughout the month using a spreadsheet or app. Budgeting allows you to take control of your - Review monthly and annually to see finances by making informed decisions if you've met goals and how you can about how to spend and save your money. improve. Budget - is a tool that tracks income and Paying with cash, avoiding unnecessary expenses, and it allows you to set a goals debt and set plans for the future Be prepared for the unexpected because 50-30-20 Rule the unexpected will happen! 20% - savings and investments (emergency Learning to be content with your life funds, retirement plan, extra debts payment) 30% - wants (clothing, environment, Expenses: Need or want? vacations, restaurants) 50% - needs (housing, food, car, medical, - Needs receive top priority. work-related expenses, minimum debt The first things that should payment) be considered in your budget - Examine wants to see if you actually Budgeting = Habit Formation need them. Practice postponing buying Habit that takes the guesswork out of "wants" as a lot of the time you will financial decisions in each stage of life: realize you are just fine without them. - Meet expenses and limit/avoid debt as a student. Think about other costs - Prepare for marriage, children, and beyond purchase price associated homeownership as a young adult. with "wants." - Save for retirement and generosity Upkeep cost in older adulthood. Complementary purchase costs Opportunity costs Expenses: Fixed or Variable? Shelter - Rent/Mortgage Fixed expenses remain the same for a - Water period of time, typically month to month. - Electric - Gas Fixed expenses are often contract based. - Rental/Homeowners Insurance - Shop for better prices when the - Property Taxes contract is about to expire. - Furniture/Decoration Allowance - Trash Variable expenses change based on some - Maintenance/Tools/Cleaning factor, typically usage. Clothing Find a way to treat variable expenses as if - Clothes they were fixed expenses (e.g., I will not - Shoes spend more than $_ on vehicle fuel this month). Health - Insurance premiums (if not withheld Income Category Examples by employer) - Rx/OTC medicines, vitamins Keep track for each individual income - Office visits source. - Testing - Health/Beauty/First Aid Supplies Gross income - Dental - Withheld taxes and fees (*typically) - Vision - Fitness Equipment/Gym Fees Federal, state, local income taxes - Haircuts Social security and Medicare Union dues (if applicable) Transportation Employer sponsored benefits (e.g., medical, - Insurance premiums vision, dental, retirement, disability) - Fuel - Tires/brakes Take-home pay - Car wash - Tolls Remember: Take-home pay serves as the - Oil change and tire rotation foundation for your budget! - Minor car maintenance/parts - Registration Renewal Expense Category Examples - State Inspection - Taxes Food - Parking (non-entertainment related) - Groceries - Uber/Lyft/Taxi fees - Regular eating out - Special eating out  School - Tuition and fees - Taxes not withheld by employer - Loan payments (if applicable) (e.g., estimated taxes, use - Books tax,certain local taxes) - Technology (e.g., computer) - Non-categorizable expenses - Conferences, professional development, etc. Expense Category Budgeting Tips Giving Food - Family and friend gifts and cards Eat in as much as possible, but if you do eat (e.g..birthday and holidays) out save by getting water instead of soft - Special occasion gifts (e.g., drinks for alcohol) wedding, baby) - Religious and/or charitable giving Clothing Giving to help family and friends in Focus on buying interchangeable staple need clothing and footwear items that are timeless and will last as opposed to being Entertainment trendy. - Tickets, concessions, parking - Cell phone Internet access Shelter - Streaming services and/or cable Live at home and get a roommate (or two or - Pocket money for impulse buys three) so that you can share expenses. Avoid spending more than 25% of Investment take-home pay on shelter. - Emergency Fund for unexpected expenses Health - Retirement/IRA Find a way to get insurance. Engage in - Life insurance (if applicable) healthy activities now (eg. your health bills later in life. w (e.g., eating, exercise) to s Travel save on - Entertainment (tickets, admissions, etc.) Transportation - Vehicle Fuel, Uber/Lyft/Taxi fees Buy a newer used car as opposed to a - Flights brand new one. Only buy what you can - Rental Car afford in cash since vehicles only go down - Eating Out in value. - Lodging - Tolls School - Parking Find ways to limit costs (e.g., be an RA, do - Misc. travel expenses work study, hunt for scholarships, become a graduate assistant) and avoid debt. Do not Other/Misc. be swayed by the brand of the school, focus - Tax preparation on cost. Find an employer that offers tuition - Stamps/postage reimbursement.  6. Pay off your home early. Giving 7. Build wealth and give. Find a way to be generous with your money, even if Just a little. Entertainment Prioritize what you enjoy most; eliminate or limit the rest. How many streaming services do you actually need? Investment Start now, even if small. Look into an IRA. Travel Find ways to share costs with family/friends. Take shorter trips within driving distance as opposed to paying to fly somewhere. Stay at budget hotels. Do not be swayed by Instagram or others. Dave Ramsey's Baby Step Method Once you've mastered budgeting in the short-term, you can start to think about the long-term. While the later steps might not apply to you for a few years, they will be easier to achieve in the future if you master budgeting now. Source: The Total Money Makeover by Dave Ramsey, Daveramsey.com, and/or The Dave Ramsey Show Podcast 1. Save 1,000 for your starter emergency fund. 2. Pay off all debt (except your house) by paying off debts from smallest to largest (i.e., the debt snowball). 3. Save 3-6 months of expenses in a fully funded emergency fund. 4 Invest 15% of your household income in retirement. 5. Save for your children's college fund. Topic 4 Investing Surplus Cash: Investing excess Cash management is the process of cash in short managing cash inflows and outflows. Cash is among the primary assets that individuals and companies use to pay their obligations and invest It involves the process of collecting, managing, and optimizing cash flows to ensure financial stability and liquidity. Importance of Cash Management 1. Financial Stability: Proper cash management ensures that there is enough cash available to meet obligations, such as paying bills, salaries, and other expenses. 2. Liquidity: It helps maintain liquidity, allowing businesses and individuals to handle unexpected expenses or opportunities. 3. Investment: Effective cash management allows for the optimal investment of surplus cash, ensuring that idle funds are put to productive use. Strategies for Effective Cash Management Cash Flow Forecasting: Predicting future cash flows to ensure that there are no shortfalls. Optimizing Receivables: Accelerating the collection of receivables to improve cash inflows. Managing Payables: Delaying payments without incurring penalties to optimize cash outflows.