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Managing Personal Finance: Module of Instruction

This document provides an overview of personal finance concepts. It defines personal finance as all financial decisions and activities of an individual or household. It discusses developing personal financial goals by considering the timeframe and financial needs. The basic principles of personal finance include knowing your income, paying yourself first through savings, budgeting, comparing interest rates, being a responsible borrower, and maintaining insurance. The document aims to help readers apply financial concepts learned in business to managing their personal finances.

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Criscel Santiago
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187 views7 pages

Managing Personal Finance: Module of Instruction

This document provides an overview of personal finance concepts. It defines personal finance as all financial decisions and activities of an individual or household. It discusses developing personal financial goals by considering the timeframe and financial needs. The basic principles of personal finance include knowing your income, paying yourself first through savings, budgeting, comparing interest rates, being a responsible borrower, and maintaining insurance. The document aims to help readers apply financial concepts learned in business to managing their personal finances.

Uploaded by

Criscel Santiago
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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MODULE OF INSTRUCTION

Managing Personal Finance

Now, that you have already learned the basic concepts of finance in
business, let’s now apply it in your own personal lives.

After going over this lesson and activities you should be able to
 Define personal finance
 Develop personal financial goals
 Know the basic principles of personal finance

Business Finance 1
X.X Business Finance

12.1 Personal Finance


Personal finance defines all financial decisions and activities of an
individual or household, including budgeting, insurance, mortgage
planning, savings and retirement planning. Financial planning and
budgeting principles discussed in the past modules are also applicable
in personal finance.

A personal budget is an important tool. It is a finance plan that


allocates future personal income towards expenses, savings and debt
repayment. In making your budgets you should also consider your
needs and wants.

The following are basic activities in personal finance.

Earning

You are receiving money for services rendered, goods sold or interest
income.

Borrowing

You are receiving money from lenders causing a debt obligation. You
borrow money for your own reasons. One is that your earning might
not be enough to pay your expenses.

Saving

You are setting aside money for a specific purpose within a short
period of time.

Investing

You are putting your money into work so that it can earn interest or
appreciate in value within a long period of time. This involves greater
risk but yields greater returns.

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MODULE OF INSTRUCTION

Spending

You are giving out money for your personal needs or wants.

Donating

You are giving out your money for charitable purposes.

12.2 Developing Personal Financial Goals


There are two factors that usually influence your future goals. The
first one is the time-frame that you desire for your goal to be achieved.
The other one is the type of financial need that drives such goal.

Timing of Goals

Goal setting may be viewed in three time frames. It may either be


short-term, medium-term or long-term. Short-term goal is a goal that
can be achieved in less than a year, a medium-term or intermediate
goal has a time frame from one to five years while a long-term goal
involve financial plans that are more than five years. Long-term goals
should be planned in coordination with short-term and medium-term
goals.

Goals for Different Financial Needs

Looking at the financial needs of a person, goals may be classified as


consumable-product goals or durable-product goals.

Consumable-product goals involve frequent or periodic purchases of


items which are used up quickly. This may involve spending for food
and entertainment.

Durable-product goals commonly involve infrequent purchase of items


which are ussyally expensive but long-lasting. This may include
purchase of equipment, car or a house.

Business Finance 3
X.X Business Finance

Goal-Setting Guidelines

An old saying goes, “If you don’t know where you’re going, you
might end up somewhere else and not even know it.” That’s why goal
setting is essential in making financial decisions. This will become the
basis for planning, implementing, and measuring the progress of your
spending, saving, and investing activities.

Ideally, you must have SMART financial goals:

S— specific. You must have a specific or precise goal so you can


create a plan and strategy to achieve those things.

M— measurable. By being measurable, your financial goal must have


a particular amount. For example, “Accumulate Php500,000 in an
investment fund within three years” is more measurable than “Put
money into an investment fund.”

A— action-oriented. Goals must provide basis for the personal


financial activities that you will undertake. For example, “Reduce
credit card debt” will usually mean actions to pay off unsettled
liabilities.

R— realistic. Of course, goals must be truthful and must be based on


your income and life situation. Aiming for big things is good, but you
must ensure that it is realizable.

T— time-based. You must indicate a time frame for accomplishing


your goal. This enables you to measure your progress.

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MODULE OF INSTRUCTION

12.3 Basic Principles of Personal Finance


The following are the basic principles of personal finance as described
by Mackensen & Company (2015).

Know your take home pay

Before committing to significant expenditures, estimate how much


income is likely to be available for you.

Pay yourself first

Before paying bills and other financial obligations, set aside an


affordable amount each month in accounts designated for long-range
goals and unexpected emergencies.

Start saving at young age

Recognize that your total savings are determined both by the interest
you earn on those savings and the time period over which you save.

Compare interest rates

Obtain rate information from multiple financial services firms to get


the best value for your money.

Don't borrow what you can't repay

Be a responsible borrower who repays as promised, showing you are


worthy of getting credit in the future.

Budget your money

An annual budget to identify expected income and expenses, including


savings, will help you live within your income.

Business Finance 5
X.X Business Finance

High returns equal high risks

Engagig in highly risky activities usually have high returns as well.


No will just pay you high interest on a sure things which or things that
are not risky. Diversification of assets is the best protection against
risk.

Don't expect something for nothing

Everyone desires or even anticipates having something without any


exchange. In finance, you musn’t do this. Expecting for performance
bonuses at work is good but you mustn’t expect such bonus to be
given to you if you did not performed well at work or there are no
provisions regarding the issuance of such thing.

Map your financial future

You must take time to list your financial goals and have a realistic plan
for achieving them.

Your credit past is your credit future

Be aware that credit bureaus or business entities that you have engaged
with in the past may maintain reports regarding your credit history
with them. Negative information in credit reports can affect your
ability to borrow at a later point.

Stay insured

It would be great to be ensured. Staying ensured can somehow lessen


the burden in case of financial loss. You may avail insurances for your
personal protection in case of illnesses and you may also avail
insurance for your properties such as your house or business
establishment.

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MODULE OF INSTRUCTION

Glossary
Goal- an aim or desired result

Personal Finance - the management of money and financial decisions


for a person or family including budgeting, investments, retirement
planning and investments

References
J. Keys (2016). “Personal Finance Basics and the Time Value
of Money”.

Mackensen & Company (2015), “Principles of Personal Finance”.

Business Finance 7

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