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LESSON 20: What Is Personal Finance? Target

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LESSON 20: What is Personal Finance?

TARGET

At the end of the lesson, you should be able to:

 Understand what personal finance is;


 Identify the steps in financial planning; and
 Know the benefits of personal financial planning.

EXPLORE

Create a graphic organizer by writing down what you know about Finance using the
following guide questions. Compare and discuss your answers with a group.

Guide questions:

1. Define personal finance.


2. Identify the different types of financial goals.
3. Enumerate the steps in financial planning.
4. Name the 10 commandments of personal finance.
5. What are the benefits of personal financial planning?

EXAMINE

Personal financial planning involves the decision making on how to spend, save, and
invest money. Financial objectives, which are things that you wish to achieve, are
different from person-to-person. Getting high-quality education, starting a business,
purchasing a car, having financial stability, and living comfortably are all ambitions.
Planning your personal finances is critical since it will assist you in achieving your
objectives, whatever they may be. It is up to you to create and stick to a budget.

Some individuals create a more detailed budget that can cover various expenses and
aspects of their lives. This is called a financial plan. A financial plan describes the
current financial condition in detail, as well as financial goals and any strategies
established to achieve them. Good financial planning should contain information about

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the cash flow, savings, debt, investments, insurance, and any other facets of a person’s
financial life.

Financial planning is an ongoing activity that can help individuals reduce financial
stress, satisfy immediate needs, and save for long-term goals like retirement. Financial
planning is important because it allows people to optimize their assets while also
ensuring that their long-term goals are met.

Financial planning isn't only for the wealthy: everybody may benefit from laying out a
strategy for their financial future. A financial plan can be created on your own or with
the help of a financial planner.

Types of Financial Goals

Goals Based on Time Frame

● Short-term goals take one year or less to achieve;

● Intermediate goals take two to five years to achieve; and

● Long-term goals take more than five years to achieve.

With goals defined by the time element, it is best to begin with short-term objectives
that may lead to longer-term objectives. Some objectives may come up and change,
however, it is best to stick to plans to avoid unexpected expenses.

Goals Based on Needs

Goals may be based on the necessities of an individual. It is possible to have different


and more diversified goals based on the consumption of the individual of consumable
goods and services, durable goods, or intangible items.

● Goals based on the need for consumable products. Consumable products such as
food and toiletries are purchases that are made frequently and quickly depleted.

● Goals based on the need for durable goods. Long-lasting goods are high-priced
items that people don't buy very often. When utilized on a regular basis, most
durable goods, such as cars and heavy appliances, will last some five to ten years.

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● Goals based on the need for intangible items. Intangible objects can't be touched,
but they're often crucial to one’s happiness and well-being. Intangibles like
personal relationships, health, education, and free time are sometimes neglected.

Steps in Financial Planning

An individual may develop a financial plan by following these steps:

● Set financial goals that will motivate people to work on their objectives.

● Track cash flows on a monthly basis to help make financial decisions. A precise
image is necessary for building a financial strategy because it can reveal the chances
to increase savings or debt repayment.

● Consult experts and ask for suggestions that will help attain objectives more
efficiently.

● Save for emergencies. Having a substantial emergency fund implies the ability
to move on after a financial setback; resuming your normal routine won't be as
challenging.

● Save and invest to build wealth. It's time to invest when a monthly savings
target is set. When money is invested, it may return in the form of more money.
Investing earnings in the stock market, real estate, and retirement plans can help
you accumulate significant wealth over time.

● Grow your financial well-being. A retirement plan is intended to assist in


planning for post-retirement years and live a stress-free existence. A retirement
savings plan, for example, can help build money and provide a steady income for
life.

Financial planning can appear to be a difficult and intimidating subject. Many people
feel that financial planning is solely for the wealthy or that financial planners are unable
to work with low-income persons. This is true for certain financial planners; however, it
is not the norm. In reality, financial planning can be useful at any stage of life.

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A personal financial plan is crucial for everybody and their loved ones who want to avoid
future financial troubles and difficulties. Financial freedom and stability, both short and
long-term, are things that people aspire to have until the end of their lives. It is critical
to plan financially for one's retirement years so that one does not experience
inconveniences in the future. Creating a comprehensive financial plan is a process that
entails a thorough examination of a person's financial situation as well as a long-term
commitment to follow and adhere to the specified financial plan throughout one's life.
The plan may include, but is not limited to, how a person spends, saves, and invests
money. Knowing how to budget, manage cash and taxes, borrow funds, use credit cards,
minimize risk, invest, and prepare for retirement are all part of it. Such a strategy also
requires a forward-thinking mindset.

Benefits of Personal Financial Planning

Money is essential to one's physical personal existence because it comes into contact
with them at every turn: working, gratifying one's own needs, and incurring necessary
expenses.

The benefits of knowing how to manage personal finances has long term benefits that
extend beyond the individual. The individuals who have a good grasp of financial
planning are seen to have children following their footsteps because finance education is
passed on. In turn, these individuals have more abundant lives than those that lack
knowledge on personal finance.

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(Image from: https://www.holisticinvestment.in/personal-financial-planning-
management-family-budget-retirement/)

All changes in business and lifestyle globally have an impact on people's financial
behavior and their approach to personal finance management. These developments and
technical advancements result in personal property growth and structure adjustments,
new personal finance management possibilities, and modern-saving and investment
methods. The following sections are the benefits of personal financial planning and
management.

Financial Plans Enable People to Set and Reach their Goals

Financial planning helps individuals live with direction and purpose because it obliges
them to set goals and objectives. An effective plan encourages people by establishing a
schedule for achieving their objectives. It assists in focusing money and time
management on achieving financial objectives so that they may accomplish the things
they want to do in life. Goal setting is reliant on budgets, making it a crucial aspect of
financial strategy.

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When it comes to living a stable life, people need to set financial goals. Personal
economics is considered an intimate element of everyone’s life because money aids in
attaining people’s most treasured life goals.

Financial Plans Create a Roadmap for Actions and Commitment

When people don't have clear goals or know what is expected of them, they are less
likely to be driven. By giving clarity and identifying what a person is expected to do, a
financial plan lowers financial uncertainty. A goal can be easily achieved when it is
known and comprehended.

For a variety of reasons, taking action with financial decisions might be difficult. Money
causes a lot of stress and embarrassment, so many try to avoid discussing or thinking
about it. Many people are unfamiliar with the phrases that are used in personal finance.

People will have a sense of direction using a financial plan. A financial plan will assist in
identifying specific steps to take in order to improve the person’s financial situation. It is
much easier to take action with confidence when a trusted professional explains what
has to be done, or the next steps toward goals are mapped out.

Financial Plans Establish Performance Measures

Once people establish the specifics of their financial plan, they should follow their
certain financial guidelines in order to be in good financial standing. These include
having emergency funds set aside, not taking on too much debt, and preparing for
retirement, among other things.

People who establish a financial plan for themselves are more likely to grow and
evaluate themselves because they use the plan as a standard. They are able to compare
their financial state to industry norms and get advice on how to place themselves in the
best financial position possible to achieve the goals.

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INTEGRATE

1. Apply the 10 commandments of personal finance in your life. Cite specific situations.
2. Create personal goals based on time frame and goals based on needs.
3. Explain the importance of personal financial planning.

EQUIP

“10 Personal Finance Rules School Doesn’t Teach You” by Practical Wisdom –
Interesting Ideas

https://www.youtube.com/watch?v=uEeCJ4-qF5c

“6 principles of personal finance and budgeting for 2021” by Mariana’s Corner

https://www.youtube.com/watch?v=XYkwa1D1AC4

“How to Manage Your Money: Six Principles of Personal Finance” by TD Ameritrade

https://www.youtube.com/watch?v=vl2sasYSY4E

“How To Manage Your Money (50/30/20 Rule)” by Marko – WhiteBoard Finance

https://www.youtube.com/watch?v=HQzoZfc3GwQ

“A Minimalist Approach to Personal Finance” by Matt D’Avella

https://www.youtube.com/watch?v=zVcwvCL2C2c

BUILD

Create a personal financial plan using the steps mentioned above. Compare this to your
current financial position and reflect on future decisions.

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CHECK

A. Arrange (6 Points)
_____ Consult Experts
_____ Grow Your Financial Well-Being
_____ Save for Emergencies
_____ Set Financial Goals
_____ Save and Invest to Build Wealth
_____ Track Cash Flows

B. Enumeration (19 Points)


1. Goals Based on Time Frame (3)
2. Goals Based on Needs (3)
3. 10 Commandments of Personal Finance (10)
4. Benefits of Personal Financial Planning (3)

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