2. Data gathering 6. Plan Monitoring 4.

Investment and Accumulation Goals

BUSINESS FINANCE • Use surveys, questionnaires, and • Review the financial plan periodically to • Planning on wealth accumulation for
CATEGORIES OF INVESTMENT RISK interviews to gather quantitative and evaluate changing market conditions large purchases such as house,
qualitative information from the (i.e., economic conditions, taxes, interest educational expenses, investments for
1. Systematic Risk individual. rates, etc.). retirement, etc.
• Quantitative – for assessing financial • Evaluate the financial plan regularly to
• affects the overall market of the security status (i.e. investments, cash flow, see if it effectively meets the individual’s 5. Retirement Planning
• unpredictable and undiversifiable liabilities, etc.) goals and objectives.
• Understanding the cost of retirement.
however, the risk can be mitigated • Qualitative – to identify individual’s goals • Example: Check regularly whether the
through hedging • Analysis of cash flows to come up with
and objectives, lifestyle, risk-tolerance, fund is growing as planned. Consider
investment plans that will meet the costs
etc. other alternative assets if performance is
2. Unsystematic Risk of retirement in the future.
• Example: Interview the mom to know not good.
• associated with a company or sector how much savings she has and her 6. Estate Planning
current sources of income.
• only inherent to a specific stock or
• Planning for disposition of one’s assets
industry 3. Data Analysis SIX KEY AREAS OF PERSONAL FINANCIAL
after death.
• diversifiable risk and can be mitigated PLANNING
• Estate taxes paid to the government are
through asset diversification • Analyze the individual’s financial position
1. Financial Position huge, so avoiding these taxes can
and cash flows.
significantly impact one’s personal
• Review legal papers (i.e., insurance
• Understanding of personal resources by finances.
Personal Finance policies, trust agreements, wills, etc.).
checking an individual’s net worth and
• Evaluate objectives vis-à-vis the
cash flow.
• includes all financial decisions and individual’s resources and economic
• Net worth = assets less liabilities at a
activities of an individual including conditions. MONEY MANAGEMENT PHILOSOPHIES
point in time
budgeting, insurance, mortgage planning, • Example: Map the mom’s net cash flows
• Cash flow = expected sources of income Planning Ahead
savings, and retirement planning and compute her required return to
less expected expenses within a period
• involves analyzing current financial reach her target of ₱ 1 million after 10
(i.e., year) • One of the bases of money management
positions, projecting short-term and years.
• Helps in determining the time frame to philosophies is to create a financial plan.
long-term funding needs, and executing a which personal goals can realistically be This will prevent stress about financing
4. Financial Plan Recommendation
plan to fulfil those needs considering met. anything and make everyone ready for
individual financial constraints
• Propose financial products. urgent necessities like hospitalization
• dependent on one’s earnings, cost of 2. Adequate Protection
• At this point, the individual can comment requirements or any accidents that
living, and personal goals and wants require immediate financial consideration
on the proposed solutions.
• Analysis of protection needed for
• Example: Identify stocks, mutual funds or
unforeseen risks.
other assets which can generate the
• Includes risks of liability, property, death,
PERSONAL FINANCIAL PLANNING PROCESS mom’s required return. 1. Review Expenditures Incurred in the Past
disability, health, and long-term care.
5. Plan Implementation • Some insurance plans enjoy some tax
1. Objective Setting
benefits. • When it comes to budgeting and financial
problems, many people spend too much
• Quantify monetary objectives with • Assist the individual in the execution of
3. Tax Planning time looking over the past. This can lead
definite time frames. the recommended financial plan.
to misunderstandings and hurt feelings
• • Implementation may involve other
Prioritize objectives. • Management of when and how much that are counterproductive in formulating
• Examine these objectives with an entities so assist the individual in dealing
taxes will be paid a healthy plan for the future. The past will
with the parties involved in the execution
individual’s resources and limitations. • Understanding possible tax incentives, only show things that cannot be
• Example: A mom wants to have ₱ 1 of the financial plan.
deductions, rebates, etc. can have a recovered, and putting much time or
million after 10 years for her daughter’s • Example: Help the mom open an account
significant impact on managing personal emotional energy into it will be a useless
education. so she can invest in the recommended
finances given the magnitude of taxes exercise.
financial plan.
paid by an individual.
2. The Significance of Controlling Expenditures 4. Use Credit Cards Wisely 8. Rewarding Oneself • sell investments, negotiate with a
creditor to repay the debt in a payment
• Knowing how much money was used up • Acquiring credit cards is one of major • It can be a vacation, purchase, or an plan, or file for bankruptcy
on unnecessary things will be significant traps for anyone to get in trouble for occasional night in the town to enjoy the • improve a credit score by paying down
in financial planning. This information can recurring obligations. In most cases, fruits of hard labor. This is simply a taste debt and avoiding any more debt
immediately improve the spending side of anybody is tempted to buy unnecessary of the financial independence for working 6. Invest Your Money
the equation of the financial plan. things due to availability of credit cards. so hard. • a good way to generate income through
Another loophole of using credit card is compound interest and capital gains
3. Thinking about the Future that payment can be done on staggered MONEY MANAGEMENT CYCLE
• investment choices include certificates of
basis with interest rate stated on a
• The current financial state is largely deposit (CDs), bonds, mutual funds, real
monthly basis. In reality, this term will estate, commodities, stocks, and business
determined by past decisions on
yield to a higher interest rate (monthly ventures.
expenditures. In a way, future finances
rate multiply by 12 months) compared to 7. Plan for Retirement
will also be affected by what happened in
the prevailing interest rate.
the past. But no matter how the budgets • essential to ensuring a comfortable life in
look, there is a need to set aside some 5. Monitor Credit Score the future
money each payday toward savings. This • Investing in an employer-sponsored
can be done through auto transfer • Credit score is built and maintained retirement plan
capabilities of most banks. through credit cards spending. 8. Plan for When You Die
Monitoring credit score goes hand in hand MONEY MANAGEMENT IN PERSONAL FINANCE • will can ensure that property and cash
with watching credit spending. This is are dispersed to the appropriate heirs
Money Management
needed when obtaining an approval for • guardian to care for their children if they
MONEY MANAGEMENT PRACTICES • the processes of budgeting, saving,
lease, mortgage or any other type of die
investing, spending, or otherwise
1. Devise a budget financing. Factors that determine credit
overseeing the capital usage of an INDIVIDUAL LIFE CYCLE
score include credit holding period,
individual or group.
• Budget is essentially a financial roadmap payment history and credit-to-debt ratio.
1. Accumulation Phase
that allows anybody to live within their
6. Plan and Save for Retirement
Managing Personal Finances • just started working, start separating
means, while having enough left over to 1. Assess Your Financial Situation from their parents
save for long-term goals. Having a budget • by assessing net worth, it is possible to
• Retirement may seem like another • acquisition of cars and houses, start
is the first mandatory step from which place a monetary value on one's financial
lifetime away, but it arrives much faster incurring liabilities in the form mortgages
savvy money management will evolve. situation
than expected. Based on suggestions of
experts, most people need to save more 2. Create a Budget 2. Consolidation Phase
2. Create Emergency Fund
or less 80% of their current salary for • a good way to set financial priorities like • have the necessary assets required of a
• It’s important to ensure money is set aside retirement purposes. There will be more saving for retirement or a vacation and typical household
for “rainy day” fund like during benefits if anybody will start saving for managing debt. • have settled most of their outstanding
emergencies or sudden unemployment. retirement at a very young age. Setting 3. Choose a Bank that is Right for You liabilities
The ideal safety net for this fund is aside money now for retirement allows it • a bank that will help you accomplish your • investments of moderate risk are taken
between three to six months’ worth if to grow over the long term. financial goals • need to consolidate and preserve assets
living expenses. • some banks charge more fees for some to prepare ahead for future retirement
7. Family Consideration services than other banks
3. Limit Incurring a Liability 4. Pay Taxes 3. Spending Phase
• Preparing for the future considers the
• pay estimated taxes throughout the year • retired individuals
• Living within the available resources will family to be left behind in case of any
(self-employed) • pension, benefits from returns
limit unnecessary liability or obligations. eventualities. An insurance protection is
• filing a tax return by the deadline will investments
This will also avoid any deviation of the not applicable for material possessions
avoid the payment of costly penalties
budget and any adjustments to the (car and house) but most especially to 4. Gifting Phase
• unable to file a tax return on time can
planned expenditures. But incurring one’s life. This is to ensure that assets are • provides support to the family members,
obtain an extension
obligation to accumulate an asset, like protected and meets your family’s needs friends, or any charitable institution
5. Manage Debt
buying a house on installment rather than through life’s major milestones. • allocation in case of his death or even
• high interest debt can lead to disastrous
renting, is one of the exemptions to the during remaining years
consequences
rule.