Welcome to:

Managing Your Personal Finances
FINA1109
Paul Gerrans 64882910
[email protected]
 Overall Objectives
Develop fundamental financial concepts, financial skills 
‐ not become a financial expert (expertise is available)

Consider the major decisions you will make over your life
‐ articulate your “known” objectives (to yourself)
‐ consider potential “unknown” objectives

Reflect/Plan for financial consequences of these decisions
‐ begin a personal financial plan (for yourself), 
start the financial planning process considering the
Known Knowns, Known Unknowns, & Unknown Unknowns
“plans are worthless,
but planning is everything” *
* From a speech to the National Defense Executive Reserve Conference in Washington, D.C. (November 14, 1957) ; in Public
Papers of the Presidents of the United States, Dwight D. Eisenhower, 1957, National Archives and Records Service, Government
Printing Office, p. 818 : ISBN 0160588510, 9780160588518
 Am I borrowing the 
Financial plans & 
“right” amount?
Financial planning 
process Am I saving the 
“right” amount?

What can I invest 
in?
Rent or Buy?

Personal tax

How do I make an 
investment?
“Financial” side of 
long‐term choices: 
Partner, Kids,  Financial Protection 
Retirement & Insurance
 Assessment
Component Weight Due Date

Week 1/12 Surveys 4% 
Bi‐weekly tute stream 8%
Participation 20‐25%
Reflective Journal 8%
Lecture quizzes 5% (optional up to)

Assignment 20% Refer LMS for questions/allocation.

Exams 55‐60% Week 7 & End of Semester

Check BB additional readings/info. 
Slides – available BB from Wed at the latest Refer LMS
YOUR FEEDBACK IS WELCOME
 Tutorial Participation
• First tute week (week 2) 
– Tutor allocates Stream A/B
– If it’s your stream week, Tutor will be looking to you to 
leading discussion of answers
– If it’s not your week, still expected to attend and you can 
make contribution but not expected to lead
– Why this way? More realistic to judge what 10 students 
are doing than all 20
 Lecture Participation (5%)
• From Week 3, short MC quiz (~3 qs via LMS) during lecture
• Pass/Fail 1% each
• Each quiz pass (up to 5%) counted in final grade
– Get 5 done, you get 5% & final exam worth 40%
– Get 4 done, you get 4% & final exam worth 41%
–…
– Get  1 done, you get 1% & final exam worth 44%
– Get 0 done, you get 0% & final exam worth 45%
• Miss lecture? 
– Don’t lose marks: marks transfer to final exam
– At least 7 chances to accumulate 5%
• Why this way?
– Accumulate as you go
– There is a benefit in being here
 Text
• 1. E‐book versions
– Google
– https://books.google.com.au/books/about/Your_M
oney_Milestones.html?id=ZD9Ki_l8VhkC&redir_esc
=y    (~$13)
– Dymocks
– https://www.dymocks.com.au/book/your‐money‐
milestones‐by‐moshe‐a‐milevsky‐phd‐
9780137067725 (~$13)
– Amazon
– https://www.amazon.com.au/Your‐Money‐
Milestones‐Important‐Financial‐
ebook/dp/B002YLUXKU (~$15)
• 2. Hardcopy: Co‐op (~$18 free delivery)
– https://pearson.com.au/products/Milevsky/Your‐
Money‐Milestones‐A‐Guide‐to‐Making‐the‐9‐Most‐
Important‐Financial‐Decisions‐of‐Your‐
Life/9780133831863?R=9780133831863 
 Who should you contact?
• Requests to change tutes
– acserv‐afe‐[email protected]
• Request to vary assessment: e.g. Deferred, Tute absence
– In person at your Student Centre; or
– Online through askUWA @ www.ask.uwa.edu.au/app/ask
– Approvals for above are NOT made by the Unit Coordinator 
• If you wish to attend another tute for a week
– Look at tutorial timetable on LMS
– Email Tutor to ask if okay to attend 
– Pick up a pink “Tutorial Permission Slip” (your tutor has) and give to your 
regular Tutor next time
• Unsure who to contact? 
– [email protected]
– askUWA @ www.ask.uwa.edu.au/app/ask
 YOUR FEEDBACK IS WELCOME
• Response to SURF & SPOT feedback
– “If lecturer is going to introduce finance related words to a  
new audience …, then it would be appropriate to give a list of 
definitions of these words in the beginning of the lecture”
• Response – A  Wiki Glossary – post a word which you don’t 
understand
– Useful resources
• If you find a helpful resource – TELL US – Forum on BB
– “I would have liked to have learnt in a little more depth 
about shares and bonds. Like about the process of investing 
and different methods of managing your shares”
• Response: New topic "How do I put my money there?" ‐
Mechanics of investing/saving
– Slides on LMS – “No gaps”
• Response: Hmmm
– Lecture times, tute times 
 Objectives Week 1
• Define human capital
• Explain the concept of marginal and 
opportunity costs
• Explain why money has a time value 
identifying the components of time value
• Relate the concept of “present value” and 
“future value” to each other using examples
• Explain the steps in the personal financial 
planning process
• Identify the components of a personal 
financial plan
 When I was at Uni … And now …

HECS‐HELP LOAN
STUDENT FEES

Source: https://www.pinterest.com.au/pin/330451691381953257; https://collections.museumvictoria.com.au/items/1246290 
 HECS‐HELP LOAN
STUDENT FEES

Look Ahead ‐ Things you might 
do over the next year or thirty . 
Planning is hard! So much to know 

To know that we know 
what we know and 
that we do not know 
what we do not know, 
that is true knowledge

Known knowns, 
known unknowns, 
and unknown 
unknowns”
 Overview of Week One ‐ Three
• Personal Financial Decision Making
–What do we mean? 
• Some Fundamental ideas

• Some financial checks
Source: pennychoong.com, 
 3 Key 
Concepts

1. Personal financial  
planning

2. Personal financial 
planning process

3. Personal financial plan
What is Personal Financial Planning?

Process of meeting your life goals through the 
“proper” management of your finances. 

Life goals: getting a job, buying a home, saving 
for post‐grad (or child's) education, round‐
the‐world holiday, planning for retirement (?)
 What is the Personal 
Financial Planning Process?
 Four components of a 
personal financial plan
BlackBoard Weekly 
Journal Reflection
 Financial planning involves making 
effective decisions (about the future)

Key principles

1. Use reasonable __________.

2. Apply __________ reasoning.

3. Consider __________ costs.

4. Use __________ analysis. 
 Reasonable assumptions

Plans contemplate possibilities
– be reasonable BUT   
contemplate the outlier, 
extreme

http://www.ethann.com/agile‐black‐swan/
Marginal   reasoning 
What __________ because of your 
decision?

What _________ “at the margin”?
Opportunity costs
What are you __________ out on?

What else could you have done?
Sensitivity analysis 
__________ your assumption was wrong?

__________ this happens?
How robust are your plans?

How much redundancy do you have?
Stage 1 of PFP

Initial 
Assessment of 
your Finances
How to do?
Establish TWO key indicators when 
assessing your finances

Financial  Financial 
Position/Net Worth  Performance

Also known as Also known as
Personal Balance  Personal Cash 
Sheet Flow Statement 
Working out your net worth 

Compare: Assets Liabilities

what you own  (what I own) (what I owe)
(Assets) 

against  ? ?
what you owe 
(Liabilities). 
$$$$

$$$

Human Capital
Financial Capital
$$
Ability to  Save 
earn & save financial 
assets

40s  Retirement 60 ~ 70 80s 

CONVERT HUMAN TO FINANCIAL CAPITAL
http://www.qwema.ca/calc/humancapital.aspx
Income & Wealth Over the Life Cycle
“Haven’t economists found the best
way to build wealth?”
$
Wealth
Problem 
Solved?!

Income
Save
Expenditure
DisSave

Start Work Retire Die

 What’s your human 
capital worth?
Median Starting salaries 2018 
Expect salary to  Business & Mgt. $58000, 
Ag. Science $58300,
grow over time? Medicine $73000, 
Creative Arts $50100, 
How much? Engineering $65000, 
Dentistry $83700, 
Law $61400

Growth median: 2018: 1.6% p.a.
(for undergraduate salaries)

https://www.qilt.edu.au/docs/default‐source/gos‐reports/2018‐gos/2018‐gos‐national‐report‐
2018.pdf?sfvrsn=a729e33c_4
Industry LEAST Variable Wages? 
Industry MOST Variable Wages?

Source: ABS (2018) Cat. No. 6345.0 ‐ Wage Price Index, Australia, Mar 2019
 What’s your human 
capital worth?
1.6% Median Starting salaries 2018 
Business & Mgt. $58000, 
Ag. Science $58300,
Medicine $73000, 
Creative Arts $50100, 
Engineering $65000, 
Dentistry $83700, 
How do we combine these  Law $61400
different salaries? Growth median: 2018: 1.6% p.a.
(for undergraduate salaries)

How much are they worth in today’s dollars?             
TIME VALUE OF MONEY
http://www.graduatecareers.com.au/wp‐content/uploads/2018/01/GradStats‐2017‐3.pdf
 Time Value of Money
• Consider an investment opportunity
–Cost:  $100 today
–Returns: $105 in one year
• Why? Why does money have a time value?
• Need to consider what else we can do – _____________, 
_____________, _____________, & our _____________.
• 2 ways to think about it
1. How much reward/extra on our $100 do we need, or
2. How much do we discount the $105 by?

http://www.youtube.com/watch?v=5DGAsjUa6cA&list=LP0gJcaYYeZgw&index=1&feature=plcp www.google.com.au
 The Discount (Interest) Rate: 
Exchange Rate of Money Across Time
• Say that 5% is the discount rate
• We __________________________ at 5% from today to next year
– E.g. $100 grows to $105
– 100 “add” 5% of 100 or 100 x 1.05: “Add” or ____________ by (1 +
rate)
• We _____________ at 5% from next year to today
– E.g. $105 discounts to $100
– 105 less 5% : “Subtract” or  _____________ by (1 + rate)

• So $100 today is equivalent to                       = $105 next year

• Alternatively $105 next year is equivalent to  = $100today 
www.moneysmart.gov.au/tools‐and‐resources/calculators‐and‐tools/compound‐interest‐calculator
• Present Value (today) can be compounded to a Future Value 

• Future Value (later) can be discounted to a Present Value
For the 
mathematically 
FUNDAMENTALLY IMPORTANT RELATIONSHIP IN  inclined
MANAGING YOUR FINANCES

E.g. What is $200 today worth next/two year if invest @ 12%
FV  $200  200  (0.12)  $224.00
FV  $200  (1.12)  $224.00 after one year
FV $200 x 1.12 x 1.12 $250.88 after two years

**Notice that in 2nd year amount grows more than $24. Why?
Some scams exploit time value of money:

• David Tweed offered to buy shares for $5.10 each when same
shares were selling on the Stock Exchange $3.90

• But … paid 34 cents per year over 15-years (15*34c= $5.10)

• Present value was really closer to $3.30 at the time

Photo source: https://www.smh.com.au/business/elderly‐widow‐latest‐tweed‐victim‐20120129‐1qnvd.html
 • How can calculate this?
• Plenty of online calculators

Not all calculators created equal – some are “SET” differently
 So … calculators can do “grunt” work. We are more interested in:
1) What are we talking about? 2) Do the numbers make “sense”? 
E.g. “I’ll pay you $100 in 4‐years time. How much will you give me now?”
Finance translation: What is the present value of a future value of 
$100 received in 4 years  time?
We need to know the time value. Your ___________.
Banks paying 5% on deposits: Could put money there: _____________
𝟏𝟎𝟎
Remember ? =  What’s 
𝟏 .𝟎𝟓
Discount your 
rough 
guess?
Now 1‐ Year 2‐ Years 3‐ Years 4‐ Years
$   82.27  $   86.38  $   90.70  $   95.24  $   100.00 
Take 5% 
𝟏𝟎𝟎 Discounted once
PV= 𝟏𝟎𝟎 out of 
𝟏 .𝟎𝟓 𝟒 PV= 𝟏 .𝟎𝟓 $100 for  
Discounted four times
4 years
Calculator can tell us the answer, but ..
But, what’s important here?

PV= 𝟒

1.How ___________ of money?
2.How ___________you receive it?
3.How much are you _____________?
Let’s recap . . . 
1. We considered factors likely to impact 
financial decision making.
2. We discussed 3 key concepts (viz. PFP, PFP 
process , components of a PFP)
3. We started to identify key indicators to 
help you assess your  PFP
4. We highlighted the importance of human 
capital
5. We identified the VERY important concept 
of the time value of money
Before next week 
1. Complete your first survey assessment 
(sent to your UWA email address)
2. Go to moneysmart.gov.au