MODULE 6: PHILOSOPHY AND PRACTICES IN PERSONAL FINANCE ☺ It's always best to be proactive.

ys best to be proactive. In life, there are often default options. If

you don't consciously and deliberately choose something different, you get
LESSON 1: MONEY MANAGEMENT PHILOSOPHY
the default.
In our society, we are bombarded daily with advertisements ☺ Saving must be a priority. Most financial gurus recommend saving 10%
telling us we need the products being advertised. As a result, many people or 20% of your income.
have trouble distinguishing between needs and wants. NEEDS are basic ☺ Small amounts matter. Frugality is an important part of personal
for your survival. WANTS are desirable to make your life more finance.
comfortable. Money management involves managing all your resources to ☺ Large amounts matter more. Practice thrift, but always be looking for
achieve your goals and objectives. Your time, talents and money are some Big Wins.
of those resources. Knowing the differences between your needs and ☺ Slow and steady wins the race. The most successful folks are those
wants will help you manage your money better. who work longest and hardest at things they love to do.
What Is Personal Finance? ☺ The perfect is the enemy of the good. Don't worry about getting things
Personal finance is a term that covers managing your money as well as exactly right — just choose a good option and do something to get started.
saving and investing. ☺ Action is the cornerstone of success. Get moving. Trust that you'll pick
up momentum in the future.
Personal Finance Explained ☺ Failure is okay. Don't let one slip-up drag you down.
Personal finance is about meeting personal financial goals, ☺ Smart money management is more about mindset than it is about
whether it’s having enough for short-term financial needs, planning for math. Financial success comes when you master the mental game of
retirement, or saving for your college education. It all depends on your money.
income, expenses, living requirements, and individual goals and desires— ☺ You can have anything you want — but you can't have everything you
and coming up with a plan to fulfill those needs within your financial want.
constraints. But to make the most of your income and savings it's
☺ Financial balance lets you enjoy tomorrow and today. You don't have to
important to become financially literate, so you can distinguish between
choose between spending today and saving for tomorrow. You can do
good and bad advice and make savvy decisions.
both.
Once you've established some fundamental procedures, you
☺ It's more important to be happy than it is to be rich. Don't be obsessed
can start thinking about philosophy. The key to getting your finances on
with money — it won't buy you happiness.
the right track isn't about learning a new set of skills. Rather, it's about
learning that the principles that contribute to success in business and your
LESSON 2: MONEY MANAGEMENT CYCLE
career work just as well in personal money management. The three key
principles are prioritization, assessment, and restraint.
Areas of Personal Finance
The main areas of personal finance are income, spending, saving,
Ten Basic Principle of Financial Management
investing, and protection. Each of these areas will be examined in more
1. Organize Your Finances Organizing your finances is the first
detail below.
step to creating wealth.
2. Spend Less Than You Earn The best way to ensure that you
#1 Income
either overcome debt or avoid it in the first place is to never
Income refers to a source of cash inflow that an individual receives and
spend more than you make.
then uses to support themselves and their family. It is the starting point for
3. Put Your Money to Work Take advantage of the time value of
our financial planning process.
money.
Common sources of income are:
4. Limit Debt to Income-Producing Assets If you have to be in
• Salaries
debt, stick to financing items that retain their value over time,
like real estate and education. • Bonuses
• Hourly wages
5. Continuously Educate Yourself Understand why you are
• Pensions
investing so that you will stick to your plan. Periodically gather
• Dividends
research so you do not miss excellent investment
These sources of income all generate cash that an individual can use to
opportunities.
either spend, save, or invest.
6. Understand Risk The key to understanding return on
investments is that the more you risk,
#2 Spending
the better the return should be.
Spending includes all types of expenses an individual incurs related to
7. Diversification Is Not Just for Investments Find creative ways to
buying goods and services or anything that is consumable (i.e., not an
diversify your income. Everyone has a talent or special skill.
investment). All spending falls into two categories: cash (paid for with cash
"Turn your talents into a money-making opportunity
on hand) and credit (paid for by borrowing money). The majority of most
8. Maximize Your Employment Benefits Make sure you are taking
people’s income is allocated to spending.
advantage of all the ways benefits can save you money by
Common sources of spending are:
reducing taxes or out-of-pocket expenses.
• Rent
9. Pay Attention to Taxes` We all know that any money you make
• Mortgage payments
is going to be taxed. That is why it is important to consider the
• Taxes
related tax implications for every investment.
• Food
10. Plan for the Unexpected Despite of your best efforts, you'll face
• Entertainment
unforeseen emergencies.
• Travel
• Credit card payments
Here are some personal finance principles from Money Boss website.
☺ You are the boss of you. Your circumstances might not be your fault,
The expenses listed above all reduce the amount of cash an individual
but they're your responsibility.
has available for saving and investing. If expenses are greater than
☺ Nobody cares more about your money than you do. The advice that income, the individual has a deficit. Managing expenses is just as
others give you is almost always in their best interest, which may or may important as generating income, and typically people have more control
not be the same as your best interest.
over their discretionary expenses than their income. Good spending habits A. Objective Setting
are critical for good personal finance management. • Quantify monetary objectives with definite time frames.
• Prioritize objectives.
#3 Saving • Examine these objectives with an individual’s resources and
Saving refers to excess cash that is retained for future investing or limitations.
spending. If there is a surplus between what a person earns as income
and what they spend, the difference can be directed towards savings or B. Data gathering
investments. • Use surveys, questionnaires, and interviews to gather quantitative
Common forms of savings include: and qualitative information from the individual.
• Physical cash • Quantitative – for assessing financial status (i.e. investments, cash
• Savings bank account flow, liabilities,etc.)
• Checking bank account • Qualitative – to identify individual’s goals and objectives, lifestyle,
• Money market securities risk-tolerance, etc.
Most people keep at least some savings to manage their cash flow and
the short-term difference between their income and expenses. Having too C. Data Analysis
much savings, however, can actually be viewed as a bad thing since it • Analyze the individual’s financial position and cash flows.
earns little to no return compared to investments. • Review legal papers (i.e. insurance policies, trust agreements,
wills, etc.).
#4 Investing • Evaluate objectives vis-à-vis the individual’s resources and
Investing relates to the purchase of assets that are expected to generate a economic conditions.
rate of return, with the hope that over time the individual will receive back
more money than they originally invested. Investing carries risk, and not D. Financial Plan Recommendation
all assets actually end up producing a positive rate of return. This is where • Propose financial products.
we see the relationship between risk and return. • At this point, the individual can comment on the proposed solutions.
Common forms of investing include:
• Stocks E. Plan Implementation
• Bonds • Assist the individual in the execution of the recommended financial
• Mutual funds plan.
• Real estate • Implementation may involve other entities so assist the individual in
• Private companies dealing with the parties involved in the execution of the financial
• Commodities plan.
• Art
Investing is the most complicated area of personal finance and is one of F. Plan Monitoring
the areas where people get the most professional advice. There are vast • Review the financial plan periodically to evaluate changing market
differences in risk and reward between different investments, and most conditions (i.e. economic conditions, taxes, interest rates, etc.).
people seek help with this area of their financial plan. • Evaluate the financial plan regularly to see if it effectively meets the
individual’s goals and objectives.
#5 Protection
Personal protection refers to a wide range of products that can be used to
guard against an unforeseen and adverse event.
Common protection products include:
• Life insurance
• Health insurance
• Estate planning
This is another area of personal finance where people typically seek
professional advice and which can become quite complicated. There is a
whole series of analysis that needs to be done to properly assess an
individual’s insurance and estate planning needs.

The Personal Finance Planning Process

Good financial management comes down to having a solid plan and
sticking to it. All of the above areas of personal finance can be wrapped
into a budget or a formal financial plan. Generally speaking, the main
components of the financial planning process are: