INTRODUCTION TO

PERSONAL FINANCE
ABIGAIL M. NARAG
SUBECT TEACHER
LEARNING OBJECTIVES
• Understand why some people have money than the others.
• Know what finance involves.
• Name how finance impacts one’s personal life.
• What personal finance involves.
• Explain the main areas of personal finance.
• Be familiar with generally good financial habits.
DEFINITION OF PERSONAL FINANCE

• Personal finance is the process of managing

your money to meet your financial goals and
ensure financial stability. It involves making
informed decisions about earning, spending,
saving, investing, and protecting your assets.
• Personal finance is the management of your
individual or household financial activities. It
involves making decisions about how to earn,
spend, save, invest, and protect your
money. The goal of personal finance is to
achieve financial security and meet
personal financial goals, such as buying a
home, funding education, or retiring
comfortably.
NATURE OF PERSONAL FINANCE
• The nature of personal finance refers to the characteristics and
principles that guide how individuals manage their money and make
financial decisions. Here are some key aspects:
1. Personal and Individualized
• Personal finance is unique to each individual or household. Financial
goals, risk tolerance, income levels, and spending habits vary from
person to person, requiring tailored financial strategies.
2. Goal-Oriented
• It is focused on achieving specific financial goals, such as
saving for retirement, buying a home, funding education, or
paying off debt. Setting and prioritizing these goals is a
fundamental part of personal finance.
3. Dynamic and Evolving
• Personal finance is not static; it changes with life stages,
income levels, economic conditions, and personal
circumstances. Financial plans need to be regularly
reviewed and adjusted.
4. Interdisciplinary
• Personal finance draws on knowledge from various fields,
including economics, accounting, psychology, and law. It
requires an understanding of financial products, market
trends, taxation, and behavioral finance.
5. Risk Management
• Managing risk is a key component of personal finance. This
involves decisions on insurance, investment diversification,
and emergency funds to protect against unforeseen financial
hardships.
6. Decision-Making Process
• Personal finance involves continuous decision-making.
Individuals must make choices about spending, saving,
investing, and borrowing, balancing short-term desires with
long-term financial security..
7. Influenced by External Factors
• Economic conditions, government policies, interest rates,
and inflation can all impact personal finance. Staying
informed about these factors is essential for effective
financial planning.
8. Ethical and Value-Driven
• Personal financial decisions often reflect an individual’s
values, ethics, and beliefs. Decisions about charity, socially
responsible investing, or spending on non-essentials are
influenced by personal values.
9. Long-Term Perspective
• While it involves day-to-day money management, personal
finance emphasizes the importance of long-term financial
health. Planning for future needs, such as retirement, is a
crucial aspect.
10. Education-Dependent
• Financial literacy plays a significant role in personal finance.
Understanding basic financial concepts, such as interest
rates, credit scores, and investment strategies, is essential
for making informed decisions.
• In summary, the nature of personal finance is characterized
by its individuality, goal orientation, dynamic nature,
interdisciplinary approach, risk management focus, and
the need for informed decision-making.
 IMPORTANCE OF PERSONAL FINANCE
• The importance of personal finance cannot be overstated, as it plays a
crucial role in ensuring financial stability, achieving life goals, and
reducing stress. Here are some key reasons why personal finance is
important:
1. Financial Security
• Proper management of personal finances helps individuals build a
safety net for emergencies, reducing the risk of financial crises. By
saving and investing wisely, people can protect themselves from
unexpected expenses or income loss.
2. Goal Achievement
• Personal finance allows individuals to plan and save for major
life goals, such as buying a home, funding education, traveling,
or retiring comfortably. Setting financial goals and working
towards them provides a sense of purpose and direction.
3. Debt Management
• Understanding personal finance helps individuals manage and
reduce debt effectively. By making informed decisions about
borrowing and repayment, people can avoid excessive debt
and its associated stress and financial strain.
4. Improved Decision-Making
• Knowledge of personal finance empowers individuals to make
better financial decisions, such as choosing the right
investment options, budgeting wisely, and planning for taxes.
This leads to more efficient use of resources and long-term
financial well-being.
5. Increased Wealth
• By managing income, expenses, savings, and investments
strategically, individuals can grow their wealth over time. This
wealth can be used to improve quality of life, provide for loved
ones, and support future generations.
6. Retirement Planning
• Personal finance is critical for ensuring a secure and
comfortable retirement. By starting to save and invest early,
individuals can accumulate the necessary funds to support
themselves when they are no longer working.
7. Stress Reduction
• Financial stress is a common source of anxiety. Effective
personal finance management helps alleviate this stress by
providing a clear plan and control over one’s financial
situation, leading to greater peace of mind.
8. Better Quality of Life
• Good financial management can lead to an improved standard
of living, allowing individuals to afford the things they value
most, such as a comfortable home, quality education, and the
ability to travel or enjoy hobbies.
9. Preparation for Life Changes
• Life is full of unexpected events, such as job loss, health issues,
or economic downturns. Personal finance helps individuals
prepare for these changes by building financial resilience
through savings, insurance, and diversified income streams.
10. Financial Independence
• Understanding and applying personal finance principles enables individuals
to achieve financial independence, where they can live without relying on
others for financial support. This independence offers freedom and control
over one’s life choices.
11. Legacy Planning
• Personal finance also includes planning for the future beyond one’s own life.
Estate planning, wills, and trusts ensure that assets are distributed according
to one’s wishes, providing for family and charitable causes.
In summary, personal finance is important because it provides the foundation
for financial security, goal achievement, stress reduction, and overall well-
being. By effectively managing finances, individuals can lead more fulfilling and
stable lives.
 DISTINCTIONS OF PERSONAL FINANCE
FROM PUBLIC FINANCE
PERSONAL FINANCE PUBLIC FINANCE

1. SCOPE AND SCALE Deals with the financial Involves the financial
management of an individual management of a government
or household. It focuses on or public sector entity. It deals
income, expenses, savings, with the collection of revenue
investments, debt, and (taxes), government spending,
financial planning at a budgeting, public debt, and
personal level. fiscal policy.
 PERSONAL FINANCE PUBLIC FINANCE
2. OBJECTIVE The primary objective is to achieve The main objective is to manage
personal financial goals, such as public resources to provide
saving for retirement, buying a services, maintain economic
home, or funding education, while stability, ensure equitable
ensuring financial stability and distribution of income, and
independence. promote economic growth. It aims
to meet the collective needs of
society.

3. DECISION-MAKING Decisions are made by individuals Decisions are made by government

AUTHORITY or households. The financial officials and policymakers. These
choices are driven by personal decisions are influenced by
preferences, goals, risk tolerance, political, social, and economic
and individual circumstances. factors and are intended to benefit
the public or the nation as a whole.
 PERSONAL FINANCE PUBLIC FINANCE
4. REVENUE SOURCES The primary sources of Revenue is primarily
revenue are personal income, generated through taxes, fees,
such as salaries, wages, fines, and borrowing.
business income, investment Governments may also earn
returns, and other personal income from public
earnings. enterprises, natural resources,
or other assets.

5. EXPENDITURE FOCUS Expenditures include personal Expenditures are directed

and household expenses such toward public services and
as housing, food, healthcare, infrastructure, such as
education, entertainment, and defense, education, healthcare,
debt repayment. transportation, and social
welfare programs.
 PERSONAL FINANCE PUBLIC FINANCE
6. BUDGETING Budgeting involves managing Budgeting involves creating
limited resources to cover and managing a government
personal expenses, save, and budget, which allocates
invest for future goals. It is resources to various sectors
often done on a monthly or and programs. It is typically
annual basis. planned on an annual basis but
can involve long-term fiscal
planning.

7. DEBT MANAGEMENT Debt management involves Public debt management

handling personal loans, credit involves the government
card debt, mortgages, and borrowing funds through the
other forms of personal issuance of bonds or other
borrowing, with the goal of instruments to finance deficits
minimizing interest costs and or large projects. Managing
avoiding financial strain. public debt is crucial for
maintaining a stable economy.
 PERSONAL FINANCE PUBLIC FINANCE
8. RISK AND UNCERTAINTY Individuals face personal financial Governments face risks related to economic
risks, such as job loss, health issues, downturns, inflation, political instability,
or investment losses, and they use and unexpected public expenses. They
tools like insurance and manage these risks through fiscal policy,
diversification to manage these risks. monetary policy, and contingency planning.

9. LEGAL AND REGULATORY Operates within a legal framework Operates within a broader legal and
FRAMEWORK that governs individual financial regulatory framework that governs
transactions, contracts, taxes, and taxation, government spending, public
consumer protection. Individuals borrowing, and financial accountability.
must comply with relevant laws, Public finance is subject to oversight by
such as tax laws and credit legislative bodies and auditing institutions.
regulations.

10. SOCIAL RESPONSIBILITY While personal finance decisions Public finance decisions have broader social
may reflect individual ethics and implications, as they affect the distribution
values, they primarily focus on the of wealth, access to public services, and
individual's or household's well- overall economic stability. Governments
being. have a responsibility to ensure that public
resources are used equitably and effectively.
• In summary, personal finance focuses on the
financial management of individuals or
households, with an emphasis on achieving
personal goals and financial security. Public
finance, on the other hand, involves the
management of government finances, aiming to
meet public needs, promote economic stability,
and ensure the equitable distribution of
resources.
THE BASICS OF PERSONAL FINANCE
MAIN AREAS OF PERSONAL FINANCE
1. EARNING INCOME
Income refers to a source of cash inflow that an individual
receives and the uses to support themselves and their family.
It is the starting point of our financial planning process.
Common sources of income are: salaries, bonuses, hourly
wages, pensions and dividends. Income can be thought as the
first step in our personal finance roadmap.
2. SPENDING
Spending includes all types of expenses an individual incurs
related to buying goods and services or anything that is
consumable. All spending falls into two categories: cash (paid for
with cash on hand) and credit (paid by borrowing money).
Common sources of spending are: Rent, mortgage payment and
taxes, food, entertainment, travel and credit card payments. Good
spending habits are critical for good personal finance
management.
3. SAVING
Saving refers to excess cash that is retained for future investing or
spending. Managing savings is a crucial area of personal finance.
Common forms of savings include: Physical cash, savings bank
account, checking bank account and money securities.
4. INVESTING
Investing relates to the purchase of assets that are expected to
generate a rate of return, with the hope that over time the individual
will receive back more money than they originally invested. Common
forms of investing include: Stocks, bonds, mutual funds, real estate,
private companies, commodities and art. Investing is the most
complicated area of personal finance and is one of the areas where
people get the most professional advice.
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 and
estate planning.
 PERSONAL FINANCE SERVICES

* Wealth Management * Estate Planning

* Loans and Debt * Investments
* Budgeting * Insurance
* Retirement * Credit Cards
* Taxes * Home and
Mortgage
* Risk Management
 PERSONAL FINANCE STRATEGIES
The keys to success in personal finance are:
1. FRUGALITY - This refers to living below our means so
that savings may be effected. In being frugal, we have to
save, save and save. It requires control over expenditures.
2. VISION - This refers to foresight or ability to look far
into the future. It entails short-term and long-term
planning. In order to achieve our financial goals, we have
to maintain focus on what we want to achieve in the long-
run.
3. SAFETY NETS - These are buffers or protections
from losses of property and income. These may be in
the form of investment portfolios, insurance policies
and retirement or pension funds.
 CHARACTERISTICS AND HABITS FOR
SUCCESS IN PERSONAL FINANCE
• Be enthusiastic about life, have a passion for what we do and see to it
that our work in some ways help others and improve this world.
• Have patience and stick to our long-term vision.
• Have time to make good educated decisions.
• Have discipline and not bother about social climbing.
• Save every month.
• Avoid debt
• Shop before we buy.
• Buy quality used cars instead of brand new ones.
• Take care of what we own.
• Maintain a basic understanding of the investment vehicles
and their markets.
• Adopt corrective measures.
• Dare to discipline our children and teach them the value of
money.