Business Finance

Governor Pack Road, Baguio City, Philippines 2600

Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 12- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 10 – FINANCE Subject Teacher:

MANAGING PERSONAL FINANCE

Learning objectives:
At the end of this module, students must be able to:
1. explain what is personal finance;
2. identify sources and uses of financial resources;
3. describe personal financial planning;
4. explain the financial decisions and activities involved in personal investment management;
5. describe the life cycle financial planning;
6. explain how professional investment advisers help in handling personal finance.

CONTENTS:

Personal finance
 Is defined as all financial decisions and activities of an individual or household. This may include, but not limited
to the following:
a. Personal banking
b. Debt/Credit card management
c. Savings and investment
d. Risk management
e. Retirement planning
f. Tax planning
g. Estate planning

 A sub-category of private finance which refers to the management of financial activities of a person which
include, but not limited to the following:
a. proper allocation of personal resources
b. budgeting of household expenditures
c. savings and insurance for retirement
d. personal investing and financing activities

Philosophy – effective personal finance involves the proper application of the various techniques and principles of
corporate finance to an individual’s activities.

Sources and uses of an individual’s financial resources:

Listed below are some of the sources and uses of financial resources:
1. Sources of funds
a. Earnings from employment
b. Business income
c. Rent income
d. Interest income
e. Personal loans
f. Inheritance
g. Lottery winnings

2. Uses of funds
a. Living expenses (foods, clothing, housing, transportation, etc.)
b. Children’s education
c. Payment of debts
d. Retirement
e. Travel
f. Others (wedding, emergency, funeral)

Personal financial planning

It is the process of identifying lifetime goals and determining the level and proper management of financial resource
needed to accomplish those goals.

Business Finance Page 1 of 5

 Business Finance
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 12- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 10 – FINANCE Subject Teacher:

Personal finance process

1. conducting personal financial assessment
2. setting goals and objectives
3. preparing a financial plan or budget
4. executing financial activities
5. monitoring and evaluation

Major personal financial activities

1. Saving activities – saving money for the future to avoid financial difficulties thru the following principles.
a. save 10% - 20% of your income
b. include savings in your budget
c. put your money in a stable bank
d. never announce or let anyone know of your savings
e. never count the money deposited in savings account
f. don’t put your money in just one basket (axiom no.9)
g. make regular deposit a must
h. start saving today, not tomorrow
i. check interest rates and compounding periods of financial institutions
j. monitor your deposits regularly.

2. Spending activities – using your money wisely by observing the following principles:
a. spend within budget
b. spend within your capacity to spend
c. discipline your spending behavior
d. record properly your monthly spending
e. pay your bills on time and avoid penalties
f. find ways to spend wisely without sacrificing yourself of the family
g. compare the present value when purchasing items under cash or installment basis
h. always buy goods with lower price but of good quality
i. do not borrow money when it is not necessary or without capacity to pay.

3. Investing activities – almost similar to savings, but it is intended to generate more inflow of income or cash. The
following principles will serve as guide in investing:
a. invest in legitimate investing activities
b. do not put all your fund in one type of investment (axiom no. 9)
c. always compute the market price of bonds and stocks before investing
d. always monitor the interest rates of BSP
e. always compute the present value of investment based on the expected cash flow
f. check the insurance policies before buying
g. invest more on properties that appreciate
h. invest on securities using rate of return and risk involved as basis for evaluation.
i. compare nominal and effective interests rates of securities
j. invest specifically for retirement.

Life cycle financial planning

It is a dynamic process and careful monitoring of personal financial plans.

Example:
Age: Mid-Twenties
Lifestyle – Fast, aggressive, with steady source of earnings, capacity for risk. Need disciplined payroll savings to buried
nest eggs (a substantial sum of money or other assets that have been saved or invested for a specific purpose).

Investment portfolio – Most investments are in equity securities, some investment in bonds, quite small cash or liquid
investments.

Age: Early Thirties to Early Forties

Lifestyle – Midlife crisis, tuition for children, capacity for risk is still quite high, risk options diminished.

Investment portfolio – Lesser investment in equity securities, more investment in bonds, same level of cash money market
fund.

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 Business Finance
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 12- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 10 – FINANCE Subject Teacher:

Age: Mid-Fifties
Lifestyle – Many are still reeling from college tuition, starts thinking about retirement and need for income protection.

Investment portfolio – Shift from equity securities to bonds, same level of cash money market fund.

Age: Mid-Sixties and beyond

Lifestyle – Enjoying retirement through leisure activities but also guarding against major medical costs. Risk capacity is
very low or zero.

Investment portfolio – More fixed-income investment (i.e. bonds), lesser on equity securities, higher cash and money
market fund.

Investing for retirement

This is one of the most common investment objectives and requires strategies that involve a long investment horizon,
favourable tax treatments, and conservative in terms of their risk-return trade-offs.

A. Pension plan – an investment portfolio established to provide retirement benefits to employees of an organization.
Control of the plan is mostly exercised by the employer. Government employees are required to contribute to the
GSIS Funds (except military/police), while private employees are required to contribute to the SSS Funds.

 Defined Benefit Plan – the most common type of pension plan and specifies the benefits that will be received at
retirement. The employer (plan sponsor) makes specified contribution to the plan that will give defined benefit to
the employee upon retirement. The amount of benefit depends on some factors such as length of service and level
of income. The benefits do not depend on the investment performance of the fund.

 Defined Contribution Plan – a plan that specifies the contribution that employers (and/or employees) will make
to the plan rather than stating pension benefits. This may take a form of profit-sharing plan, employee stock
option plan, money-purchase pension plan. The advantage of this plan is that after vesting, it is considered the
property of the employee and can easily be transferred. The retirement benefits depend on the performance of the
plan nad the employees do not know the value of the plan until retirement.

B. Insurance products – protection against losses (life, health, and property). Evidence by a policy contract between
the insured and the insurer who guarantees the insured against losses.

Professional Investment Planning and Counselling

The expertise of professional financial planner or investment adviser for personal finance will be very helpful.
Professionals in this field include individuals with designation as:
a. Certified Financial Planner (CFP)
b. Certified Financial Analyst (CFA)
c. Certified Financial Consultants (CFC)

Professional financial planners may offer planning and investment advice on a fee of commission basis.

References:
 BAL 658.15 C1128, 2017. Cabrera, Ma. Elenita Balatbat and Cabrera, Gilbert Anthony B., Business Finance for
Senior High School, GIC Enterprises
 BAL 658.15 G4476, 2017. Gitman, Lawrence J., et. al. Business Finance. JO-ES Publishing House, Inc.
 BAL 332.4 L161, 2015. Laman, Rose Marie B. et. al. Financial System, Market & Management. GIC Enterprises
 BAL 658.15 An15, 2010. Anastacio, Ma. Flordeliza, Dacanay, Roberto C. Fundamentals of Financial
Management, Rex Book Store

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