PERSONAL FINANCE

MIDTERM REVIEWER

“COMPONENTS OF PERSONAL FINANCE”

GROUP 1 BUDGETING

WHAT IS BUDGETING?

- Budgeting is creating a plan to spend your money.

- A spending plan for your business based on your income and expenses.
- It’s a proactive approach to organizing your finances.
- It helps you make financial decisions.

BUDGETING CONTROL

 Budgetary Control – is the exercise of control in the organization with the help of budgets.
 Budgetary control is an important device for making the organization more efficient on all fronts. It is
an important tool for controlling costs and achieving the overall objectives.

COMPONENTS OF BUDGET

1. Estimated Revenue - This is the money you expect your business to make from the sale of goods and
services.
2. Fixed Costs - When your business pays the same amount regularly for a particular expense that is
classified as a fixed cost.
3. Variable Costs - This category includes the cost of goods or services that can fluctuate based on your
business success.
4. One-Time Expenses - These are one-off, unexpected costs that your business might incur in any given
year.
5. Cash Flow - This is the money that travels in and out of the business.
6. Profit - The final budget component is profit, which is a number you arrive at by subtracting your
estimated cost from revenue.

TYPES OF BUDGET

 Master Budget – is a combination of all other budgets prepared for a specific period. It shows the
overall budget plan.
 Sales Budget – is usually the keystone in planning and control of operation of a business. Sales forecast
serves as a base for the sales budget.
 Production Budget – is a forecast of the production for the budget period.
  Materials Budget – material are either direct or indirect. The material budget generally deals only with
the direct materials. Indirect materials are generally included in overhead budget.
 Purchase Budget – gives the details of material purchases to be made in the budget period. It correlates
with sales forecast and production planning. It deals with purchases that are required for planned
production.
 Direct Labor Budget – tells about the estimates of direct labor requirements essential for carrying out
the budgeted output.
 Overhead Budget – it should be prepared in three parts:
 Manufacturing Overhead Budget –The budget is an estimate of the manufacturing overhead
costs to be incurred in the budget period to achieve the targeted production. Manufacturing
overheads include indirect material, indirect labor, and indirect expenses related to the factory.
 Administration Overhead Budget – Administration overhead includes the costs of framing
policies, directing the organization and controlling the business operations.
 Selling and Distribution Overhead Budget – The budget includes relating to selling,
advertising, delivery of goods to customers, etc.
 Cash Budget – is a summary statement of the firm’s expected cash inflows and outflows over a
projected time period.
 Fixed Budget – is a budget which is designed to remain unchanged irrespective of the level of activity
actually attained.
 Flexible Budget – also known as variable or sliding sale budget, is a budget which is designed to
furnish targeted costs for any level of activity actually attained.

METHOD OF BUDGETING

Activity-Based Budgeting

A top down type of budget that determines the amount of inputs required to support the targets or outputs set by
the company. Activity-Based Budgeting A top down type of budget that determines the amount of inputs
required to support the targets or outputs set by the company.

Advantages Disadvantages

 Evaluation  Require Understanding

 Competitive Edge  Complex
 Business As A Unit  Resource Consumption
 Elimination of Bottle  Cost Involved
 Necks  Short Term
 Improves Relationship

Value Proposition Budgeting

Value proposition budgeting aims to avoid unnecessary expenditures - although it is not precisely aimed at that
goal as our final budgeting option.
Advantages

 It's easier to see where money is going and should be going, which the best way to prevent wasteful is
spending.

Disadvantages

 "Value" can be a difficult thing to quantify.

 This can lead to more short term thinking rather than long-term thinking.
 Perceived value may not always be stable and can change based on cultural, social, economic, or
technological factors.

Zero-Based Budgeting

Zero-based budgeting is very tight, aiming to avoid any and all expenditures that are not considered absolutely
essential to the company's successful (profitable) operation.

Advantages Disadvantages

 No focus on cost center's  Profit center

 Too complex  Very detailed
 It's strategic
 It's situational

Incremental Budgeting

Incremental budgeting is a premise of making a small change to existing budget for arriving at new budget.

Advantages Disadvantages

 Easy to implement  Leads to extra spending

 Funding stability  Budgetary slack
 Operational stability  Diff from actual
 Easy to see the impact of change  Hampers potential growth
 Don't consider changes
 No review of budget
 Waste of resources
 Based on unreal assumption
GROUP 2 TAX PLANNING

 BACKGROUND ON TAX SYSTEM

WHAT IS TAX PLANNING?

Tax planning refers to financial planning for tax efficiency. It aims to reduce one’s tax liabilities and
optimally utilize tax exemptions, tax rebates, and benefits as much as possible. Tax planning includes making
financial and business decisions to minimize the incidence of tax. This helps you legitimately avail the
maximum benefit by using all beneficial provisions under tax laws.

WHY SHOULD YOU DO TAX PLANNING

Tax planning diminishes tax liability by saving the assesse the maximum amount of tax by arranging
their financial operations according to tax decisions. It also confirms to the provisions under taxation laws,
thereby minimizing any litigation.

Earned income - is an income from employment such as:

 salary
 wages
 tips

Unearned income - is an income from investments such as:

 dividend from stocks

 interest paid on saving account

Withholding System - in which your employer withholds a portion of your paycheck and sends the
money up the IRS to pay the taxes that you owe on that income.

Withholding Tax - portion of your paycheck that is withheld by the employer and sent to IRS.

a) SSS and Medicare Taxes

FICA - Federal Insurance Contributions Act

> Taxes paid to fund the SSS and Medicare

Medicare - A health government insurance program that covers people 65 years of age or older by making
payments to healthcare providers.

b. Personal Income Taxes - taxes imposed on personal income.

your filing status - to calculate your personal income tax liability, you must first determine your specific “filing
status”. The alternatives are:

 Single
 Married filing jointly
 Married filing separately
 Head of household
 Qualifying widow(er) with dependent children

Your filing status is important because it affects the rate at which your income is taxed. Married people usually
combine their incomes and file joint return. However, a married couple may filed separately tax returns in some
circumstances.

The head of household status can be selected by single people who have at least one dependent in their
household.

Tax rates applied when using this status or the qualifying widower with dependent child may be more favorable
than filing under the single status.

 CALCULATING YOUR TAXABLE INCOME

Before you determine your federal income tax liability for the year, you must first calculate your taxable
income by the following these three steps.

1. Determining your gross income (reportable income from all sources)

2. Subtract your IRA contributions and interest expense on your student loan (if any) to determine you
adjusted gross income.

3. Apply your allowable deduction (standard or itemized)

a. Gross Income

All reportable income from any source, including salary, net business income, interest income, dividend
income, and capital gains received during the year.

1. Wages and salaries

2. Interest income - earned from investments in various types of savings accounts at financial institutions,
from investments in debt securities such as treasury bonds, or from providing loans to other individuals.
3. Dividend income - income received in the form of dividend paid on shares of stock or mutual funds.
4. Capital gains - income earned when an asset is sold at a higher price than was paid for the asset.
5. Calculating gross income - gross income is determined by adding your salary, interest income, dividend
income and capital gains.

b. Adjusted Gross Income (AGI) - for contributions to IRA’s interest paid om student loans and other special
circumstances.
c. Standard Deduction - a fixed amount that can be deducted from adjusted gross income to determine taxable
income.
  CALCULATING YOUR TAXES IF YOU TAKE THE STANDARD DEDUCTION

a. Single Filer Calculation of Personal Income Taxes

Individual income tax is also referred to as personal income tax. This type of income tax is levied on an
individual's wages, salaries, and other types of income.

Marginal Tax Bracket - tax bracket specifying the income range that includes a taxpayer’s annual income.

Marginal Tax Rate - the tax rate imposed on any additional (marginal) income earned.

b. Joint Filer Calculation of Personal Income Taxes

Married filing jointly is an income tax filing status available to any couple who has wed as of Dec. 31 of
the tax year. When one spouse earns significantly more money than the other, it is often the best choice. It
allows a couple to use only one tax return, but both spouses are equally responsible for the return and any taxes
and penalties owed. (Kagan, 2022)

c. Summary of Determining Your Personal Income Taxes with the Standard Deduction

 Start with your salary and add any interest income to derive your gross income
 Subtract IRA contributions and interest paid on your student loans (up to $2500) from your gross
income to derive your taxable income.
 Apply the proper tax rates from the tax brackets to derive your personal income tax.
 A fifth step would be needed if you qualify for the child tax credit or other credit discussed later in the
chapter.

 CALCULATING YOUR TAXES IF YOU ITEMIZE DEDUCTION

Itemized deductions - specific expenses can be deducted to reduce taxable income.

a. Interest Expenses on Mortgages Loans

Mortgage interest is the interest charged on a loan used to purchase a piece of property. Interest is
calculated as a certain percentage of the full mortgage loan. Mortgage interest may be fixed or variable and is
compounding. Taxpayers can claim mortgage interest up to a certain amount as a tax deduction.

b. State and Local Taxes

State income tax - an income tax imposed by some states on people who receive income from
employers in the states.

Real estate tax - a tax imposed on a home or other real estate in the country where the property is
located.

The taxes that can be deducted include state and local (for example, (i.e., city, county or municipal taxes)
income taxes and property taxes. Taxpayers can also choose to deduct their sales taxes in place of their state
income tax, which would be beneficial to those in states with low or no income taxes.
The amount of state and local income tax you pay will depend on how much income you earn and the tax rate of
the state or locality where you live. To find out how much you owe and how to pay it, find personal income tax
information by state.

c. Medical Expenses

You may deduct only the amount of your total medical expenses that exceed 7.5% of your adjusted
gross income. You figure the amount you're allowed to deduct on Schedule A (Form 1040).

d. Charitable Gifts

By definition, a charitable gift is a donation that is made to a non-profit, private foundation, or charity.
As an added bonus to Billy, when he does give, it is tax deductible for him and he receives a tax benefit for
doing so. It's a win-win situation. The charity gets a gift and Billy's taxes are lowered.

e. Comparison of Itemized Deductions to the Standard Deduction

The difference between the standard deduction and itemized deduction comes down to simple math. The
standard deduction lowers your income by one fixed amount. On the other hand, itemized deductions are made
up of a list of eligible expenses. You can claim whichever lowers your tax bill the most.

 CONDITIONS THAT CAN PROVIDE TAX BENEFITS

a. Child Tax Credits

- A tax credit allowed for each child in a household.

Tax Credits - specific amounts used to directly reduce tax liability.

b. College Expenses Tax Credits and Education Savings Plans

College expense credits - a tax credit allowed to those who contribute toward their own or their dependent’s
college expenses.
c. Earned Income Credit

 A credit used to reduce tax liability for low-income taxpayers.

d. Investments that Offer Tax Benefits

 Debt issued by municipalities

 long term capital gains - a gain on assets that were held for 12 months longer.
 short term capital gains - a gain on assets that were held less than 12 months.

 HOW TAX PLANNING FITS WITHIN YOUR FINANCIAL PLAN

 What tax saving are currently available to you?
 How can you increase your tax savings in the future?
 What records should you keep?
GROUP 3 PLAN TO FINANCE YOUR LARGE PURCHASES

INTRODUCTION

"A major purchase is something into which a family may be tricked but from which, on reflection, they may
wish to withdraw."

"We owe it to those who are making the major purchase of their life to provide appropriate protection.

HAVE YOU HEARD THE WORD BIG-TICKET?

Big Tickets – they are the products with selling prices and profit margins that are significantly higher than those
of other items in the stores.

 Major Purchases
 Long-Term Purchases
 Seasonal Price
 Offer Financing
 Psychological Tricks

TIPS FOR PLANNING FOR A LARGE PURCHASE

1. Assess your needs.

 It will help you to establish a budget and avoid option that can cost you more.
 Distinguish needs from wants.

2. Evaluate the options.

 To know how much items cost until you shop around.

 Create a simple chart to compare features and prices.

3. Determine how to pay for it.

 A higher priced item such as a new car or a house, a loan can make a great sense.

4. Create a savings plan.

 It helps you to reach your goal.

5. Consult your banker.

 It gives better insights into behavior and preferences.

FIVE STEPS TO PREPARE FOR A BIG PURCHASE

1. Look At Your Financial Picture

2. Check Your Credit Score and Report
3. Figure Out Financing
4. Plan the Purchase
5. Make the Deposit

THINGS TO CONSIDER WHEN PLANNING FOR A BIG PURCHASE

Whether it's a new car, a starter home, a high-tech entertainment system, a new laptop or anything else with a
somewhat hefty price tag, making a big purchase is a big deal.

 Consider How It Will Fit Into Your Budget

 Identify the Best Way to Pay
 Make Sure You’re Getting the Best Possible Deal
 Figure out How to Get the Most You Can from Your Investment
 Review the Time of the Year

HOW TO FINANCIALLY PREPARE FOR MAJOR PURCHASES & LIFE EVENTS

Whether you’re saving for a down payment, payment on a new house, paying for a wedding or saving for your
dream vacation, it is essential to learn how to prepare for the future financially.

5 QUESTIONS TO ASK YOURSELF WHEN PLANNING FOR MAJOR LIFE EVENTS

1. What are my financial priorities?

It can be helpful to list out your major financial goals and priorities.

2. What’s my budget?

Understanding what you can afford.

Keys Steps in Setting A Budget:

 Calculate your net income

 Lay out your basic expenses
 Identify additional expenses
 Outline saving goals
 Calculate the difference between what you make and what you plan to spend vs.
what you save
3. How much will be the purchase cost?

Determining the total price tag of a large purchase often requires extensive research.

4. What’s my timeline?

Is this something you want or need to do right away, or do you have time to prepare?

5. How will I fund the purchase?

Outlined your budget and considered all associated costs.

a) Checking or savings
b) Credit cards
c) Financing
d) Tap into home equity
e) Margin Loan

WHAT ARE THE SHORT-TERM AND LONG-TERM FINANCIAL IMPLICATIONS OF MAKING A

MAJOR PURCHASE?

 SHORT-TERM

The impact on short-term goals and current assets in the short term, paying for a big purchase upfront may leave
you with less cash on hand.

 LONG-TERM

The impact on long-term goals and financial stability over time Committing to a long-term payment plan rather
than paying the majority (or all) of the cost upfront could have lasting impacts on your financial picture.
GROUP 4 PLAN TO PROTECT YOUR WEALTH

Protect your wealth is a word used in the financial sector to define wealth management methods and tactics
that assist people, families, and organizations in protecting their assets, such as cash. Because life doesn't
always go as planned, everyone must have protection in place.

WHY DO WE NEED TO PROTECT OUR WEALTH?

Protecting your wealth is extremely important because you build it primarily for your own advantage and/or to
give your loved ones a better quality of life. On the other hand, you safeguard your wealth to give your loved
ones a financial safety net, assuring that their standard of living and well-being are not lowered if you lose.

THE BENEFITS OF PROTECTING YOUR WEALTH

Saving money is important in the first place because it can protect you in the event of a financial disaster. It also
helps you leave a financial legacy and feel more financial freedom.

TIPS ON HOW TO PROTECT YOUR WEALTH

 Financial Planning
 Insurance
 Investing
 Estate Planning
GROUP 5 INVESTMENTS

MONEY MARKET SECURITIES

Money market securities are often considered a good place to invest funds that are needed in a shorter time
period—usually one year or less.

Examples of money market securities:

 Short-term debt backed by governments such as the:

 treasury bills('T-Bills')
 commercial papers
 bankers' acceptances,
 certificates of deposits
 repurchase agreements

STOCKS

A stock, also known as equity, is a security that represents the ownership of a fraction of the issuing
corporation.

How it works?

Corporations issue stock to raise funds to operate their businesses.

Two (2) Main Types of Stock

• Preferred Stock – represents some degree of ownership in a company but usually doesn't come with the
same voting rights.
• Common Stock – shares represent ownership in a company and a claim (dividends) on a portion of
profits.

What is a stock investment?

Investing in stocks means buying shares of ownership in a public company.

Are stocks a good investment?

Stocks offer investors the greatest potential for growth (capital appreciation) over the long haul.

REAL ESTATE

Four (4) Common Types of Real Estate:

1. Residential
2. Industrial
3. Commercial
4. Vacant Land
MUTUAL FUNDS

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors
to invest in securities like stocks, bonds, money market instruments, and other assets.

How flow of mutual bonds work?

Types of Mutual Funds

1. Equity Funds
2. Money Market Funds
3. Bond Funds
4. Balanced Funds

Equity Index Fund – is the best type of mutual fund to grow your money overtime.

BONDS

What is a bond?

A bond (also known as fixed income) is an instrument used by governments and companies to raise
money by borrowing from investors. Think of them like loans.
Types of Bonds

 Corporate Bonds
 Municipal Bonds
 Treasury Bonds
 Junk Bonds
 Bond Funds

What Are the Disadvantages of Bonds?

• Although bonds provide diversification, holding too much of your portfolio in this type of investment
might be too conservative.
• The trade-off you get with the stability of bonds is you will likely receive lower returns overall,
historically, than stocks.
• Your percentage of bonds in your investment strategy depends on how much growth potential you're
seeking.

What Are the Advantages of Bonds?

• Bonds provide investors with a way to diversify their portfolio and help protect themselves from market
swings.
• Because bond issuers are repaying debt over time, bonds can also provide steady income.
• Municipal bonds (issued by a state, city or county) can even provide a tax-free income stream.

PRECIOUS METALS

Precious metals can also be considered for potential investments.

• Gold is the metal most commonly purchased for investment purposes, but silver, platinum, and
palladium may also be used as investments.
• Silver, platinum, and palladium have industrial uses in goods such as electronics and catalytic converters
for cars, so their prices are affected by the demand for these products.
• Researchers at University of Plymouth said in a press release. The chemical analysis of the found
elements concluded that each smartphone has around 33g of iron, 13g of silicon and 7g of chromium.
“Each phone contained 90mg of silver and 36mg of gold.”
• Gold, however, has few uses except for jewelry. Instead, gold is primarily considered a store of value.
• A store of value is essentially an asset, commodity, or currency that can be saved, retrieved, and
exchanged in the future without deteriorating in value.

The Great Depression

• The Great Depression was the worst economic downturn in the history of the industrialized world,
lasting from 1929 to 1939. It began after the stock market crash of October 1929, which sent Wall Street
into a panic and wiped out millions of investors.
• Russia-Ukraine war pushes up global gold prices to $2000 per ounce
• Inflationary fears triggered a rush for safe haven investments during the ongoing market volatility that
pushed up the global gold price to $2,000 per ounce on Monday. March 7, 2022
Invest in Gold or Other Precious Metals

• One way is to purchase actual gold bullion in the form of gold bars or coins. However, you have to store
it in a safe place such as a safe deposit box. Alternatively, you can pay a fee to leave the gold stored at
the company from which you purchased it. If you choose this alternative, be sure to check the reputation
of the company very carefully because if it goes bankrupt, you are unlikely to recover your gold.
• Another way to invest in precious metals is to purchase mining stocks. Several gold mining stocks, for
example, trade on the stock exchange, and several of them pay dividends. Although the values of mining
stocks are affected by the price of the precious metal, they also are affected by the quality of the
company’s management. Consequently, the values of the stocks tend to be more volatile than the price
of the metal that the companies mine. When investing in a mining stock, examine the company and its
management in the same way that you would evaluate any other corporate stock.
• A third way to invest in precious metals is to buy exchange-traded funds. A number of exchange-traded
funds backed by precious metals are available. Some of them focus on only gold or another precious
metal. Yet, others represent several precious metals, so they provide a way to diversify your investments
among the metals.

Investment Return

• When individuals make an investment, they typically assess the performance of the investment based on
its return. The means by which various types of investments generate returns to investors are described
here.
GROUP 6 RETIREMENT

INTRODUCTION

Retirement is the withdrawal from one's position or occupation or from one's active working life. A person
may also semi-retire by reducing work hours or workload. Many people choose to retire when they are elderly
or incapable of doing their job due to health reasons.

ESTATE PLANNING

Estate Planning is the preparation of tasks that serve to manage an individual’s asset base in the event
of their incapacitation or death. The planning includes the request of assets to heirs and the settlement of the
state taxes. Most estate plans are set-up with the help of an attorney experienced in state law.

According to the Philippine law: Estate planning is the process by which "an individual or family arranges the
transfer of assets in anticipation of death". An estate plan aims to preserve the maximum amount of wealth
possible for the intended beneficiaries and flexibility for the individual prior to death.

Estate planning involves determining how an individual’s assets will be preserved, managed, and distributed
after death or in the event they become incapacitated. Planning tasks include making a will, setting up trusts
and/or making charitable donations to limit estate taxes, naming an executor and beneficiaries, and setting up.

Estate Planning Checklist: The 5 Essential Documents

1. Last Will and Testament

This legal document is the foundation for a successful estate plan. After you embark on your estate
planning journey, your attorney will recommend either a will-based estate plan or a trust- based estate plan.
With a will-based estate plan, your last will and testament dictate the following:

2. Living Trust

Also known as a revocable living trust, this is a legal document created during your lifetime that allows
for the transfer of assets into a trust for your beneficiaries without needing to go through probate court
proceedings. There is no threshold asset size before one can create a living trust. However, it is utilized more
frequently by individuals and families with large, complex estates and multiple

3. Durable Power of Attorney (POA)

This legal document gives someone else, called your agent, the power to act on your behalf. You can
name a primary agent, and then a backup agent if the primary is unable to serve. Spouses are often named as
agency.
4. Healthcare Power of Attorney (POA)

Similar to the durable power of attorney, you name another person to be your agent. You can name a
primary agent, and then a backup agent if the primary is unable to serve. Whereas the durable power of attorney
is focused on financial matters. This legal document is specifically related to healthcare decisions.

5. Living Will

Also known as an advanced healthcare directive, a living will is a legal document providing
instructions for end-of-life care. A living will is sometimes confused with a last will and testament, but each
document serves different purposes.

PENSION PLAN

A pension scheme is a type of savings plan that helps you save for later in life. It's one of the best ways
to grow your money steadily over time.

In an ideal world, an employer who offers pension plan sets aside money for each employee and that money
grows over time. The proceeds then cover the income the company promised to pay the employee in retirement.
Often, the employee has the choice of taking either a lump sum on retirement (or when leaving the company) or
regular payments for life through an annuity. Depending on the plan, those pension benefits may be inheritable
by a surviving spouse or children.

Three (3) Types of Pension Plans

1. Defined Contribution Pension

 Sometimes called a ‘money purchase’ pension or referred to as a pension pot, these schemes are very
common today. It could be a personal plan set up by you or a workplace pension, such as Nest, arranged
by your employer.
 Money is paid in by you or your employer over time and is invested by the pension provider. The size of
your pension pot at retirement depends on how much was paid in and how well your investments have
done.

2. Defined Benefit Pension

 This type of pension scheme has declined in popularity. It’s nearly always arranged by your employer
and is sometimes referred to as a ‘final salary’ or ‘career average’ pension.
 Defined benefit schemes give you a guaranteed annual pension worth a certain amount at retirement.
The value of your pension depends on your earnings, how long you’ve worked for your employer and
the terms of the individual pension scheme.

3. State Pension

 This is the pension that you need to claim from the government when you reach State Pension age. (The
current retirement age in the Philippines, according to the Labor Code, is 60.)
RETIREMENT FUNDING

A retirement fund is a special fund which people pay money into so that, when they retire from their
job, they will receive money regularly as a pension.

Main Purpose of Retirement Fund

The main purpose of a retirement fund is to primarily provide for a retirement benefit, either as a lump
sum or a regular monthly income (or both), to a member who reaches retirement age.

What does it mean to retire a fund?

A retirement fund is a special fund which people pay money into so that, when they retire from their
job, they will receive money regularly as a pension.

Here are 3 great ways to fund your retirement plan:

1. Get into real estate.

Properties are a good source of income in life. If you own a house or a condominium that isn’t currently
being used, having it rented is great way to supplement your earnings. Remember that land appreciates in value
over time, especially when it’s situated in a good, accessible location. So, when your children move out and
have families of their own, you have the option to sell your lot, move to a smaller place and use your earnings
from the sale to fund your retirement.

2. Get into investment funds.

If you don’t have the time for an understanding of the stock market, an investment fund is a great, easy
way to enter the world of investing. An investment fund is managed by a professional fund manager who will
do the research, analysis, buying and selling of stocks for you. The strength of an investment fund lies in
diversification. Since the fund is normally invested in dozens, maybe even hundreds, of different stocks, your
fund manager minimizes risk to your money while maximizing the funds potential to earn more.

3. Get into insurance.

Insurance plans have changed over the years, offering more than just protection in the event of your
death or disability. Now, insurance serves as an income source upon retirement. A variable universal life (VUL)
insurance, for instance, provides insurance coverage while helping you builds your savings as well. Manulife
Philippines has an insurance plan that combines life coverage with various investment funds – Affluence
Builder Plus. So, why is the Affluence Builder Plus a great option to help fund your retirement?
FIVE (5) PHASES OF RETIREMENT

Five (5) Stages of Retirement:

Stage 1: Pre-retirement

Pre-retirement is the stage before you retire, this usually is around 5 to 10 years before you retire.
Around this time many people begin to shift their focus from leveling up in their careers to focusing on the
financial planning aspect for retirement.

Stage 2: The honeymoon phase

The day has finally arrived, freedom! During this stage you may have feelings of excitement, liberation
and relief from the stresses brought to you by the working world – these feelings often last for 1 to 2 years but
can last for much longer depending on how you choose to spend your time. Often your time is filled with
reconnecting with friends, family, partners, indulging in hobbies and interests and going on holidays and just
enjoying more freedom to do whatever you please.

Stage 3: Disenchantment

After the emotional high begins to wear off and the honeymoon phase is over, many people begin to feel
disappointed and let down with their current life. Retirement is something that many of us look forward to and
spend a lot of time hyping up, so once you’ve settled into retirement it can begin to feel like it’s not as exciting
as you once thought. Many people may be left feeling lonely, bored and feel like they've lost their sense of
purpose.

Stage 4: Re-orientation and finding yourself

Just like any other stage of life, you eventually begin to adapt to your new circumstances and navigate
your new life. This is the hardest part of retirement, as the process of re-finding your purpose and establishing
who you are takes time and lots of conscious effort. Even though it can be tricky, this is one of the most
rewarding and enjoyable stages. This is the time to try new things, find new hobbies and refind your purpose in
life. Without a full-time job and no children to care for it can be hard to find a purpose. But it is crucial to find
something that reignites your spark, this could be pursuing a passion, volunteering, looking after your
grandchildren or just adding fun, interesting activities to your daily routine.

Stage 5: Stability

The final stage of retirement brings feelings of being content and feeling positive and happy in
retirement and your new life. You may find yourself settled into your new routine and lifestyle, doing things
you love and that make you feel fulfilled and be enjoying your life with your new sense of purpose and identity.

COMMON POST RETIREMENT RISK

You should know:

With vast changes to your lifestyle, retirement is a time that involves a lot of adjustment. However, with
the right planning, you can make these changes smoothly and find this period of your life to be immensely
satisfying. Prior to reaching retirement age, different aspects of your living such as your health, time, and
finances need to be planned. It is easy to say ‘maybe tomorrow’ to these plans, but the more you delay your
retirement planning, the harder it may be to ensure you’ll be comfortable in your late 60s. The retirement
calculator will assist you in determining how much money you need to accumulate before retiring and how to
prepare for it.

Types of Post-Retirement Risks:

1. Employment risk: It’s common for most retirees to aim to supplement their income either by working part-
time or full-time after their retirement age. Note that, however, to be successful in the job market you also need
technical skills some retirees may not easily gain or maintain.

2. Longevity risk: Another risk that comes with retirement age is that of your savings running out. With life
expectancy rising every year (a great feat on its own!), the age at which your savings begin for retirement
should be dropping in succession. With longer life, it is not just that your savings can run out.

3. Healthcare risk: A big concern for most retirees is unforeseen medical bills. Older people have greater
healthcare needs and are more prone to developing chronic illnesses that require active management.

4. Inflation risk: One of the most common financial risks afflicting individuals post-retirement is inflation. For
anyone living on a fixed income, inflation should be an ongoing risk that needs to be accounted for. To combat
this, investing in asset classes that have historically proven to beat inflation like equity mutual funds, and
growth stocks early on in one’s career is a wise move.

Conclusion:

Unexpected events can derail even the best-laid retirement plans. But that’s where smart preparation
comes into the picture. Adopting the mind set of expecting the unexpected is the best move anyone can make
when planning for retirement. With careful and calculated planning, after preparing for all potential risks, you
can ensure the post retirement life is smooth.

BENEFITS OF RETIREMENT

Saving enough for your future is a crucial part of your financial plan when you have a stable income
source. The retirement benefits may not be a primary concern for you as that stage of life seems years away.
However, the important thing to note here is that the benefits of retirement planning are more optimum if you
start early.

These are the top 10 benefits of a planned retirement:

1. Financial Backup for Emergencies - By securing a sizeable corpus for your retirement, you can ensure that
you and your partner remain protected during financial emergencies. In the face of a crisis, you can depend on
the savings to meet life demands.

2. Returns on Investment - Investing in a retirement plan instrument can help you save and grow your money
over time.
3. Tax Benefits - The tax benefits of retirement planning enable you to manage your investment expenses more
effectively.

4. Cost Savings - A younger and healthier individual can enjoy the benefits of retirement planning at lower
premium rates. Whereas, if you invest later in life, it increases related risks and decreases the period of
investment, resulting in higher costs.

5. Peace of Mind/Financial Independence - Having a strong investment portfolio will give you the confidence
to step into a new life phase without worry.

6. Inflation - With time, the cost of living and value of money is going to evolve. Every day, it becomes a little
more expensive to maintain your lifestyle. It can be challenging to fulfill the financial expectations of life in the
future when you have retired from your job.

7. Source of income for Private Sector Employees with No Pension - If you are working in the private sector
with no provision for pension, consider the benefits of retirement planning on your own. You can choose the
investment vehicles to save your earnings on your terms for retirement.

8. Legacy Opportunities - You can leave behind a large sum of money for your heirs or for a charitable cause
that you prefer. Hence, begin planning early for retirement to save as much as you can and assign it as per your
wishes in the future.

9. Early Retirement Option - If you wish to retire earlier in life, you can rest assured that the retirement
planning benefits will cover your needs.

10. Protection of Assets and Property - Many people resort to selling their properties and assets to meet life's
expenses after retirement. You can eliminate the need for that by preparing an investment plan at a younger age,
thereby acquiring the maximum benefits of retirement planning.

How to Choose a Suitable Retirement Plan?

1. Understand Your Needs

2. Determine Time Frame
3. Prepare Investment Goals
GROUP 7 ESTATE PLANNING

ESTATE PLANNING

 It is the process which a family arranges the transfer of assets in anticipation of death.
 It aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility
for the individual prior to death.

WHY ESTATE PLANNING IS IMPORTANT?

There are several reasons why estate planning is so important:

 It goes beyond a will.

A will and an estate plan are not the same. Additionally, both provide guidance on how to manage your
property and goods after you die. Also, estate planning involves multiple wills.

 It saves time and money.

By law, after you die, the state in which you live and own the property determines what happens to your
property and who transfers it. The court must appoint an agent to distribute your assets.

 It protects your children.

The court appoints a legal guardian or guardian. If a minor child has no surviving family, the child can
become a state ward and enter foster care.

FIVE (5) EXAMPLES IN ESTATE PLANNING

1. Trust

A trust is formed when a trustee holds assets and conducts a business, distributes the proceeds to
beneficiaries, and follows the terms of the trust deed. Consider a trust if more than one family member is
involved in running the business.

2. Power of Attorney

The term Power of Attorney (POA) alludes to a legitimate approval that empowers an assigned
individual to represent another person. In that capacity, a POA gives the specialist or lawyer as a matter of fact
the power to follow up for the head. The specialist might be given wide or restricted power to arrive at
conclusions about the main's property, funds, ventures, or clinical consideration. There are two primary kinds of
POAs, Financial and Healthcare the two of which furnish the lawyer truth be told with general or restricted
powers.

3. Advance Healthcare Directive

An advance directive is a legal document that explains how medical decisions should be made about you
when you are unable to make the decisions yourself. Advance directive are used to guide your medical team and
loved ones when they need to make decisions, or to decide who will make decisions for you when you are
unable to.

Difference Between Advance Directive and Living Will

Living Will and Medical Power of Attorney

- When you combined, these two documents are called an advance healthcare directive.
- Sometime the difference between advance directive and living will is hard to define.
- The difference between the two is depends on which state you live in, and how the state defines each
of these terms.

4. Probate

The term probate refers to a legal process in which the validity and authenticity of a will are determined.
Probate also refers to the general administration of a deceased person's will or the estate of a deceased person
without a will. After an asset-holder dies, the court appoints an executor named in the will or an administrator
(if there is no will) to administer the process of probate. This involves collecting the deceased's assets to pay
any liabilities that remain on their estate and to distribute the assets to beneficiaries.

5. Living Will

Living will is a type of advance directive which is if you are unable to work and cannot speak for yourself, your
health care advisor and doctor will consult Living Will health care instructions.
GROUP 8 RISK MANAGEMENT

WHAT IS RISK MANAGEMENT?

Risk Management is the process of identifying, assessing, and controlling threats to an organization’s capital
and earnings. These risks stem from a variety of sources including financial uncertainties, legal liabilities,
technology issues, strategic management errors, accidents and natural disasters.

A successful risk management program helps an organization consider the full range of risks it faces. Risk
Management also examines the relationship between risks and the cascading impact they could have on an
organization’s strategic goals.

FIVE (5) STEPS OF THE RISK MANAGEMENT PROCESS

The risk management process is a framework for the actions that need to be taken. There are five basic
steps that are taken to manage risk; these steps are referred to as the risk management process. It begins with
identifying risks, goes on to analyze risks, then the risk is prioritized, a solution is implemented, and finally, the
risk is monitored. In manual systems, each step involves a lot of documentation and administration.

Here Are The Five Essential Steps of A Risk Management Process:

Step 1: Identify the Risk

The initial step in the risk management process is to identify the risks that the business is exposed to in
its operating environment. There are many different types of risks:

• Legal Risks
• Environmental Risks
• Market Risks
• Regulatory Risks

Step 2: Analyze the Risk

Analyzing the risk involves evaluating the possible problems a risk will cause for a business and
determining how likely that risk is to occur. If a risk occurs, what is the potential damage to the business? Each
risk identified needs to consider these business factors thoroughly:

• Potential financial loss

• Potential frequency and severity of risk
• Potential productivity loss for the business and service loss for customers.

Step 3: Prioritizing the Risk

Prioritizing the risk combines the likelihood of the risk occurring with the potential damage the risk will
cause if it occurs. The more likely the risk is to happen, and the more potential damage it might cause, the more
business resources should be directed to reduce the risk.
Step 4: Treating the Risk

Treating the risk means taking the highest ranked risk and applying specific risk remediation actions to
lower the risk to an acceptable level. For each risk-going from the highest risk to the lowest - take appropriate
risk remediation actions to reduce the risk to an acceptable level.

Step 5: Monitoring the Risk

Monitoring the risk requires upfront communication with all business staff and stakeholders. At this
point, you are applying risk assessment concepts to track and monitor how the business is managing the
identified risk. If there is any change in status, a new risk management process cycle should begin.

RISK MANAGEMENT APPROACHES

After the company’s exact risks are found and the Risk Management process has been applied. There are
several strategies companies can take to treating different risk:

1. Risk Avoidance
2. Risk Reduction
3. Risk Sharing
4. Risk Retention

TYPES OF RISK

Business Risk - Business companies take these types of risks themselves in order to increase shareholder values
and profits.

Non-Business Risk - We can term these risks as the one that arise out of political and economic imbalances as
non-business risk.

Financial Risk - Risk that includes a financial loss to the firms.

EXAMPLES OF RISK MANAGEMENT

1. Market Risk - Any risk that comes out of the marketplace in which your business operates.
2. Credit Risk - The possibility that you’ll lose money because someone fails to perform according to the
terms of contract.
3. Liquidity Risk - All the risks you encounter when trying to sell assets or raise funds.
4. Operational Risk - Covers all the other risks a business might encounter in its daily operations.
RESPONSE TO RISKS

Response to risks usually takes one of the following forms:

Avoidance: A business strives to eliminate a particular risk by getting rid of its cause.

Mitigation: Decreasing the projected financial value associated with a risk by lowering the possibility of the
occurrence of the risk.

Acceptance: In some cases, a business may be forced to accept a risk. This option is possible if a business
entity develops contingencies to mitigate the impact of the risk, should it occur.

RISK ANALYSIS PROCESS

Risk analysis is a qualitative problem-solving approach that uses various tools of assessment to work
out and rank risks for the purpose of assessing and resolving them. Here is the risk analysis process:

1. Identify existing risks.

Risk identification requires thinking. A company’s personnel review all risk sources. Prioritize all identified
hazards. Prioritization guarantees that business-threatening concerns are addressed first.

2. Assess the risks.

Identifying the problem and then finding a solution is common in problem solving. Before finding out how to
handle risks, a business should determine what created them by asking, “How could this affect the business?”

3. Develop an appropriate response.

Respond Correctly once a corporation is set on examining likely remedies to lessen recognized risks and
prevent their recurrence; it must ask the following questions. What to do if it recurs?

4. Develop preventive mechanisms for identified risks.

Identify risks and develop preventive measures. In this level, riskreduction principles are turned into activities
and contingency plans for the future. If dangers occur, the strategies can be used.

IMPORTANCE OF RISK MANAGEMENT

• Everyone should manage risk

• Makes job easier
• Enables project success
• Reduces unexpected events
• Guides decision-making
GROUP 9 COMMUNICATION AND RECORD-KEEPING

WHAT IS RECORD KEEPING?

One of the main parts of accounting is recordkeeping or bookkeeping. Recordkeeping is the process of
recording transactions and events in an accounting system. Since the principles of accounting rely on accurate
and thorough records, record keeping is the foundation accounting.

WHAT DOES RECORD-KEEPING ACTUALLY DO?

For small business owners everywhere, recordkeeping is a necessary and sometimes tricky part of
making sure a business runs smoothly. Keeping clear records of income, expenses, employees, tax documents
and accounts isn’t just good business. It can bring you peace of mind, help you monitor progress toward goals
and save you time and money.

IMPORTANCE OF RECORD-KEEPING

So why is record keeping important and why should I care about it as a business owner?

1. Prevent fraud or theft. Having a fraud prevention process by keeping detailed records of your business
expenses and transactions is essential for your company.

2. Pay your taxes. With documentation and good record keeping practices, you can pay your taxes accurately,
on time, and save on penalties.

3. Comply with laws. Good record-keeping practices are essential because it helps companies comply with
various laws in various countries.

4. Manage your cash flow. Cash is king when it comes to the financial management of a growing company.
This is where record keeping comes in. It helps you to identify and understand where your dollars are coming in
and going out from and have an accurate projection of the health of your company’s finances.

5. Make business decisions. As a startup or SME owner, you would want to save as much time and money as
possible and focus on other important business tasks to drive profitability and growth.

6. Save time and costs. When you need to file reports and conduct financial year end closing, a good record
keeping system can allow you to save time and money as you do not have to panic and go through a lastminute
rush to meet deadlines or hire someone last minute to handle it.

7. Prevent loopholes and oversight. With your business survival at stake, the possibility of having loopholes
and oversight cannot be ignored by business owners and precautions should be taken.
HOW SHOULD YOU KEEP YOUR RECORDS?

An important part of managing your personal finances is keeping your financial records organized. Whether it's
a utility bill to show proof of residency or a Social Security card for wage reporting purposes, there may be
times when you need to locate a financial record or document.

1. Get a system in place. Spend time setting up a system which you stick to. Allocate a regular time every
week or month to deal with your financial administration or make it a key responsibility for a trusted employee
or manager. It is also advisable to file all receipts logically.

2. Separate your professional from your personal finances. It is best to treat the business as a separate
person, from which you only take income in the form of wages, dividends and in claiming back business
expenses against receipts.

3. Make security a priority. The fewer people involved in your record-keeping, the fewer the errors that are
likely to creep in. It is a good idea to password-protect your company records and only divulge the password to
those that need it.

4. Safely store hardcopies of your record. Even if you choose to keep all your records electronically, it is vital
that you keep a regular electronic back-up and a paper copy elsewhere. Store records that cannot be copied,
such as chequebook stubs and paying-in books in a fireproof box.

BASIC RECORDS YOU ACTUALLY NEED AND WHY

Basic Record

Accounting Records - document all of your business’s transactions in your accounting records.

 See your business’s financial health.

 Measure your company’s profitability over time.
 Analyze patterns to make better financial decisions.
 Determine if you have enough capital to cover your expenses.
 Understand if your current budget is successful.

Bank Statements - Your bank statements detail all of your accounts with the bank.

Business Loan - To ensure you does not miss payments and manage risks.

Legal Documents - You must maintain all legal documents proving you own your business. Keep these
documents somewhere safe in case you need to provide proof of ownership.

Permits and licenses - Track your permits and licenses because you may need to periodically renew them.
And, keep an eye out for any changing laws for the permits or licenses your business has.

Insurance Documents - There are various types of insurance policies you may need to purchase when running
a business. Examples of the types of insurance you may purchase include:

 Business Liability Insurance

 Renters Insurance
  Auto Insurance
 Workers’ Compensation Insurance
 Business Income Insurance
 Professional Liability Insurance
 Cyber Insurance Policies

TWO (2) KINDS OF RECORD-KEEPING

1. Manual Record-Keeping

 A manual book keeping system where records are maintained by hand

 Transaction are written in journals
 Information is manually rolled up into a set of financial statements
 This system suffers from high error rate
 Much slower than computerized system
 Manual system is most commonly found in small enterprises that have few transactions.

Advantage:

- Less expensive to set up

- Correcting entries are easier with manual system
- The risk corrupted data is much less
- Data loss is less of a risk

Disadvantage:

- Takes up a lot of space

- Prone to damage and being misplaced
- Hard to make changes
- Access Time
- Lack of security
- Higher cost

2. Electronic / Computerized Record-Keeping (Automated)

 An accounting software makes it easier to capture information, generates, meet tax and legal reporting
requirements.
 It can save a great deal of time.
 It will allow you to add, delete, amend and share your data easily and will recalculate your running totals
for you.

Advantage:

- Easily record business transactions, including income and expenses, payments to workers, and stock and
asset details
- Efficiently keep financial records and requires less storage space
 - Provides the option of recording a sale when you raise an invoice, not when you receive a cash payment
from a client
- Easily generate orders, invoices, debtor reports, financial statements, employee pay records, inventory
reports
- Automatically tallies amounts and provides reporting functions
- Keeps up with the latest tax rates, tax laws and rulings
- Emails invoices to clients, orders to suppliers, or business activity statement (BAS) returns to the
Australian Taxation Office (ATO)
- Backs up records and keep them in a safe place in case of fire or theft

Disadvantage:

- Cost - The hardware and software needed for this exercise doesn’t come cheap. Hardware could require
substitution in as little as 18 months while software changes every 2-3 years.
- Security - The increased information-sharing ability of an electronic records management system carries
a substantial security risk. Moreover, management of records could become a problem when the system
is clogged with unnecessary records (such as duplicates).

WHAT ARE THE FINANCIAL BENEFITS OF EFFECTIVE COMMUNICATION?

1. Increased productivity - Teams can simply produce more when they’re able to connect with one another.
Plans can be made, responsibilities can be distributed, tasks can be actioned, bottlenecks can be tackled,
assistance can be requested, and projects can easily progress from one step to the next.

2. Wide-ranging knowledge among employees - If employees within the finance team are heavily focused on
their specific duties, there is a danger they could become isolated from the rest of the business. However, when
cross-departmental collaboration is encouraged/enabled, they gain a greater understanding of the wider
business.

3. Enhanced data - Interconnected departments doesn’t just lead to more knowledgeable staff, it can create a
better quality of data too.

4. Greater customer satisfaction - In finance you will need to converse with customers/partners. If a customer
has a seamless experience in these scenarios, there’s a greater chance they’ll view the business as competent
and be satisfied with the service they are receiving.
BANKING SERVICES

OVERVIEW

BANKS AND OTHER FINANCIAL INSTITUTIONS

What Is A Bank And How Does It Work?

Banks and other financial institutions offer products and services to help you manage your money, but do you
know how they work?

What Is a Bank?

A bank is a financial institution regulated at the federal level, state level or both.

“Bank” is a broad term that encompasses a number of different financial institutions.

Consumers usually view banks as places to keep money or as places to go to borrow money.

The primary role of banks is to take deposits and make loans. But banks can offer a wide range of products and
services, including: Deposit accounts (checking accounts, savings accounts, CDs, money market accounts),
Loans, including mortgage loans, auto loans and personal loans, Credit cards, Check-cashing services, Wealth
management services, Insurance, Business banking.