BUSINESS FINANCE is to buy assets that generate cash flow over time and hold onto them

without selling.
INVESTMENT
Many stocks pay dividends, for example. Instead of buying and selling
An investment is an asset or item acquired with the goal of generating stocks, dividend investors hold stocks and profit from the dividend
income or appreciation. Appreciation refers to an increase in the income.
value of an asset over time. When an individual purchases a good as
an investment, the intent is not to consume the good but rather to use
ADVANTAGES OF INVESTING
it in the future to create wealth.
1. STOCK MARKETS TYPICALLY RISE OVER THE LONG TERM
HOW DOES AN INVESTMENT WORK?
The stock market has historically risen over the long term at a greater
In the most straightforward sense, investing works when you buy an
rate than inflation. Therefore, investing in stocks not only offers the
asset at a low price and sell it at a higher price. This kind of return on
chance to protect capital from inflation but to increase wealth, over
your investment is called a capital gain. Earning returns by selling
time, as well.
assets for a profit—or realizing your capital gains—is one way to make
money investing.
2. LITTLE TIME COMMITMENT
When an investment gains in value between when you buy it and you
Investors who own stock indices or indexes have little work to do. By
sell it, it’s also known as appreciation.
being invested in an index, the market does the work for them.
Investors just hold the positions for the long term to achieve market
● A share of stock can appreciate when a company creates a
average returns.
hot new product that boosts sales, increases the
company’s revenues and raises the stock’s value on the
3. A SAVING PLAN THAT GROWS
market.
Investing is like saving, but funds can grow at a much higher rate than
● A corporate bond could appreciate when it pays 5% annual
most savings accounts offer. Most investors opt to save for retirement
interest and the same company issues new bonds that only
and/or for future expenses. While some emergency cash can be kept in a
offer 4% interest, making yours more desirable.
savings account, many investors opt to put a large proportion of their
savings into investments that earn a greater rate of return.
● A commodity like gold might appreciate because the U.S.
Dollar loses value, driving up demand for gold.
4. INVESTING IS NOT LIMITED TO STOCKS
● A home or condo might appreciate in value because
Investing provides options. While stocks are a common investment,
you renovated the property, or because the
so are bonds, real estate investment trusts (REITs), and precious
neighborhood became more desirable for young
metals. Bonds issued by stable companies or governments tend to
families with kids.
have less volatility than stocks but also have lower long-term returns.
That said, they often offer returns that are higher than a savings
In addition to profits from capital gains and appreciation, investing
account. Therefore, even if stocks have little appeal to you, there are
works when you buy and hold assets that generate income. Instead of
other options for investment.
realizing capital gains by selling an asset, the goal of income investing
 5. LESS TAX
Long-term investments are typically treated more favorably in terms
of taxes than short-term trades. There are also certain investment
accounts that may further protect investment gains from taxes, such
as stocks and shares.
6. INVESTMENTS CAN PROVIDE INCOME
Whether it’s now or later, investing can provide regular income
from dividends (stocks) or interest (bonds). When a bond or
dividend-paying stock is purchased, it pays a certain percentage to
you at regular intervals. This income stream can be reinvested to
take advantage of compounding returns or used for something else.
7. INVESTING IS FLEXIBLE
Investing is not a one-size-fits-all process. Investors choose how to invest
in stocks and which stocks or exchange traded funds they want to own.
An investor chooses an asset allocation that is based on their risk
tolerance — for example, holding more stocks for higher returns or
holding more bonds to reduce volatility in the portfolio.
DISADVANTAGES OF INVESTING
1. POSSIBILITY OF LOSS
When investing, there is a possibility of loss. There are no guarantees
that the market will rise during a specific investor’s time horizon.
2. COMPOUNDING IS SLOW
Investing doesn’t compound capital as quickly as successful short-term
trading does. Therefore, all else being equal, a good investor will make
lower returns than a good day trader or swing trader.
3. INVESTING IS NOT ACTIVE
Investing is generally passive, with trades lasting long periods of time
and little active buying and selling. This may not appeal to investors
who like doing lots of research and being active in the market. That
said, there is always the option to be active in the market but also have
some funds invested as well.
4. OPPORTUNITY COST
When we invest, we are giving up the use of that capital in exchange
for potential earnings over the long run. An investor could be using
that capital for something else. For example, we might use it to redo
our house, take a vacation, go back to school, or start a business (some
of these are alternative forms of investment). But ultimately, if we
allocate capital to investing, it can’t be used for something else, at least
not while it is invested.
Consider this before investing. Investing sees the greatest benefit when
funds are left in the account to compound over time. If we are
constantly pulling out funds from our investment account to use on
other things, many of the benefits of investing may be lost.
How to start investing?
1. Consider making an investment plan. This will include things like
whether you prefer to invest in lower-risk or higher-risk assets and
how long you have till retirement/whether you need the funds.
2. Decide on a portfolio allocation. When you start out, your
investment portfolio may just be composed of one or two index
ETFs. That is fine. However, over time, you may want to expand this
and allocate a certain percentage of your funds to bonds or other
assets as well.
3. Pick an investment strategy. Again, this can take place over time.
Do you prefer just buying index ETFs, or do you want to buy
individual stocks? If you purchase individual stocks, how will you
determine what to buy and when? Some common approaches to
consider include value investing, growth investing, or passive
investing (buy and hold).
TYPES OF INVESTMENT
1. BANK DEPOSITS - consist of money placed into banking
institutions for safekeeping. These Deposits are made to deposit
accounts such as savings accounts, checking accounts, and money
market accounts at financial institutions. The account holder has the
right to withdraw deposited funds, as set forth in the terms and
conditions governing the account agreement.
How bank deposits work?
The deposit itself is a liability owed by the bank to the depositor. Bank
deposits refer to this liability rather than to the actual funds that have
been deposited. When someone opens a bank account and makes a cash
deposit, they surrender the legal title to the cash, and it becomes an
asset of the bank. In turn, the account is a liability to the bank.
TYPES OF BANK DEPOSITS
CURRENT (DEMAND DEPOSIT) ACCOUNT
A current account, also called a demand deposit account, is a basic
checking account. Consumers deposit money and the deposited
money can be withdrawn as the account holder desires ondemand.
These accounts often allow the account holder to withdraw funds
using bank cards, checks, or over-the-counter withdrawal slips. In
some cases, banks charge monthly fees for current accounts, but they
may waive the fee if the account holder meets other requirements
such as setting up direct deposit or making a certain number of
monthly transfers to a savings account.
SAVINGS ACCOUNT
Savings accounts offer account holders interest on their deposits;
however, in some cases, account holders may incur a monthly fee if
they do not maintain a set balance or a certain number of deposits.
Although savings accounts are not linked to paper checks or cards
like current accounts, their funds are relatively easy for account
holders to access.
TIME DEPOSIT ACCOUNTS
Like a savings account, a time deposit account is an investment vehicle
for consumers. Alsoknown as certificates of deposit (CD), time deposit
accounts tend to offer a higher rate of return than traditional savings
accounts, but the money must stay in the account for a set period of
time. In other countries, time deposit accounts feature alternative
names such as term deposits, fixed-term accounts, and savings bonds.
2. INSURANCE - is a contract in which an individual or entity pays an
insurance company in exchange for financial protection or
reimbursement of losses resulting from a covered event.
Insurance is a contract, represented by a policy, in which a
policyholder receives financial protection or reimbursement
against losses from an insurance company. The company pools
clients’ risks to make payments more affordable for the insured.
Most people have some insurance: for their car, their house, their
healthcare, or their life.
Insurance policies hedge against financial losses resulting from
accidents, injury, or property damage. Insurance also helps cover
costs associated with liability (legal responsibility) for damage or
injury caused to a third party.
INSURANCE POLICY COMPONENTS
PREMIUM
A policy’s premium is its price, typically a monthly cost. Often, an insurer
takes multiple factors into account to set a premium. Here are a few
examples:
● Auto insurance premiums: Your history of property and auto
claims, age and location, creditworthiness, and many other factors
that may vary by state.
● Home insurance premiums: The value of your home, personal
belongings, location, claims history, and coverage amounts.
● Health insurance premiums: Age, sex, location, health
status, and coverage levels.
● Life insurance premiums: Age, sex, tobacco use, health, and
amount of coverage.
POLICY LIMIT
The policy limit is the maximum amount an insurer will pay for a
covered loss under a policy. Maximums may be set per period (e.g.,
annual or policy term), per loss or injury, or over the life of the policy,
also known as the lifetime maximum.
Typically, higher limits carry higher premiums. For a general life
insurance policy, the maximum amount that the insurer will pay is
referred to as the face value. This is the amount paid to your
beneficiary upon your death.
DEDUCTIBLE
The deductible is a specific amount you pay out of pocket before the
insurer pays claim. Deductibles serve as deterrents to large volumes
of small and insignificant claims.
For example, a $1,000 deductible means you pay the first $1,000
toward any claims. Suppose your car's damage totals $2,000. You
pay the first $1,000, and your insurer pays the remaining $1,000.
Deductibles can apply per policy or claim, depending on the insurer
and the type of policy. Health plans may have an individual deductible
and a family deductible. Policies with high deductibles are typically less
expensive because the high out-of- pocket expense generally results in
fewer small claims. Out-of-pocket expenses are costs that an individual
is responsible for paying that may or may not be reimbursed later.
TYPES OF INSURANCE
HOME INSURANCE
Homeowners insurance (also known as home insurance) protects your
home, other property structures, and personal possessions against
natural disasters, unexpected damage, theft, and vandalism. Renter's
insurance is another type of homeowners insurance.
Homeowner insurance won't cover floods or earthquakes, which
you'll have to protect against separately.
AUTO INSURANCE
Auto insurance can help pay claims if you injure or damage someone
else's property in a car accident, help pay for accident-related repairs on
your vehicle, or repair or replace your vehicle if stolen, vandalized, or
damaged by a natural disaster.
Instead of paying out of pocket for auto accidents and damage,
people pay annual premiums to an auto insurance company. The
company then pays all or most of the covered costs associated with
an auto accident or other vehicle damage.
LIFE INSURANCE
A life insurance policy guarantees that the insurer pays a sum of
money to your beneficiaries (such as a spouse or children) if you die.
In exchange, you pay premiums during your lifetime.
There are two main types of life insurance. Term life insurance
covers you for a specific period, such as 10 to 20 years. If you
die during that period, your beneficiaries receive a payment.
Permanent life insurance covers your whole life as long as you
continue paying the premiums.
TRAVEL INSURANCE
Travel insurance covers the costs and losses associated with
traveling, including trip cancellations or delays, coverage for
emergency healthcare, injuries and evacuations, and damaged
baggage, rental cars, and rental homes.
HEALTH INSURANCE
Health insurance is an agreement in which an insurance company
agrees to pay for some or all of your medical expenses in exchange
for a monthly premium payment.
 INSURANCANCE IN THE PHILIPPINES ● Equipment and machinery
● Vehicles / Classic cars
1. Life insurance ● Commodities
2. Term-life insurance ● Paintings
3. Whole-life insurance ● Collectibles
4. Universal life insurance
5. Variable life insurance 5. STOCK - also known as equity, is a security that represents the
6. Health insurance ownership of a fraction of the issuing corporation. Units of stock are
7. Educational insurance called "shares'' which entitles the owner to a proportion of the
8. Vehicle and accident insurance corporation's assets and profits equal to how much stock they own.
9. Compulsory third-part insurance
10. Property insurance Companies sell stock to raise money to fund their business operations.
11. Travel insurance Buying shares of stock gives you partial ownership of a company and
lets you participate in its gains (and the losses). Some stocks also pay
dividends, which are small regular payments of companies’ profits.
3. REAL ESTATE - are investments are often broadly defined as
investments in physical, tangible spaces that can be utilized. Land can be Because there are no guaranteed returns and individual
built on, office buildings can be occupied, warehouses can store companies may go out of business, stocks come with greater
inventory, and residential properties can house families. Real estate risk than some other investments.
investments may encompass acquiring sites, developing sites for specific
uses, or purchasing ready-to-occupy operating sites. Corporations issue stock to raise funds to operate their
businesses and the holder of stock, shareholder, may have a
In some contexts, real estate may broadly encompass certain types of claim to part of the company's assets and earnings.
investments that may yield commodities. For example, an investor can
invest in farmland; in addition to reaping the reward of land value A shareholder is considered an owner of the issuing company,
appreciation, the investment earns a return based on the crop yield and determined by the number of shares an investor owns relative to the
operating income. number of outstanding shares. If a company has 1,000shares of stock
outstanding and one person owns 100 shares, that person would own
4. HARD ASSETS - are non-perishable and possess intrinsic value. and have a claim to 10% of the company's assets and earnings.
They also act as a hedge against inflation, as their value changes
inversely to changes in the value of soft assets and non-physical TWO MAIN TYPES OF STOCKS
assets. However, such an inverse relationship does not always hold
true. As an investment alternative, hard assets provide security in 1. COMMON STOCK - usually entitles the owner to vote at
times of uncertainty, market instability, and volatility. They retain shareholders' meetings and to receive any dividends paid out by the
value regardless of how far their market prices may drop. corporation.

Examples: 2. PREFERRED STOCK - generally do not have voting rights, though they
have a higher claim on assets and earnings than common stockholders.
● Real estate For example, owners of preferred stock receive dividends before
● Gold, Silver, Platinum & other precious metals common shareholders and have priority if a company goes bankrupt
● Oil, Natural gas & other resources and is liquidated.
Companies can issue new shares whenever there is a need to raise
additional cash. This process dilutes the ownership and rights of
existing shareholders. Corporations can also engage in stock buybacks,
which benefit existing shareholders because they cause their shares to
appreciate in value.
6. BONDS - A bond is a fixed-income instrument that represents a
loan made by an investor to a borrower (typically corporate or
governmental). A bond could be thought of as an I.O.U. between the
lender and borrower that includes the details of the loan and its
payments. Bonds are used by companies, municipalities, states, and
sovereign governments to finance projects and operations. Owners of
bonds are debt-holders, or creditors, of the issuer.
Bonds are a passive investment asset. It serves as proof that its
issuer (either the government or a private corporation) has
borrowed money from you and they will pay you what you’re owed
plus periodic interest payments over the period indicated on your
bonds’ terms.
For example, the government has an infrastructure project that will
cost them 50 billion pesos. After the government exercises all their
possible options for funding, they may find that they’re still short of 5
billion pesos. One solution is to issue multiple bonds totaling to that
amount, but promising to pay it back after several years plus interest.
Individuals, organizations, and even foreign governments can buy these
bonds in exchange for the money the government needs, and will be
known as creditors or debt-holders. After the specified bond tenor has
passed, the bond matures, and creditors can claim their debt plus the
interest that they’re entitled to.
TYPES OF BONDS IN THE PHILIPPINES
GOVERNMENT BONDS - also known as sovereign bonds, are either
placed up for auction with institutions that have the capacity to
distribute it further to the retail investors, or sold directly to the
general public.
CORPORATE BONDS - Corporate bonds are those issued by private
corporations listed on the stock exchange. Corporations may issue
bonds to investors to expand their business or sustain their operations.
Who issues bonds?
Bonds are debt instruments and represent loans made to the issuer.
Governments and corporations commonly use bonds in order to borrow
money. Governments need to fund roads, schools, dams, or other
infrastructure. The sudden expense of war may also demand the need to
raise funds.
Similarly, corporations will often borrow to grow their business, to
buy property and equipment, to undertake profitable projects, for
research and development, or to hire employees. Bonds provide a
solution by allowing many individual investors to assume the role of
the lender.
ADVANTAGES AND DISADVANTAGES OF BONDS
ADVANTAGES OF BUYING BONDS IN THE PHILIPPINES
● RELATIVELY LESS RISK
Whether you buy the Philippine sovereign bonds or corporate bonds,
it is a relatively safer option, because it is much less volatile compared
to other forms of investments that can fluctuate depending on the
market trends.
● PORTFOLIO DIVERSIFICATION
As the saying goes, don’t put all your eggs in one basket. If you’re
planning on investing in multiple investment products, the low-risk
features of bonds can offset potential losses that high-risk investments
may incur.
 2. COUPON RATE - is the rate of interest the bond issuer will pay on
● FIXED INCOME the face value of the bond, expressed as a percentage.1 For example,
Depending on the type of bonds you buy, interest can be paid a 5% coupon rate means that bondholders will receive5% x $1,000
periodically, giving you fix passive income on top of your other face value = $50 every year.
sources of income or revenue.
3. COUPON DATES - are the dates on which the bond issuer will
● BETTER INTEREST INCOME make interest payments. Payments can be made in any interval,
Other low-risk, interest-based options like savings accounts and but the standard is semiannual payments.
time deposits offer lower interest rates. The income you receive
from bonds is much higher compared to the other two. 4. MATURITY DATE - is the date on which the bond will mature and
the bond issuer will pay the bondholder the face value of the bond.
DISADVANTAGES OF BUYING BONDS IN THE PHILIPPINES
5.ISSUE PRICE - is the price at which the bond issuer originally
● RISK OF DEFAULT sells the bonds. In many cases, bonds are issued at par.
As mentioned earlier, buying bonds is not 100% risk-free. It’s unlikely
Should I invest in bonds?
that the Philippines may undergo a scenario wherein economic growth
suddenly plummets and it defaults due to its debts, but the chance of it
Bonds are the best choice for conservative Filipinos who want safe
happening exists, albeit being remote at this point. As for corporate
investments, as opposed to taking a gamble on the stock market. Bonds
bonds,creditors are prioritized over stockholders, but that doesn’t
are not directly affected by the highs and lows of the stock market, so it’s
guarantee that you’ll be paid in full depending on the corporation’s
less likely that you will incur losses. It is the better option for people
amount of debt upon liquidation.
whoprefer the predictable passive income from the periodic interest that
their bonds receive. This makes it a good investment option for.
● OPPORTUNITY COST
Bonds are the relatively safer option, but there’s no guarantee that it will
● First-time investors who want to start safe
do better than the high-risk, high-reward investments. In many cases,
● Investors looking to add safe long-term options to offset
the gamble investors take on stocks can greatly pay off. For bonds, the
their riskier investments
smaller profits (interest payments) are steadier as committed by the
● People who want periodic income to help their household’s
issuer. Typically in normal markets, stocks generally perform better in
expenses
the long run. But incase of a recession or a decline in the market, bonds
● Retired individuals who want additional periodic income
are the better option for those who want to play it safe.
7. MUTUAL FUNDS - is a financial vehicle that pools assets
CHARACTERISTICS OF BONDS
from shareholders to invest insecurities like stocks, bonds,
money market instruments, and other assets. Mutual funds
1.FACE VALUE (PARVALUE) - is the money amount the bond will be
are operated by professional money managers, who allocate
worth at maturity; it is also the reference amount the bond issuer uses
the fund's assets and attempt to produce capital gains or
when calculating interest payments. For example, say an investor
income for the fund's investors. A mutual fund's portfolio is
purchases a bond at a premium of $1,090, and another investor buys the
structured and maintained to match the investment
same bond later when it is trading at a discount for $980. When the bond
objectives stated in its prospectus.
matures, both investors will receive the $1,000 face value of the bond.
Mutual funds give small or individual investors access to
professionally managed portfolios of equities, bonds, and other
securities. Each shareholder, therefore, participates proportionally in
the gains or losses of the fund.
TYPES OF MUTUAL FUNDS
1. STOCK FUNDS
As the name implies, this fund invests principally in equity or stocks.
Within this group are various subcategories. Some equity funds are
named for the size of the companies they invest in: small-, mid-, or
large-cap. Others are named by their investment approach: aggressive
growth, income-oriented, value, and others. Equity funds are also
categorized by whether they invest in domestic stocks or foreign
equities.
2. BOND FUNDS
A mutual fund that generates a minimum return is part of the fixed
income category. A fixed income mutual fund focuses on investments
that pay a set rate of return, such as government bonds, corporate
bonds, or other debt instruments. The fund portfolio generates interest
income, which is passed on to the shareholders.
Sometimes referred to as bond funds, these funds are often actively
managed and seek to buy relatively undervalued bonds in order to sell
them at a profit. These mutual funds are likely to pay higher returns and
bond funds aren't without risk.
3. INDEX FUNDS
Index Funds invest in stocks that correspond with a major market
index. This strategy requires less research from analysts and advisors,
so there are fewer expenses passed on to shareholders and these
funds are often designed with cost-sensitive investors in mind.
4. BALANCED FUNDS
Balanced funds invest in a hybrid of asset classes, whether stocks,
bonds, money market instruments, or alternative investments. The
objective of this fund, known as an asset allocation fund, is to reduce the
risk of exposure across asset classes.
5. MONEY-MARKET FUNDS
The money market consists of safe, risk-free, short-term debt
instruments, mostly government Treasury bills. An investor will not
earn substantial returns, but the principal is guaranteed. A typical
return is a little more than the amount earned in a regular checking or
savings account and a little less than the average certificate of deposit
(CD).
6. INCOME FUNDS
Income funds are named for their purpose: to provide current
income on a steady basis. These Funds invest primarily in
government and high-quality corporate debt, holding these
bonds until maturity to provide interest streams. While fund
holdings may appreciate, the primary objective of these funds is
to provide steady cash flow to investors. As such, the audience
for these funds consists of conservative investors and retirees.
7. INTERNATIONAL/GLOBAL FUNDS
Income funds are named for their purpose: to provide current
income on a steady basis. These Funds invest primarily in
government and high-quality corporate debt, holding these
bonds until maturity to provide interest streams. While fund
holdings may appreciate, the primary objective of these funds is
to provide steady cash flow to investors. As such, the audience
for these funds consists of conservative investors and retirees.
PERSONAL FINANCE
Personal finance is the process of planning and managing
personal financial activities such as income generation,
spending, saving, investing , and protection. The process of
managing one’s personal finances can be summarized in a
budget or financial plan . This guide will analyze the most
common and important aspects of individual financial
management.
AREAS OF PERSONAL FINANCE Common sources of spending are:

- Rent
- Mortgage payments
- Taxes
- Food
- Entertainment
- Travel
- Credit card payments

The expenses listed above all reduce the amount of cash an

1. INCOME
Income refers to a source of cash inflow that an individual
receives and then uses to support themselves and their family. It
is the starting point for our financial planning process.
Common sources of income are:
- Salaries
- Bonuses
- Hourly wages
- Pensions
- Dividends
These sources of income all generate cash that an individual can
use to either spend, save, or invest. In this sense, income can be
thought of 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 for by borrowing money).
The majority of most people’s income is allocated to spending.
individual has available for saving and investing. If expenses are
greater than income, the individual has a deficit. Managing
expenses is just as important as generating income, and typically
people have more control over their discretionary expenses than
their income. 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. If there is a surplus between what a person earns as
income and what they spend, the difference can be directed
towards savings or investments. Managing savings is a critical
area of personal finance.
Common forms of savings include:
- Physical cash
- Savings bank account
- Checking bank account
- Money market securities
Most people keep at least some savings to manage their cash
flow and the short-term difference between their income and
expenses. Having too much savings, however, can actually be
viewed as a bad thing since it earns little to no return compared
to investments.
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. Investing carries risk, and not all assets actually end up
producing a positive rate of return. This is where we see the
relationship between risk and return.
Common forms of investing include:
- Stocks
- Bonds
- Mutual funds
- Real estate
- Private companies
- Commodities
- Art
Investing is the most complicated area of personal finance and is
one of the areas where people get the most professional advice.
There are vast differences in risk and reward between different
investments, and most people seek help with this area of their
financial plan.
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.
MONEY MANAGEMENT PHILOSOPHIES
1. SPEND LESS OF WHAT YOU EARN
This is the most basic of all personal finance rules – do not spend more
than you can afford to pay. Yet, this is also where we most fail. Access to
credit gives us the power to spend money we still don’t have. It is good to
a certain degree, but only if we have enough discipline over our
spending. Managing personal finance starts with learning to live within
your means. Know exactly how much you’re making, then create a
budget that is within your income. Use your credit wisely.
2. BUDGET FOR SAVINGS
Build up your savings from day one. This follows the first rule of
managing personal finance. What is left of your income after expenses
are your savings. First, aim to create an emergency fund – one that you
can rely on emergencies or when starting up a business or transitioning
from one job to another. Second, save for investment – one that will
provide you with a passive income. Lastly, start saving for your
retirement – the earlier you start, the sooner you can retire.
3. KNOW WHAT YOU ARE SPENDING ON
Self-made millionaires and billionaires still live on a budget and know
exactly where their money is going. Knowing what you’re spending on
will give you a clearer idea on how you’re handling your money. Create a
list of purchases made and bills paid, go as detailed as you can. Scan
through your list – do you see opportunities to save or minimize your
expenses? Are you spending too much on coffee or interest fees?
4. CREATE PASSIVE INCOME
Passive income is earnings generated without you having to work or
spend time on it. Royalties, rentals, interest income, and creative licenses
are examples of passive income you can build on. You can create and sell
– photography, e-books, music, and apps. You can also use your savings
to invest in properties you can rent out like real estate properties,
machines, equipment, or even party needs! Passive income sources will
double your earnings without using up time and effort.
5. LEARN THE ART OF INVESTING
Money in the bank is safe but is not most beneficial for you. While you
can earn interest income, you could also be losing value from inflation.
Inflation is the continuous trend of increasing prices and decreasing
value of money. At an average rate of 2.5%, your $100 now will be worth
about $80 in ten years. To combat inflation, you must put your money to
good use, in income generating investments.
6. TAKE ADVANTAGE OF FREE MONEY
Nothing is for free, right? If you look closer, there is such a thing as free
money. Financially aware individuals know and take advantage of free
money like miles rewards, loyalty rewards from stores, discounts given
when paying in cash or in advance, and your employer’s contribution
match for health insurance or retirement fund.
7. SIMPLIFY YOUR LIFESTYLE
Downsizing is enriching. Getting rid of the clutter will let you focus on
the important things. Do you really need the second car, a bag to match
your new shoes or the extra guest bedroom? Keeping up with the
Joneses will not get you and your family anywhere. There’s no shame in
frugality. Self-made millionaires wear simple clothes, live in modest
homes, and drive basic cars. They splurge on more important things like
investments, innovations, and on making sure they enjoy work-life
balance.
8. HEALTH IS WEALTH
Stay healthy. A healthy body and focused mind are necessary to better be
able to work and create wealth and income. Besides, getting sick is
expensive. Having a sick child will also create the same stress and
additional expenses. Make yours and your family’s health a premium. Eat
healthy, exercise, sleep well, avoid harmful vices, and make time for fun
and relaxing time together.
Personal finance can be learned and anyone can achieve financial
freedom and wealth. It is just a matter of knowing what you have, and
effectively managing and enriching it. Discipline, hard work and
perseverance are important aspects of getting rich. If you want to make
it, do not rely on luck or the benevolence of others.
MONEY MANAGEMENT IN PERSONAL FINANCE
Money management is a broad concept. It refers to the strategies and
techniques to determine the use of an individual, company, or
institution’s capital. In personal finance, money management covers
budgeting, spending, and saving (investing). Money management can be
proactive with periodic or regular financial planning. It can also be
reactive to specific events without intuitive planning in advance.
As a result of different ages, lifestyles, family structures, and many other
factors, financial plans for individuals are different. However, the
fundamental principles of budgeting can be commonly shared. For
example, one simple method of personal budgeting is the “50-20-30
Budget Rule.”
The 50-20-30 Budget Rule suggests an individual spends 50% of their
after-tax income on essential expenditures. The essentials include
house mortgages or rents, transportation, groceries, utilities, and so on.
30% of their income should be spent on the things that the person
wants. It can include expenses on partying with friends, movie tickets,
and vacations. The remaining 20% should be saved or invested for future
financial goals.
Money management with intuitive planning and budgeting helps to
reduce inessential expenditures. Such expenditures do not add value to
an individual’s living standards. They can be saved or invested for better
use in the future. Money management also lowers the risk of running out
of money. It helps individuals to achieve their financial goals in the long
term.
Financial advisors in private banks, insurance firms, and other financial
institutes provide personal money management services. Individuals can
also process their money management needs through personal finance
applications.