Grade

12

BUSINESS FINANCE
QUARTER 2 – MODULE 4

MONEY
MANAGEMENT
CYCLE

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Grade

12
Self-Learning Module in BUSINESS FINANCE
Illustrate the money management cycle and give examples of
Lesson: sound practices in earning, spending, saving and investing
money.
Quarter: 2 Week: 4 Day and Time: See Class program

Learning competency/ies:
• Identify money management cycle
• Apply basic personal finance principles and practices in earning, spending, saving, and
investing money

Learning Tasks:
Study Notebook Activity Sheet
✓ Pre-Test, pp.1-2 ✓ Developmental Activities p.5
✓ Post-test p.5 ✓ Activity 1-3 pp.7-8

I. INTRODUCTION

At the end of the unit lesson, the learners will be able to:
• Enumerate the individual’s life cycle
• Enumerate and define the areas of personal finance

II. PRE-TEST

Directions: Choose the letter corresponding to the correct answer for each of
the questions provided below.

1. Choose the BEST answer to define assets.

a. Assets are things that are owned.
b. Assets are things that we owe.
c. Assets are things that are owned that have value.
d. Assets are things that have value.
2. Which of the following careers would be possible choices for someone interested in
money and finance?
a. Social worker c. psychologist
b. Musician d. insurance actuary
3. Something you are working to achieve within a defined period of time is a(an):
a. Ideal c. goal
b. Value d. dream

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 4. You want to gain control over your income and spending so that will be able to save
money. Which step will help you the most?
a. Developing a budget c. developing a retirement plan
b. Applying for a loan d. getting advice from a friend
5. Financial plans need to:
a. Be changed during different stages in life
b. Include income but not expenses
c. Include income and eliminate risk
d. To be approved by an accountant

III. A. DISCUSSION OF CONCEPTS

Lesson 1: Financial Planning and the Individual’s Life Cycle

The financial plans of an individual depend on his financial objectives that are very
much affected by the stage he is at in an individual life cycle.

1. Accumulation phase. Those who have just started working or in the early part of
their respective careers. Since they are relatively young, they can afford to take on
high-risk investment for they can simply start again if they fail in some of their
business ventures and investments. In this phase, they are still “accumulating” assets
that will satisfy their individual goals. Typical assets that any individual or household
acquires at this stage include their own car or house. It is also at this stage that
individuals start living separately from their parents. Individuals may start by first
renting a condominium unit or house then eventually buying one of their own.
Because of their acquisition of cars and houses, individuals at this stage also start
incurring significant liabilities in the form of car and home mortgages. These
mortgages are typically paid over a long-time horizon. Most car loans are paid over
five years while housing loans extend much longer, for 20 to 25 years. Individuals
must ensure that their earnings are more than enough to cover for these fixed
obligations and still provide the funds for their daily living expenditures for food,
transportation, utilities, clothing, etc.
It is then crucial that they should not enter into these loans if their earnings over the
loan amortization period are not enough to pay for the required regular payments.
Aside from these short-term goals, they will also intend to save for future
expenditures such as the tuition of their children and for their eventual retirement as
well if funds are still available after considering the required daily living expenditures
and their fixed obligations.
2. Consolidation phase. Those in this phase already have the necessary assets required
of a typical household and have settled most of their outstanding liabilities. Major
concerns at this stage include the ability to pay for the education of their children
(from grade school to college).

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 Individuals also fulfil family objectives such as going on vacations and the purchase
of luxury goods. Of course, this is second priority relative to providing the typical
needs of their children – education and their daily allowances.
Investments of moderate risk are taken by these individuals since they still have a
longer time horizon before retirement yet not willing to venture on too risky
investments since it will be hard for them to start all over again especially with the
needs of their children taking high priority.
Aside from this concern, they need to “consolidate” and preserve much of the assets
they accumulated throughout the years since they would also want to prepare ahead
for future retirement.
The net worth (assets less liabilities) of individuals at the consolidation phase
significantly increases compared to the accumulation phase mainly because of the
increase in earnings (higher salary or reaping the benefits of earlier investments) and
the settlement of the mortgages they entered into in the previous stage.
3. Spending phase. Retired individuals belong to this stage. Their main source of
income comes from their pension although they also benefit from the returns of their
existing investments. Capital preservation is their main return objective with the
intention of earning more than inflation to protect the value of their investments in
real terms. Capital preservation objectives require the individual to put his money in
very safe investments.
It is called the spending phase since their pensions should be able to cover for their
daily living needs yet they have more than enough funds beyond this source for them
to enjoy the fruits of their labor throughout their working career. Individuals in this
stage must bear in mind that while they typically spend for luxuries at this stage, they
must not deplete their retirement funds for their remaining years.
Nowadays, various retirement products offered by insurance and financial institutions
aid these retirees in determining the timing of receipt of the income generated from
their insurance and pension plans so that they do not spend much of it in a limited
time span.
4. Gifting phase. Not everyone is expected to reach this phase and most of the time this
stage is concurrent with the consolidation phase. This stage focuses on how the
individual provides support to the family members, friends, or any charitable
institution. The focus of the individual is consistent on how he wants to allocate his
funds to these beneficiaries in case of his death or even during his remaining years.

Areas of Personal Finance

In this guide, we are going to focus on breaking down the most important areas of
personal finance and explore each of them in more detail so you have a comprehensive
understanding of the topic.
The main areas of personal finance are income, spending, saving, investing, and protection.

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.
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Common sources of income are:
a. Salaries d. Pensions
b. Bonuses e. Dividends
c. Hourly wages
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.

Spending
Spending includes all types of expenses an individual incurs related to buying goods and
services or anything that is consumable (i.e., not an investment). 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.
Common sources of spending are:
a. Rent e. Food
b. Mortgage payments f. Entertainment
c. Taxes g. Travel
d. Credit card payments
The expenses listed above all reduce the amount of cash an 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.

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:
a. Physical cash c. Checking bank account
b. Savings bank account d. 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.

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:
a. Stocks e. Private companies
b. Bonds f. Commodities
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 c. Mutual funds g. Art
d. Real estate
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.

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:
a. Life insurance c. Estate planning
b. Health insurance
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.

III. B. DEVELOPMENTAL ACTIVITIES

Activity 1 - Directions: On a sheet of paper, answer the following questions: (5 points each)

1. Assume that you are about to enter the accumulation phase. Describe your short-term
and long-term goals. Also, describe your risk tolerance at this stage of your life cycle.
Can you identify specific investments that are consistent and that will help you attain
your listed goals?
2. What should be the risk and return objectives of the individual at each phase?

IV. POST-TEST

Activity I - Directions: Match the area of personal finance in column A with its
common sources in column B by writing the capital letter on the left side of
column A

(A) Area of Personal (B) Description

Finance
1 Spending A. Health insurance

2 Investing B. Credit card payment

3 Protection C. Pensions
4 Income D. Money market securities
5 Saving E. Mutual funds

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Answer key:
5. D 4. C 3. A 2. E 1. B Post-test
5. A 4. A 3. C 2. D 1. C Pre-test

REFERENCES

Cayanan, A. & Borja (forthcoming). Business Finance. Quezon City. Rex Bookstore. Civil
Teaching Guide for Senior High School, Business Finance, Published by the Commission on
Higher Education, 2016
https://corporatefinanceinstitute.com/resources/knowledge/finance/personal-finance/

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INSTRUCTION: Detach and submit this Worksheet together with the activity sheets.

WORKSHEET
Name:
Subject: BUSINESS FINANCE
Grade/Section:
Subj. Teacher: Week:

I. FORMATIVE ASSESSMENT

Test/Activity Score
A. Pre-Test PP.1-2
B. Post Test p.5

II. SUMMATIVE ASSESSMENT

Activity 1: Directions: Choose the letter corresponding to the correct answer for each of the
questions provided below.

___ 1. What does a well-designed, successful financial plan include?

a. Unexpected income c. retirement planning
b. Wants and needs d. bank statement
___ 2. Financial planning helps individuals to:
a. Guarantee future income c. have strategies for saving and
investing
b. Achieve all goals by set target dates d. eliminate risk on investment
___ 3. James is a single and recent college graduate who just got his first full-time job. Which
of the following should be his first financial goal?
a. Establishing a fund for emergencies c. buying a house
b. Creating a stock portfolio d. buying a life insurance policy
___ 4. In creating her budget, Beth realizes that her expenses exceed her income. Beth should
immediately try to:
a. Open an IRA account c. apply for a loan
b. Reduce or eliminate some expenses d. listen to a friend advice
___ 5. Financial planning is important because it helps you to:
a. Eliminate risk on investment c. have higher expectations
b. Achieve all personal goals d. reach financial goals and protect your assets
___ 6. Which refers to a source of cash inflow that an individual receives and then uses to
support themselves and their family?
a. Investment b. expenses c. saving d. income
___ 7. The following are used to guard against an unforeseen and adverse event EXCEPT.
a. Health insurance c. life insurance
b. Mutual fund d. estate planning

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___ 8. Which refers to the purchase of assets that are expected to generate a rate of return?
a. Income b. Investing c. Saving d. Spending
b.
___ 9. What phase that retired individuals belong?
a. Spending b. gifting c. accumulation d. consolidation
___ 10. Liza is considering whether or not to hire Kris to be her financial advisor. Which of
the following is the best question for Liza to ask to help her negotiate a lower fee
from Kris:
a. “What price do your competitors offer?”
b. “What can you offer that no one else can?”
c. “What is the lowest price you can give me?”
d. “Why do I have to pay fees?”

Activity 2: Directions: Identify what areas of personal finance are used in the given forms.
Write your answer on the space proved before each number.

________ 1. Life insurance

________ 2. Rent
________ 3. Checking bank account
________ 4. Pensions
________ 5. Estate planning
________ 6. Taxes
________ 7. Mutual funds
________ 8. Bonuses
________ 9. Bonds
________ 10. Travel

Activity 3: Reflective Assessments

Direction: On a separate sheet of paper, answer the following questions: (5 points each)
1. What concepts or skills did you learn well?
2. What concepts or skills were difficult to understand?

3. What activities did you enjoy the most?

4. What activity was hard to execute?
5. Did you ask help from your teacher? (Yes or No). If Yes, did you immediately
receive the needed assistance? Was the given assistance helpful for you to understand
better the lessons?