PERSONAL FINANCE
PLANNING
- Everything in life that involves money
PERSONAL FINANCIAL PLANNING
- The process of planning and managing
personal financial activities such as
income generation, spending, saving, and
investing
- Covers managing your money as well as
saving and investing
- Meeting personal financial goals
IMPORTANCE
1. Ensures that you meet your money needs
2. Easily manage your income
3. Budgeting, spending and saving
4. Personal finance and cash flows
5. Offering family security
6. Offers better financial understanding
7. Keeps you off unmanageable debts
8. Growing your assets
9. Raising your standards of living
AREAS OF PERSONAL FINANCE
- Income
 Source of cash inflow that an
individual receives and then uses to
support themselves and their family
- Spending
 All types of expenses an individual
incurs related to buying goods and
services or anything that is
consumable
- Saving
 Excess cash that is retained for future
investing or spending
- Investing
 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.
- Protection (Insurance)
 Wide range of products that can be
used to guard against an unforeseen
and adverse event
STEPS FOR SUCCESSFUL FINANCIAL
1. Understand your personal and
financial circumstances/ situation
- Make a list/ record of items that relate to
finances SPECIFIC
 5 areas of personal finance MEASURABLE
ACHIEVABLE
2. Identifying and selecting goals REALISTIC
- SMART personal financial goals TIME-BASED
3. Analyze/ Identify alternative course of
action
- Analyze the current course of action to
see if it’s moving them toward financial
goals: If it’s not, you need to identify
alternative courses of action and know the
advantages and disadvantages of each
option.
4. Developing financial planning
recommendations
- Selects one or more recommendations
that they believe will help meet the goals
5. Presenting the financial planning
recommendations
- Presents the recommendations and the
thought process behind the
recommendations
6. Implementing the FPR
- Putting the plan to work
7. Monitoring progress and updating
- Plans need to be monitored
SHORT TERM GOALS
- Range from one month to one year. It is
suggested that consumers use short term
goals to eliminate credit card debt and
establish and emergency salary savings’
fund.
LONG TERM GOALS
- Usually achieved in five or more years.
This type of goal requires a methodical
saving and investing plans.
FINANCIAL PLANNING PROFESSIONALS
- Personal financial advisor, financial
consultant, wealth manager, or personal
banker
- Professionals can take on the daunting
task of organizing finances and choosing
wise investments
- They also help families protest their
assets through appropriate insurance
products and estate planning services
- Help their clients develop short term and
ORGANIZING FINANCIAL INFORMATION
long term financial goals and develop
strategies to accomplish these goals
SELECTING A QUALIFIED FINANCIAL
PLANNING PROFESSIONALS
 Decide what parts of your financial life
you need help with
- Remember the best financial planner is
the one who can help you chart a course
for all you financial needs
 Learn about the different types of
financial advisors
 Fee-only financial advisors
 Financial advisors who earn
commissions
 Registered investment advisors (RIA)
 Robo Advisors
 Choose which financial advisor
services you want
 Investment advice
 Debt management
 Budgeting help
 Insurance coverage
 Tax planning
 Retirement planning
 Estate planning
 College planning
 Decide how much you can pay your
financial advisor
 Commission-only advisors
 Fee-only and fee based financial
advisors
 Research financial advisors
 How do you make your money
 What is your approach to financial
planning
 What financial planning services do
you offer?
 What kind of clients do you normally
work with?
 Do you have any account minimums?
 Do you have any conflicts of interest in
managing my money?
 What information do I need to bring for
you to look at when developing my
financial plan?
 How many times and how often will we
meet?
 Will you collaborate with my other
advisors like CPAs or attorneys?
 Keeping your financial account
organized
 See what you have
 Always read your financial statements
 Simply listing out your financial
accounts
a) The simple spreadsheet or list
method
b) The software method
c) The online method
- Banking- checking, savings
- Debt- credit cards, auto loan
- Investments- brokerage
- Retirement
 Tracking your live document
 Set up your filing system
 Organize regular bills and financial
statements by the month or by the
account
 When organizing by account, be sure
to arrange documents in chronological
order within each file so they ae easier
to find later on.
PAPER FILING
- Birth certificate, will, ss card, house title,
passport, etc.
DIGITAL FILING
- Computerized financial records
 Organizing the stuff you have to keep/
managing your financial files
 Reconcile and file receipts
 3 STEP PROCESS Amortization

- Store receipts in an action file or poly
envelope labeled “to reconcile”
- As your bank and credit card statements
come in, mark off each purchase
MORTGAGE CONSTANT
- Set aside any receipts that require further
action
 Protect your financial information
 Keep your monthly financial
statements until you get the annual
summary statement
 If you have many different accounts,
set up one binder per account or
brokerage house
 Properly store your bank documents
 Take care of any credit card issues
DEFINITION OF TERMS
Mortgage
- Process of paying off a debt through
scheduled, pre-determined installments
that include principal and interest
- Loan constant on mortgage capitalization
rate
- Percentage of money paid each year to
pay or service a debt given the total value
of the loan.
- Helps to determine how much cash is
needed annually to service a mortgage
loan
- It is used by lenders and real estate
investors to determine if there’s enough
income to cover the annual debt servicing
costs for the loan.

- a legal agreement by which a bank or

other creditor lends money at interest in CALCULATING THE
exchange for taking title of the debtor’s
MORTGAGE CONSTANT
property, with the condition that the
conveyance of title becomes void upon - Total the monthly payments for the
the payment of the debt. mortgage for one year (annual debt
- Convey a property to a creditor as security service) and divide the result by the total
on a loan loan amount
𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑏𝑡 𝑆𝑒𝑟𝑣𝑖𝑐𝑒
Loan Amount 𝑀𝑜𝑟𝑡𝑔𝑎𝑔𝑒 𝐶𝑜𝑛𝑠𝑡𝑎𝑛𝑡
𝐿𝑜𝑎𝑛 𝐴𝑚𝑜𝑢𝑛𝑡
- Amount the borrower promises to repay
as set forth in the loan contract Ex. A 300,000 mortgage has a monthly
payment of 1,432 per month at a 4%
Annual Debt Service annual fixed interest rate
- Total amount of principal and interest
payments made over a 12-month period Loan Amount= 300,000
- Taxes and insurance are not included in Monthly Payment= 1,432
this computation as they are accounted for
in the expenses of the property. ADS= monthly payment x 12 months
1,432 x 12= 17,184
Principal
17,184
- The initial size of a loan; it can also be the 𝑀𝑜𝑟𝑡𝑔𝑎𝑔𝑒 𝐶𝑜𝑛𝑠𝑡𝑎𝑛𝑡 =
300,000
amount still owed to a loan
= 0.05728 x 100
- Amount of the loaned money that the
=5.728%
borrower still owes, excluding interest

Interest

- A payment from a borrower or deposit-

taking financial institution to a lender or
depositor of an amount above repayment
of the principal sum at a particular rate
INTEREST
- Charge for the privilege of borrowing
money, typically expressed as annual
percentage rate (APR). Interest can also
refer to the amount of ownership a
stockholder has in a company, usually
expressed as a percentage.
WHY CHARGE INTEREST?
- When people lend money, they can no
longer use this money to fund their own
purchases. The payment of interest
makes up for this inconvenience-
opportunity cost or the cost of the inability
of the lender to use the money they’re
lending out.
- A borrower may default on the loan. In this
case, the borrower fails to pay back the
loan and the lender loses the money, less
whatever can be recovered from the
borrower. Interest helps to make the risk
of default worth taking. In general, the
more risk there is of default on the loan,
the higher the interest rate demanded by
the lender.
- Lenders demand interest since while the
borrower has the money inflation tends to
reduce the real value, or purchasing
power, of the loan. In this case, interest
allows the balance to grow as inflation
erodes the real value of the balance due.
- Length of time that the money is being
lent.
- Possibility of government intervention on
interest rates
- Liquidity of the loan being made.
INTEREST RATE
1. Nominal Interest Rate
- Stated interest rate of a bond or loan,
which signifies the actual monetary price
borrowers pay lenders to use their money.
- Referred to as the coupon rate because it
was traditionally stamped on the coupons
- Redeemed by bondholders (an investor of
the debt securities
2. Real Interest Rate
- It factors inflation into the equation, to give
investors a more accurate measure of
their buying power, after they redeem their
positions
2. Effective Interest Rate
- Takes the concept of compounding into
account
SIMPLE INTEREST
- Quick and easy method of calculating the
interest change on a loan
- Determined by multiplying the daily
interest rate by the number of days that
elapse between payments
- Benefits consumers who pay their loans
on time or early each month
𝐼 = 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑥 𝑅𝑎𝑡𝑒 𝑥 𝑇𝑖𝑚𝑒
Ex. 200,000 invested with rate of 3% for 2 years.
How much is the total interest?
𝐼 = (200,000)(3%)(2)
𝐼 = 12,000
COMPOUNDED INTEREST
- interest on a loan or deposit calculated
based on both the initial principal and the
accumulated interest from previous
periods
- Compound interest can be thought of as
“interest on interest”, and will make a sum
grow faster rate than simple interest
- Calculating compound interest the number
of compounding periods makes a
significant difference
Simple computation: interest on principal and
interest previously earned
𝑆𝑖𝑚𝑝𝑙𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑥 𝑅𝑎𝑡𝑒 𝑥 𝑇𝑖𝑚𝑒
Example: 200,000 invested with the rate of 3% for
2 years how much is the total interest
Year 1 interest = (200,000)(3%)(1)
= 6,000
Year 2 interest = (P + S.I) x R
= (200,000 + 6,000) x 3%
= 6,180
COMPOUND INTEREST 𝐹𝑉 = 1,000 𝑥 [1 + 0.5]

- compound interest = total amount of 𝐹𝑉 = 1,000 𝑥 1.5

principal and interest in future (or future
𝐹𝑉 = 1,500
value) less principal amount at present (or
present value) FUTURE VALUE (compounded annual
interest)
= [𝑝(1 + 𝐼)𝑛 ] − P
𝐹𝑉 = 𝐼 𝑋 (1 + 𝑅)𝑇
= 𝑃[(1 + 𝐼)𝑛 − 1]
Where:
Where:
I= investment amount
P= principal
R= Interest rate
I= nominal annual interest rate
T= number of years
N= number of compounding periods
Example: Maia availed of a investment amounting
Problem: take a three-year loan of 10,000 at an
to 150,000 at an investment rate of 5% for a 2-
interest rate of 5% that compound annually what
year tenure that compounds semi-annually. What
would be amount of interest?
would be the future value?
= 𝑃[(1 + 𝐼)𝑛 − 1]
𝐹𝑉 = 𝐼 𝑋 (1 + 𝑅)𝑇
= 10,000[(1 + 5%)3 − 1]
𝐹𝑉 = 150,000 𝑋 (1 + 5%)4
= 10,000[(1.05)3 − 1]
𝐹𝑉 = 150,000 𝑋 (1.05)4
= 10,000[1.157625 − 1]
𝐹𝑉 = 150,000 𝑥 1.21550625
= 10,000[0.157625]
𝐹𝑉 = 182,325.94
= 1,576.25
PRESENT VALUE
FUTURE VALUE (using simple annual
- It is the current value of a future sum of
interest)
money or stream of cash flows given a
The future value formula assumes a constant rate specified rate of return
of growth and a single upfront payment left - Also known as present discounted value,
untouched for the duration of the investment is the value of an expected income stream
determined as the date of evaluation
The future value calculation can be done one of
- States that an amount of money today is
two ways depending on the type of interest being
worth more than the same amount in the
earned. If an investment earns simple interest
future
then the FV formula is
- Calculating present value involves
𝐹𝑉 = 𝐼 𝑥 [1 + (R x T)] assuming that the rate of return would be
earned on the funds over the period
Where:
𝐹𝑉
I= investment amount 𝑃𝑉 =
1 + 𝐼𝑛
R= Interest rate Alternate: 𝑃𝑉 = 𝐹𝑉 𝑥 (1 + 𝑖)−𝑛
T= number of years Where:
Example: A 1,000 investment is held for five PV= present value (original amount of money)
years in a savings account with 10% simple
interest paid annually. FV= future value

𝐹𝑉 = 𝐼 𝑥 [1 + (R x T)] I= interest rate per period

𝐹𝑉 = 1,000 𝑥 [1 + (10% x 5)] n= number of period

Example: Jisoo have the choice of being paid Time Matters: The longer your money has to
2,000 today or 2,200 years from now she also compound, the bigger it will grow, which is why
has the option of investing the 2000 that will earn it’s extra important to start saving for retirement
a 3% rate of return. Which is best? as soon as possible.

FV= 2,200 Frequency Matters: Interest typically compounds

annually, quarterly, or monthly. The more often
I= 3%
the compounding takes place, the faster your
N= 2 money will grow.

𝑃𝑉 = 𝐹𝑉 𝑥 (1 + 𝑖)−𝑛 “It is not enough to save money, grow

it through investments”- Albert
𝑃𝑉 = 2,200 𝑥 (1 + 3%)−2 Einstein
𝑃𝑉 = 2,200 𝑥 (1.03)−2 72
=
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒
𝑃𝑉 = 2,200 𝑥 0.9425959091 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑌𝑒𝑎𝑟𝑠 𝑡𝑜 𝑑𝑜𝑢𝑏𝑙𝑒 𝑦𝑜𝑢𝑟 𝑚𝑜𝑛𝑒𝑦
𝑃𝑉 = 2,073.711 BUDGET AND CASH MANAGEMENT

 Can help you determine where your

money is going
 Where you can cut back in order to
meet your

Zero-based

- With a zero-based budget, every dollar is

assigned to a budget category such as
transportation or retirement savings. If you
don’t use all the dollars assigned to a
specific category, then the funds can be
rolled over to a different category.

Envelope

- With this system, your budget categories

are represented by envelopes. Each
envelope is filled with the exact amount of
money you can spend on that category,
and when the money runs out, you can’t
spend anymore.

Priority-based

- With this method, you make a list of your

values from most important to least
important.

Pay-Yourself-First

- You decide how much to allocate to your

saving goals and all of your remaining
money is free to be spent however you
choose.
50/ 30/ 20 4. Certificates of Deposit (CDS). Limited access
to the money for a lock-in time period, so good for
- 50% for needs, 30% for wants, and 20%
long-term savings; usually earn the highest
for savings and investments
interest rates for longer lock-in periods: penalties
- Figure out your budget based on take-
for early withdrawals.
home pay, not gross pay
- If your needs exceed 50%, steal from your
wants bucket.

CASH AND CASH MANAGEMENT

TOP 10 CASH MANAGEMENT STRATEGIES
Banking Basics
1. Automatically track your budget
Banks Credit Unions
2. Lower your expenses
R Charge higher Offer higher savings
A fees and loan rates and charge lower 3. Decouple your expenses from your income
T rates and offer fees and loan rates
4. Build an emergency fund
E lower savings
S rates 5. Get out of debt ASAP
&
F 6. Negotiate a raise
E 7. Switch Employers
E
S 8. Become an entrepreneur
A Typically have Have fewer branches 9. Boost your credit score
C more branches and ATMs, but often
C and ATMs and have branch partners 10. Create a personal endowment fund
E use newer (so you get services at
Emergency Fund
S technology a different credit union
S and use other ATMs) - Stash your just-in-case money because it
and are usually slower helps if you lose your job, end up in the
to embrace new ER, or need emergency repairs.
technology.
Rule of Thumb
4 ACCOUNTS AND HOW TO USE THEM - Save 3 to 6 months of living expenses
1. Checking Accounts. Unrestricted access, so 10 WAYS TO PROTECT YOUR FINANCIAL
perfect for everyday spending, usually don’t earn INFORMATION
interest; most charge monthly maintenance fees.
 Secure your hardware
2. Savings Accounts. Quick but restricted  Beware of public settings
access to the money (six withdrawals per month),  Change your passwords
so good for small, short term savings goals; earn  Secure your application
interest: no fees.  Encrypt your data
 Limit social sharing
3. Money Market Accounts. Quick but restricted
 Protect your papers
access to the money (six withdrawals per month)
 Check your credit
with high minimum balance requirements, so
 Secure your credit
good for emergency savings; earn more interest
 Read your documents
than standard savings accounts; may charge low-
balance fees.
TAX
10 tax and credits we should consider
- A tax is a compulsory payment to be paid
1. state and local taxes
by the citizens who are liable to pay it.
2. out of pocket charitable contributions
Hence, refusal to pay tax is a punishable
3. travel volunteering
offense
4. job hunting costs
- There is no direct quid-pro-quo between
5. work uniforms
the tax payers and the public authority
6. child care
- A tax is levied to meet public expenditure
7. mortgage interest
incurred by the government in the general
8. college credit
interest of the nation
9. Investment fees and investments
- A tax is payable regularly and periodically
10. Tax preparation fees
as determined by the taxing authority
TAX PLANNING STRATEGIES
- A tax is a legal correction
 Part of an overall plan for making
OBJECTIVES & SIGNIFICANCE OF TAX expenditures and allocating retirement
and other savings account
 Raising Revenue  It allows you to be proactive in all
 Equal distribution of Income spending and savings rather than reacting
 Regulation when the tax bill comes due.
 Higher growth STRATEGIES
 Pushing up rates of savings and  Know your dependency status
investments  Gather all required tax forms
CHARACTERISTICS OF GOOD TAX SYSTEM  Know the tax requirements from your
residence
 It should ensure maximum social
advantage. The fund of taxation should be
used to finance public service.
 In a good tax system, the allocation of
taxes among taxpayers is made according
to the ability to pay
 It should contain a predominance of
good taxes satisfying most of the canons
of taxation

TAX PLANNING
The Philippine Tax System
- The law in the Philippines covers national
and local taxes. National taxes refer to
national internal revenue taxes imposed
and collected by the national government
through the bureau of internal revenue
(BIR) and local taxes refer to those
imposed and collected by the local
government. The 1987 Philippine
constitution sets limitations on the
exercise of the power to tax. The Rule of
taxation shall be uniform and equitable.
the congress shall evolve a progressive
system of taxation ( Article VI, section 28,
Paragraph 1)