RIZAL TECHNOLOGICAL UNIVERSITY

Cities of Mandaluyong and Pasig

SESSION NO. 3 / WEEK 3

MODULE NO 3: FUNDING FINANCIAL PLANS

1. COVERING BASES BEFORE INVESTING

2. MEETING GOALS WITH THE HELP OF MUTUAL FUNDS

Overview

This module emphasizes some financial steps to consider before you dive in

to investment. It is important for us to know these steps in order to avoid biggest

financial mistakes in the future. This module will let you realize what your financial

goals are and how to meet those goals with the help of mutual funds.

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 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

Study Guide

The following are the learners’ guide to complete this module:

 Learner should make time to read and understand the given module;
 Some parts of the module is in worksheet type for the learners to
have deep exposure about the given topic;
 Other activities are encourage such as web searching, reading open
journals and other reading materials to generate more idea about
certain topic;
 Don’t hesitate to ask relevant questions for better understanding of
the topics.
 You can find help with your friends, cousins and even your parents
but make sure you are the one who will do this module. One on one
monitoring will be done.
 Monitoring of student’s progress will be implemented through mobile
technology (phone interview and graded recitation over phone calls).

Learning Outcomes

At the end of this module, the students can able to:

1. IDENTIFY IMPORTANT FINANCIAL STEPS BEFORE INVESTING

2. FORMULATE PERSONAL FINANCIAL GOALS
3. RELATE MUTUAL FUNDS WITH THE FORMULATED FINANCIAL GOALS

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 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

Topic Presentation

Lining up Your Ducks before You

Invest
The single biggest mistake that mutual fund
investors make is investing in funds before they’re
even ready to. It’s like trying to build the walls of a
house without a proper foundation. This section
covers the most important financial steps for you
to take before you invest so you get the most from
your mutual fund investments.

1. Pay off your consumer debts

Consumer debts include balances on such items as credit cards and

auto loans. If you carry these types of debts, do not invest in mutual
funds until these consumer debts are paid off.

You won’t be able to earn a consistently high enough rate of return in

mutual funds to exceed the interest rate you’re paying on consumer
debt. Although some financial gurus claim that they can make you 15
to 20 percent per year, they can’t — not year after year. Besides, in
order to try and earn these high returns, you have to take great risk. If
you have consumer debt and little savings, you’re not in a position to
take that much risk.

2. Review your insurance coverage

Saving and investing is psychologically rewarding and makes many

people feel more secure. But, ironically, even some good savers and
investors are in precarious positions because they have major gaps in
their insurance coverage. Consider the following questions:

 Do you have adequate life insurance to provide for your

dependents if you die?
 Do you carry long-term disability insurance to replace your
income in case a disability prevents you from working?

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 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

 Do you have comprehensive health insurance coverage to pay

for major medical expenses?
 Have you purchased sufficient liability protection on your home
and car to guard your assets against lawsuits?

Without adequate insurance coverage, a catastrophe could quickly

wipe out your mutual funds and other investments. The point of
insurance is to eliminate the financial downside of such a disaster and
protect your investments.
3. Figure out your financial goals

Mutual funds are goal-specific tools, and humans are goal-driven

animals, which is perhaps why the two make such a good match. Most
people find that saving money is easier when they save with a purpose
or goal in mind — even if their goal is as undefined as a “rainy day.”
Because mutual funds tend to be pretty specific in what they’re
designed to do, the more defined your goal, the more capable you are
to make the most of your mutual fund money
Common financial goals include saving for retirement, a home
purchase, an emergency reserve, and stuff like that.

4. Determine how much you’re saving

The vast majority of Filipinos haven’t a clue what their savings rate is.
By savings rate, I mean, over a calendar year, how did your spending
compare with your income? For example, if you earned P200,000. last
year, and P150,000 of it got spent on taxes, food, clothing, rent,
insurance, and other fun things, you saved P50,000. Your savings rate
then would be twenty five percent (P50,000 of savings divided by your
income of P200,000).

5. Examine your spending and income

For most people, reducing spending is the more feasible option. But
where do you begin? First, figure out where your money is going. You
may have some general idea, but you need to have facts. Get out your
checkbook register, credit card bills, and any other documentation of
your spending history and tally up how much you spend on dining out,
operating your car(s), paying your taxes, and everything else. When
you have this information, you can begin to prioritize and make the
necessary trade-offs to reduce your spending and increase your
savings rate.

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 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

6. Maximize tax-deferred retirement account savings

Saving money is difficult for most people. Don’t make a tough job
impossible by forsaking the terrific tax benefits that come from
investing through retirement savings accounts.

Some investors make the common mistake of neglecting to take

advantage of retirement accounts in their enthusiasm to invest in
nonretirement accounts. Doing so can cost you hundreds of thousands
of dollars over the years.

7. Assess the risk you’re comfortable with

Think back over your investing career. You may not be a star money
manager, but you’ve already made some investing decisions. For
instance, leaving your excess money in a bank savings or checking
account is a decision — it may indicate that you’re afraid of volatile
investments.

How would you deal with an investment that dropped 10 to 50 percent

in a year? Some of the more aggressive mutual funds that specialize in
volatile securities like growth stocks, small company stocks, emerging
market stocks, and long-term and low-quality bonds can quickly fall. If
you can’t stomach big waves in the financial markets, don’t get in a
small boat that you’ll want to bail out of in a big storm. Selling after a
big drop is the equivalent of jumping into the frothing sea at the peak of
a pounding storm

8. Consider other “investment” possibilities

Mutual funds are a fine way to invest your money but hardly the only
way. You can also invest in real estate, invest in your own business or
someone else’s, or pay down mortgage debt more quickly. Again, what
makes sense for you depends on your goals and personal preferences.
If you dislike taking risks and detest volatile investments, paying down
your mortgage may make better sense than investing in mutual funds

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 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

Reaching Your Goals with Mutual Funds

Mutual funds can help you achieve various financial goals. The rest of this
chapter gives an overview of some of these more common goals — saving for
retirement, buying a home, paying for college costs, and so on — that you can
tackle with the help of mutual funds.
As you understand more about this process, notice that the time horizon of
your goal — in other words, how much time you have between now and when
you need the money — largely determines what kind of fund is appropriate:
 If you need to tap into the money within two or three years or less,
a money market or short-term bond fund may fit the bill.
 If your time horizon falls between three and seven years, you
want to focus on bond funds.
 For long-term goals, seven or more years down the road, stock
funds are probably your ticket.

1. The financial pillow — an

emergency reserve
Before you save money toward
anything, accumulate an amount of
money equal to about three to six
months of your household’s living
expenses. This fund isn’t for
keeping up on the latest consumer
technology gadgets. It’s for
emergency purposes: for your living
expenses when you’re between
jobs, for unexpected medical bills,
for a last-minute plane ticket to visit an ailing relative. Basically, it’s a
fund to cushion your fall when life unexpectedly trips you up. Call it
your pillow fund. You’ll be amazed how much of a stress reducer a
pillow fund is.

REMEMBER: The ideal savings vehicle for your emergency

reserve fund is a money market fund.

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 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

2. The golden egg — investing for

retirement

Uncle Sam gives big tax breaks for

retirement account contributions. This
deal is one you can’t afford to pass up.
The mistake that people at all income
levels make with retirement accounts is
not taking advantage of them and
delaying the age at which they start to sock money away. The sooner
you start to save, the less painful it is each year, because your
contributions have more years to compound.

Taking advantage of saving and investing in tax-deductible retirement

accounts should be your number-one financial priority (unless you’re
still paying off high-interest consumer debt on credit cards or an auto
loan).

3. The white picket fence — saving for a

home

A place to call your own is certainly the

most tangible element of a Filipino dream.
Not only does a home generally appreciate
in value, but it also should keep you dry in
a thunderstorm (assuming, of course, that
you have a good roof!). Fortunately,
borrowing money to buy a home is
relatively easy in our country; otherwise,
few people could ever afford it. Still, to get
the best mortgage terms for a house, you
should aim for making a down payment of
20 percent of the purchase price. (For a P1,000,000 home, that’s
P200,000.) So unless you have some other sources available (such as
a loan from your parents), you have some saving up to do.

REMEMBER: If you’re looking to buy a home soon, then a money

market fund is the best place to store your down payment money.
If your target purchase date is in a few years, then consider a
short-term bond fund.

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 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

Additional Reading

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 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

Guided Exercises / Learning Activities

Activity No. 1 Figure out your financial goals

FORMULATE YOUR OWN FINANCIAL GOALS. SPECIFY EACH GOAL

AND IDENTIFY WHETHER IT IS A SHORT TERM OR A LONG TERM
GOAL. YOU CAN ADD ROWS FOR MORE GOALS IN MIND.

SHORT TERM FINANCIAL LONG TERM FINANCIAL

GOALS GOALS

Activity No. 2 Determine how much you’re saving

Determine how much you are savings from your allowance / part time job
salary / online business income / other source of funds that you currently
have.

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 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

Activity No. 3 Determine how much you’re saving

Two years from now, you will be graduating from college and you will be
having your first full time job. Suppose your monthly salary is P20,000.00,
what will be your desired savings rate? Explain why.

Activity No. 4 Examine your spending and income

List down your expenses (things where you spend your allowance / part time
job salary / online business income / other source of funds that you currently
have) You can add rows for more expenses you have.

Type of Expenses Corresponding Amount

Assessment
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 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

Activity No. 1
There are three types of funds under mutual funds mentioned earlier. Given the
following financial goals, identify the type of fund where you should put your money.
Write your answer on the space provided.

a. You are planning to buy your dream house ten years from now. _________
b. You are saving money for your wedding next year.________
c. You want to buy the latest phone in December this year. ____________
d. You are scheduled to purchase a house and lot right after your wedding next
year. _________

Activity No. 2
Create your own financial plan using the table below. Let’s assume that you are
already working and earning P30,000.00 monthly. You can add more rows for more
financial goals. Write a brief explanation regarding your plan.

Personal Financial Plan Goals

Financial Amount/ Cost Duration Php / Month Notes/
Goals Remarks
e.g Buy a Car 500,000.00 5 years 10,000.00 3%, 5 year
payment loan for P10k
monthly

Total

Description / Explanation:

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Cities of Mandaluyong and Pasig

The following rubric will be used to grade your output:

Features Expert Accomplished Capable Beginner

10 Points 8 Points 5 Points 3 Points

Content / Quality of Answer was Answer was written Answer had little Answer had no
Writing written in an in an interesting style or voice style or voice
extraordinary style and voice
style and voice

Very well Somewhat Have a little Unable to express

explained and explained and knowledge but thoughts and very
well organized organized poorly organized poorly organized

Grammar Usage & No spelling, Few spellings and A number of So many spelling
Mechanics punctuation or punctuations errors, spelling, punctuation and
grammatical error minor grammatical punctuation or grammatical errors
errors grammatical errors that it interferes with
the meaning

References

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 RIZAL TECHNOLOGICAL UNIVERSITY
Cities of Mandaluyong and Pasig

Tyson, Eric (2007). Mutual Funds for Dummies.Wiley Publishing Inc.

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Cities of Mandaluyong and Pasig

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