Unit 2: Basic Ideas of Finance

INTRODUCTION

“Never spend your money before you have earned it” – Thomas Jefferson
Personal finance addresses the “great difficulty” of getting a little money. It is about learning to
manage income and wealth to satisfy desires in life or to create more income and more wealth.
It is about creating productive assets and about protecting existing and expected value in those
assets. In other words, personal finance is about learning how to get what you want and how to
protect what you’ve got.
There is no trick to managing personal finances. Making good financial decisions is largely a
matter of understanding how the economy works, how money flows through it, and how people
make financial decisions. The better your understandings, the better your ability to plan, take
advantage of opportunities, and avoid disappointments. 

LEARNING OUTCOMES
At the end of this unit, you are expected to:
1. Apply best practices in financial management to make plans, organize projects, monitor
outcomes, and provide financial leadership.
2. Analyze and evaluate evidence and appraise alternative viewpoints.
3. Use written, oral, and nonverbal messages to convey ideas, information, and intentions
effectively in the business environment.
4. Diagnose your own learning needs and formulate goals and strategies to seek
knowledge from multiple sources.

ACTIVATING PRIOR LEARNING: LET’ S LEARN!

Ask yourself: “What do I already know about

the topic?”
This can include personal experience and what have you learned frm other people,
books, movies and television.

Direction: Complete the Concept Map with information about the topic. In the center
circle, record the topic. In the outer circles, include facts about what you alredy know
about the topic.

IDEAS OF
FINANCE

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WHAT IS FINANCE?
Finance is a broad term that describes two related activities, first, the study of how money is
managed, second is the actual process of acquiring needed funds.

Private Personal
Finance Finance

Types
Public Corporate
of
Finance Finance
Finance

Public Finance
Is the study of income and expenditure of the State. It deals only with the finances of the
Government.
This may be divided into the following three parts (Public expenditure, Public Revenue
and Public Debt)
Private Finance
This is an alternative corporate finance method that helps an organization raise cash to
avoid limited time frame monetary shortfalls.

Corporate Finance
The financial activities related to running a corporation
A division or department that oversees the financial activities of a company. Corporate
finance is primarily concerned with maximizing shareholder value through a long term
and short term financial planning and the implementation of various strategies.
This includes planning the finance, raising the finance, investing the finance, and
monitoring the finance
Personal Finance
This refers to the application of the principles of finance to the monetary decision of an
individual or family unit.
AREAS OF FOCUS:
Financial position- concerned with understanding the personal resources available by
examining net worth and household cash flow.

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Adequate protection- the analysis of how to protect a household from unforeseen
risks. These risks can be divided into liability, property, death, disability, health and long
term care.
Investment and accumulation goals- planning how to accumulate enough money for
large purchases, and life events is what most people consider to be financial planning.

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