PRELIMS REVIEWER
CHAPTER 1: GETTING STARTED
WITH PERSONAL FINANCE
Personal finance is a financial
management process wherein an
individual manages his/her financial
resources while considering various
factors such as his/her personal activities,
needs and wants, expenses for utilities,
and the risks that are associated with any
of these.
Personal finance, according to the
Financial Planning Standards Board,
involves four key areas:
 Financial condition
Financial condition refers to the overall
financial position of a person. Knowing
his financial condition is important so that
he will know what to change in his
spending behavior depending on how
better or worse his position is.
 Risk protection
Risk protection refers to the overall
provision that a person has against the
different risks that he may take. These
risks include illness, death, properties and
liabilities.
 Investments
Investments refer to the process of
growing money for making large
purchases in the future, such as buying a
car, paying for expenses on education,
planning for a family trip, starting a
company, or saving for retirement.
 Estate planning
Estate planning refers to the preparation of
all the wealth of a person for distribution
to his heirs after his death.
WHERE DOES YOUR MONEY GO?
 Money
 Manager App
 Mobile
 Accounting App
WRITING YOUR PERSONAL
FINANCIAL PLAN
 Assess your current financial
status
 Formulate your financial goals
 Seek different courses of action
to achieve those goals
 Set-up and implement your
action plan
 Evaluate your financial plan and
revise as required
SET YOUR GOALS
o Setting financial goals can feel
like a daunting task
o If you start a savings, but you
don’t know why you’re saving,
then odds are you won’t save
much, which will result in
spending it quickly which kind of
defeats the purpose of saving.
o You may find that you have
multiple goals
o Higher interest rates equal more
money you have to pay back
o Don’t stress so much about the
actual amount of the loan. Focus
more on the interest rate.
o Make a list of all your debts and
put them in order of highest to
lowest interest rate.
o Choose one of your shorter term
goals to focus on first.
MONEY MANAGEMENT
Benefits - Being able to manage your
money comes with a lot of benefits
Needs - Personal money management is
therefore something that everyone needs
to learn.
Savings - Saving starts by cutting down on
your daily expenditure and ensuring that
the money is saved.
Understand - You need to understand the
time value of money and why it matters a
lot if you start saving from now
WHY IS MONEY MANAGEMENT
IMPORTANT?
Money management is the positive
change that you really need to try if you
want to enjoy a brilliant and care free life,
and this is why:
 It helps in wealth creation
 It helps you get out of debts
easily
 Money management helps you
look farther than your paycheck
 It improves your quality of life.
CHAPTER 2: THE EFFECT OF
COMPOUND INTEREST
The effect of Compound Interest:
I. Benefits
1. The concept
- It is going to earn on both the principal
and the profit that has been gained from
the interest percentage as a total.
2. Practical Consideration
- The longer that the revenue sits within
the compound interest account, the more it
is going to benefit the business during the
long-term
- Investments where the interest’s
compounds on a yearly basis will probably
grow slower as compared to the
investment where the interest compounds
according to a quarterly or even monthly
basis.
3. Savings Benefits
- Understanding the concept for
compounding the interest can be just as
significant for saving revenue as it is
what the business is able to make from
investing the money.
- If the business usually uses credit cards
and does not pay the balance in full
every month, then the interest is then
calculated with the use of compound
interest.
4. Dividend Investing
- The dividend reinvestment can be
utilized by firms and corporations.
- The dividends can be taken and then
reinvested with additional funds that may
increase the overall returns over the long
run.
II. Truths
Compound interest is one of the greatest
tools for building wealth
Compound interest stops compounding:
o when a loss is experienced
o When a fee is charges to our
account
o When taxes are paid on our gains
Compound Interest
 Refers to the process where one
generates more return on the
asset when it is reinvested.
 May assist the initial to grow in
an exponential manner, and it is
one of the greatest investing tools
available.
 most powerful tool in the
creation of wealth through
investment
 Compounding happens when
the returns of an investment are
placed back in the cycle in order
to come up with returns.
 When it comes to money
management, the more risk that
one is willing to accept, the
higher the returns they can
usually get.