Professional Documents
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The bigger task of educating the young people is to equip them with knowledge, skills and
habits that will make them independent and responsible individuals. That is from where
you are now, a young person depending entirely on your parents' financial resources into
someone who will soon become independent, earning your own income and supporting
yourself.
The outlook is frightening for many but there is help in this training module. You will learn
how to manage the financial aspects of your life. By following this module, you are taking
the first step towards personal independence, which is to become a financially
independent individual. To make sound financial decisions, come up with a plan to
improve your income and spending habits, get yourself to commit to some financial plans
and learn tips on how to live within your means, how to save, how to stretch your peso
value, protect your gains, and get out of debts fast and clean.
Remember that your goal is to become a financially independent individual who can
provide from your own resources, all of the three major expense categories: housing, food,
and other living expenses.
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UNIT 1: THE ROAD TOWARDS FINANCIAL INDEPENDENCE
Objectives
We will start with a framework to achieve financial stability. It is about goals in improving your
income and expenses, building your savings that will allow you to win your accumulation goals.
The accumulation goals is the sum total of your short, medium and long term financial goals and
you know that you have achieved them in terms of accumulating assets like a car, house or stocks
portfolio. While you are accumulating assets, you need to protect them by managing returns of
investment with accompanying risks, protecting yourself against illness and other conditions that
will bring about loss of income, etc.
You can achieve financial independence when you learn how: to practice the discipline of saving
first before spending, to live within your means (budgeting), to fight impulse shopping and
consumerism in your spending habits, and to improve your income continuously.
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Your specific plans then should have some details on how to accomplish those goals like for
example, reducing unnecessary expenses, increasing one's employment income, or investing in a
business or in a real estate like a plot of land for your future house including cost figures and time
frames. The plan should be in writing and should be reviewed regularly so it can be adjusted
whenever there is a big change in one of the assumptions/projections you made like when you
get a big increase in income.
You make many decisions over the course of your lifetime. Many of the decisions you make are
small and are insignificant but some are very important and could have significant consequences.
Life-defining decisions such as:
1. choosing a career,
2. moving out from your parent's house,
3. getting married and having children,
4. buying a house, starting to save and invest - have a big impact on your future financial
security, including retirement.
The good news is you can take steps to ensure a smoother journey and a more secure financial
future. This course will help you make wiser financial decisions by understanding the rules of the
road so you can avoid life's financial potholes and dead ends.
Let's start with some tips that you can use in your journey towards financial independence:
1. Gain control of your financial situation. Save before you spend.
2. Start planning and saving now for long-term goals, such as buying a house, marriage, paying
for your children's education, and ensuring a comfortable retirement.
3. Get a job - a job with good benefits and make the most out of them.
4. Keep actively involved in all life-defining financial decision points.
5. Avoid accumulating credit-card debt and other expensive short-term debts and find the
lowest interest rates on your car and house loans.
6. Learn the rules of investing and saving and make a financial plan to ensure that your life
savings will get you to your financial/accumulation goals and last you through retirement.
7. Explore the options for protecting yourself and your family by having adequate
hospitalization, life, health, and long-term care insurance.
8. And if you cannot decide on a difficult situation, don't be afraid to ask for directions along the
way!
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UNIT 2: SMART SPENDING
Objectives
The first step to becoming financially independent, that is to gain control of your financial
situation, starts with recognizing where your money goes. Take a close look at your spending
habits. Start by writing down everything you spent money on during a one-week period in a
pocket notebook. Be sure to write down everything you buy and how much it costs. Include rent,
jeepney or tricycle rides, cellphone prepaid "load" payments, groceries, and even small purchases
like "softdrinks" or snacks. Continue the habit of writing down your daily expenses beyond the
one-week exercise. Many people do this out of habit and are in a better position to improve their
spending habits than those who do not keep tab of their daily expenses.
Use the Expense Tracker Worksheet to help you track your monthly expenses, download the
worksheet here by double clicking the underlined title.
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Plug Spending Leaks
Cut down on unnecessary expenses. Now that you know exactly how you spend your money each
week, notice the areas where small amounts of money are disappearing. These spending leaks
include buying soft drinks daily, renting at Internet café, eating lunch out every day, and making
impulse purchases. While it may not seem like you're spending much at a time but these leaks can
add up to quite a bit of money over a month or year. Take a look of a typical day-to-day spending
of a Filipino teen here.
Shop Smarter
Shop Smarter
Yes, you can stretch your money by shopping smarter. Here are some tips to help you stretch your
money.
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The best way to stretch your money is to plan ahead. Make a list of what you need to buy and
avoid impulse buys by sticking to the list. Just because an item is on sale doesn't necessarily
mean it is a good deal for your family. If you won't use it, don't buy it.
Try to keep a mental count of what you have in the house so you won't stack up on items you
should not stack up. You could use the money better on other necessities.
Buy items before you run out of them. Buy at clearance or sale price instead of regular price
when you must have the item. Buying from your nearby sari-sari store is more expensive than
from the grocery store.
Your emotions affect your shopping. Be careful of the "I deserve it" mentality and avoid the
expensive brands and the so-called lifestyle products.
Be wary of the power of advertising
Consumerism (the relentless effort of producers and advertising company to equate personal
consumption to happiness, thus more consumption means more happiness) is on the rise and
some words should be said about its most important tool - Advertising. Advertising companies
have known for years that the average consumer is like a zombie when it comes to buying
products. They know what buttons to push to create a mindless consumer. They are very good at
taking your money or shaping your buying habits. The idea is to get you to buy anything whether
you need it or not. More sales create more profits.
Get into the habit of thinking of what the advertiser is trying to sell to you with the
advertisements. Buy the products or services because you need them and not for what the
advertising company framed your mind that you need it. Note that to sell a product at a higher
price is to sell it as a part of a certain lifestyle, or for services as experience. This technique works
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almost all of the time so be very wary about anything sold as lifestyle or as experience. So take
away the name brand, the catchy slogan and the showbiz endorser, and ask yourself if you need
that product.
Stop reading magazines covered with advertisements for things they want you to buy or articles
about shopping and the latest fashions, gadgets, cosmetics, etc. you should have. Or at least stop
believing that you really need these things or that they will make you happy. Realize that you
probably already have all that you need to live a happy life and if things need changing, shopping
is not going to help in the long term. When you do go shopping, take some time beforehand to
make a list of what you want, then narrow them to what you really need, then cross out the things
you can do without for a while or can be borrowed from a friend then go shopping - and stick to
your list!
Take a look at these advertisements and ask yourself how the advertisements shape your
decision to buy the advertised products.
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UNIT 3: SAVINGS AND INVESTING
Objectives
Lack of savings is the biggest reason why people are having financial troubles today. Make sure
you avoid this problem that has affected many people of your age and even many mature people
as well. Save first and then live within your means. A simple formula that best describes the
virtue of financial responsibility.
Saving money is not easy, but it's essential to achieving financial independence and to securing
your future. Every time you receive your salary, save at least 10% of that money before spending
money on anything else. You then learn to live on 90% of your income and you can start by
working out a spending plan based on the 90% salary.
You can start now by setting aside some money of your income and start building up for your
short and medium term goals. If you receive salary on an ATM account, you may choose to draw
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out only the 90% of your salary and leave the 10% as your savings. In this way, the money never
hits your pocket, so you won't spend it. As you accumulate your monthly savings in your ATM,
move the money to another bank account that offers some interest.
You should think about the money you save as falling into three categories: money for an
emergency fund, money for short-term purchases, and money for long-term goals.
Saving for an Emergency. The first savings goal you should establish is setting aside enough
money to cover your basic living expenses for three to six months. This money should be kept in
an easily accessible savings account in a reputable bank with a branch close to where you live or
work and not in a long-term investment asset like real estate. Use this money only in the event of
an emergency, such as receiving unexpected medical bills or losing your job.
To calculate how much you'll need to save for your emergency fund, download the Emergency
Fund Worksheet.
Once you've established an emergency fund, you can begin saving money to reach other goals,
such as buying a personal computer or other household appliance, acquiring your dream house or
a new car, getting married, funding your child's education, or establishing a retirement fund. To
learn how to set and achieve financial goals, move on to the next module: Setting Financial Goals.
Other ways to make saving money easier include putting away raises, bonuses, and tax refunds.
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The Four Choices with Money
When you have money at hand, you have basically four choices on what to do with the money:
1. Save (for emergency fund and to finance your short, medium, and long term goals);
2. Spend (this is the money that you are planning to spend soon);
3. Donate (to your favorite charity that promotes the common good but start by helping your
parents and siblings first, especially to help them finish their studies);
4. Invest (to gain interest and grow wealth in the long term).
Savings and investments can produce income from interest and dividend payments. These
payments become income and are tracked on a person's budget worksheet. The money is
"working" and earning income. The additional income allows the person to increase savings.
Wealth-creating assets grow in value as market prices rise. Until the asset is sold, the increased
value does not affect a person's income; thus, it does not impact the budget worksheet. However,
the higher value adds to a person's wealth by increasing the asset side of the balance sheet.
Manage Risk
The reward of interest or growth of value is accompanied by risk. Risk is the possibility that
savings or investments will lose value over time rather than gain value. There are four known
risks related to savings and investments: risk of default, risk of falling market price, risk of lost
purchasing power, and risk of liquidity.
Risk of default. If the institution or agency fails to repay the original amount of the
investment, the entire amount can be lost.
Risk of falling market price. When the asset is bought and sold in an open market, the price
can go up or down.
Risk of lost purchasing power. If savings do not grow more quickly than the rate of inflation,
the saver is harmed.
Risk of liquidity. The difficulty to be able to quickly or easily convert the investment to cash
by selling the asset.
Generally, the higher the risk of losing money, the higher the expected return. For less risk, an
investor will expect a smaller return.
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Saving and Investment Instruments
Saving and Investing are the two ways that allow your saved money to grow over time.
Savings account is money deposited in a financial institution, like a bank, that earns interest.
These accounts are:
Investment is the ownership of real estate and financial assets. Examples of financial assets are
Treasury Bonds, stock certificates, etc.
When these assets are purchased, risks are assumed in exchange for anticipated returns.
These assets must mature or be sold to realize returns or capital gains.
Remember, this is not investment in the economic sense. Typically, when an economist speaks of
investment, the term is specific and refers to the purchase of a capital resource by a producer,
such as machinery, not a purely financial transaction like the purchase of a stock or bond.
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UNIT 4: SETTING FINANCIAL GOALS
Objectives
You have already read about financial goals earlier in this course and we now go into developing
one. You start with a list of things you want to get (goals). Maybe buying a personal computer, or
a used car perhaps. Whatever goals you want to achieve, you have to write them down as a list
and label each of them in three categories as short term, medium term, and long term.
Short-term goals might include buying a new computer, paying off a big debt of money you
owe someone, or to help send one of your siblings to school.
Medium-term goals could be purchasing a car or going back to school.
Long-term goals might be to buy a house and lot or retire with enough money to live
comfortably.
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UNIT 5: MANAGING DEBTS
Objectives
Most young people get into debts to buy gadgets, fashion accessories or expensive clothes and
there are all sorts of offers to get those items on a loan basis payable by monthly installments.
These are called consumer loans. Often these loans are unsecured and the credit company
charges above-average interest. Try to avoid this kind of loan and consider saving the needed
amount first and then buy the item in cash. Consumer debts with young people easily pile up and
leave them with little money left from their salary.
Consumer debts should be avoided because the items you have acquired won't increase in value
over time. These include balances you owe on credit cards and other personal loans. But there are
other types of debts like mortgages and student loans, which are considered more favorable than
others. That's because these loans potentially have long-term benefits, such as eventually owning
a house or working in a profession that requires a degree. Some consumer debt may be necessary,
but too much is bad to your financial future. As a rule of thumb, your total loan repayments
should not exceed 20% of your take home pay.
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You have too much Consumer Debt if..
Debt Recovery
Always keep in mind how much debts you have and at what
level of interest they are. As soon as you realize that you are
carrying too much consumer debt, move to stop the bleeding by
making a get-out-of-debt plan and stick to it as best as you can.
By combining financial planning with debt management techniques, you can reduce your debt
with the following:
Cut expenses. Try to identify a few things you could stop buying or buy less often. For ideas,
review Know Where Your Money Goes and Shop Smarter.
Assess your ability to pay bills as you develop your get-out-of-debt plan and then take the
appropriate action. For example, if you bought a motorcycle and are having trouble making
the payments, it may be better to sell the motorcycle and pay off the loan rather than let the
creditor repossess the motorcycle. Repossession will hurt your credit record.
Try to increase income. Is it possible to get a second job or get paid overtime and use the
money to reduce debt? If you have family responsibilities, first consider what effect your
absence could have on the well-being of your family.
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When one debt is paid off, keep paying the same amount - just put it toward another
remaining debt.
If you are keeping several credit cards, keep only one credit card. Cut off the other cards and
call the credit card companies to cancel the accounts. Keep the remaining one at home (as
long as they won't be used by anyone else). You can also consider having the credit limits
lowered.
To use your credit cards wisely, keep in mind these tips:
Often, it is convenient to have a clear idea of where one can get a loan for some specific needs that
have to be addressed immediately. A compilation of various loan sources is included here. Pay
attention to the interest rate and the period to full payment required. Different loan channels
charge varying amount of interest rate and varying basis for period. To properly compare the
loan interest rate, we will do an annualized percentage rate or "APR". The most expensive is
"Bombay" and the least expensive is the salary loan from SSS or Pag-ibig.
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Sources of Filipino Loans
Note: This table was compiled for the purpose of comparing various loan options. While efforts were
exerted to show accurate data, the figures presented here are not the official rates of the institutions
mentioned. Compiled: May 2009.
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Compare job offers for financial and non-financial benefits
Understand the importance of improving educational qualifications in securing one's career
in the future
Plan an income and expenses budget.
Get a Job!
Financial independence means you do not depend on your parents (or somebody else) for your
day-to-day needs and that what you spend, you earned yourself. There are two ways for you to
earn income: from the profits of some business that you own or from the salary if you are
employed by a company or other individuals.
It is true that there are some young people who go straight to start a business right out from
school but the majority of them will have to find work first to earn a living and acquire experience
and maturity.
The necessary first step to get a job is to search for job opportunities that match your
qualifications. Don't stop looking as soon as you find the first offer. Actively look for more offers
so you can compare job offers. The more options you have, the better chance for you to get the
best job. When comparing job offers, don't just stop at comparing the salary between offers but
look at the non-monetary benefits as well.
In the professional lifecycle, you are following a spiral of increasing pay and professional
expertise and greater responsibilities. As professional, you will have to shift jobs as you go up the
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spiral of growth. As students, you need not worry about getting your dream job at the beginning
of your career. Your goal at this transition (school to work) is to find a decent job that offers
opportunities to improve your skills and qualifications so you have a much better chance of
getting future promotions. So you don't just go for the best salary. Salary goes up with your
promotions and promotion is a result of demonstrated expertise in your job and greater sense of
responsibility.
Education Pays
You may have to take a degree course or higher educational qualifications to get that promotion
that you desire. What you need is a job that offers you the opportunity to study in school.
A survey in the USA says that one needs to get a professional degree to find better employment
opportunities and to receive a better pay. Consider education as investment for greater financial
stability in the future.
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You may have to take a degree course or higher educational qualifications to get that
promotion that you desire. What you need is a job that offers you the opportunity to study in
school.
A survey in the USA says that one needs to get a professional degree to find better
employment opportunities and to receive a better pay. Consider education as investment for
greater financial stability in the future.
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Objectives
Life-Defining Decision
Moving out from your parents' place as soon as you start to earn enough to live on your own is
the next major decision that you will have to make and let you put the last piece of the puzzle so
you could see the whole picture towards becoming a financially independent person. Your
personal spending plan will be your guide in this important step but first let us take a look at one
more topic that has important effect on your personal spending plan - inflation.
Moving out does not mean you are completely insulating yourself with the needs of your family.
As a good son or daughter, you should try to help out to provide for your parents when needed
and even help to send other siblings to school.
Inflation
Inflation has something to do with available currency versus available goods and services in a
given market. Its definition and calculation is very technical and we will not go into that. What is
interesting for us is the effect of inflation which is called "price inflation". Price inflation simply
means that things are getting more expensive over time. When the cost of goods and services
increases, the value of your peso is going to fall because you won't be able to purchase as much
with that same money as you previously could.
Many people mistakenly believe that prices rise because businesses are "greedy". This is not the
case in a free enterprise system. Because of competition the businesses that succeed are those
that provide the highest quality goods for the lowest price. So a business can't just arbitrarily
raise its prices anytime it wants to. If it does, before long all of its customers will be buying from
someone else. But if each peso is worth less, all businesses are forced to raise prices just to get the
same value for their products.
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This is the main reason why you receive salary adjustments every
year or some other convenient period. This also means you need
to review your income and expenses. And from there you should
check your spending plan, medium and long term goals and
assess if they require adjustment.
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UNIT 8: MARRIAGE AND CHILDREN
Objectives
After deciding to move out and to live separately from your parents, your next important life-
defining decision is when you start your own family. You should only consider marriage when
you are in a stable relationship, i.e., you are not forced by any party and both you and your
partner are emotionally and financially ready. Marriage and starting a family is a very important
milestone in everyone's life and should always be taken seriously by mature and responsible
individuals.
The best preparation for marriage is when you are emotionally and financially ready for this
important stage in your life. And you are better prepared for this when you have already
demonstrated that you are capable of supporting yourself from your own earnings for some time
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now and you have savings needed to get started. Living on your own not only makes you self-
supporting financially but also requires you to make lots of decisions on your own. Of course this
does not mean that you cannot ask for help, you have to if it is something you are not prepared to
make a decision but after consulting other people then you have to make a decision yourself,
implement that decision and to learn your lessons always from both bad and good outcomes. In
this course we will only look at the financial readiness of a person to enter into marriage.
NSO-FIES
To get an idea of the financial dimension of married life, we can use the National Statistics Office's
FIES. The Family Income and Expenditure survey (FIES) is a nationwide survey of households
undertaken every three years by the National Statistics Office (NSO) primarily to provide the
government with data in estimating the country's poverty threshold and incidence. The FIES also
provides data on family income and expenditures and includes, among others, levels of
consumption by item expenditures as well as income sources in cash and in kind. The last FIES
was in 2006 and the results were released in 2007. The FIES Filipino family consists of a father,
mother, and three children.
To quote a part of the 2006 FIES result: "For 2007, Filipino families consisting of five members
should be earning a combined monthly income of Php 6,195 in order to meet their most basic
food and nonfood needs for this year. A sole breadwinner in a five-member family residing at the
National Capital Region (NCR) is expected to find a difficult task in bringing the entire family
above the poverty line if he/she only earns at most PhP 265 per day.
NSO-FIES 2006 (in Billion Pesos)
Income Expenditures Savings
Philippines 2,992 2,563 428
Bottom 30% 258 267 (9)
Upper 70% 2,734 2,297 437
One glaring observation from the table above is that the bottom percentile (30%) of the Filipino
families do not have savings and are actually short by 9 pesos for every 267 pesos they spend.
Where do you think this money is coming from, considering that it is already reflected as "spent"?
Let's take a closer look at the Percent Distribution of Family Expenditure table of 2006 FIES.
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From http://www.census.gov.ph/data/sectordata/2006/ie0605.htm
Let's use our learnings from Unit 2, of plugging the spending leaks. Which items in the table above
can you completely remove or save by reducing the expenses? Let's try out this interactive
calculator to get a better appreciation of the spending patterns of a family in terms of real money.
Try using Ph265 as a daily wage and see what happens to your monthly budget. How much will
be your daily food budget? What is the rental budget?
How about trying to punch out numbers in the income so your food budget will be at P150/day,
what will be your desirable monthly salary?
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