Overview on Entrepreneurial Financial Concept

- Entrepreneurs must be able to understand basic financial/economic

terminology, assessable income, and tax implications to avoid becoming
victims of tax and financial hoaxes and frauds.

Financial Planning and Individual’s Life Cycle

1. Accumulate Phase – They are “accumulating” assets that will help them
achieve their respective goals at this stage.

Example: A person’s or a family’s own car or home are common assets

acquired at this time.

2. Consolidation Phase – Those in this stage have most of their outstanding

liabilities paid off and have the essential assets for a regular household.

Example: The ability to pay for the education of their children

3. Spending Phase – Retired individuals belong to this stage. Their income

comes from their pension or their existing investments.

Example: Savings, Time Deposits, Corporate or Government Bonds, etc.

Capital Preservation - a conservative investment strategy where the

primary goal is to preserve capital and prevent loss in a portfolio. In other
words, they invest in “Low risk” types of investments.

4. Gifting Phase – This stage focuses on how an individual provides support to

family members, friends, or any institution. It can also mean on how he/she
 wants to allocate funds to these beneficiaries in case of their death or even
their remaining years.

Example: Distributing of properties to their heirs, helping their family

members financially or paying their education.

Remember, time and value of some assets or properties may increase in

Value overtime. That is also the reason why vintage items are so expensive
because of its rarity and time it accumulated.

The best example of an asset that increases its value over time is LAND.

Basic Principles of Personal Finance:

1. The best protection is knowledge.
2. Nothing happens without a plan.
3. Time value of money.
4. Taxes affect personal financial decisions.
5. Stuff happens.
6. Risk and return go hand in hand.
7. Mind games and your money.
8. Just do it!

Every day, we all make hundreds of decisions. Some are complex and have long-
term effects of our personal and financial well-being.
The financial planning approach follows a six-step logic:
1. Determine your current financial situation
2. Develop financial goals
3. Identify alternative courses of action
4. Evaluate alternatives
5. Create and implement a financial action plan
6. Reevaluate and revise the plan
Financial Systems
- is a collection of institutions which allow the exchange of funds, such as
banks, insurance companies, and stock exchanges. The financial system
exists in the corporate, national, and global level.

The Basic Financial System

Savers
- Households
- Individuals
- Companies
- Government Agencies

Financial Mediator
- Banks
- Insurance Companies
- Stock Exchange
- Stock Brokerage firms
- Mutual Funds

Users of Funds
- Households
- Individuals
- Companies
- Government Agencies
ALL INDIVIDUALS AND BUSINESSESS FACE THE SAME TWO BASIC FINANCE-
RELATED PROBLEMS:
1. Where to put the money?
2. Where to get the money?

The Basic Financial Concepts

Time value of money – The most significant financial principle is the importance
of time in accumulating money.
Diversify your risks and investments – Make sure your investments are dispersed
across a variety of asset classes.
The Compounding Effect of Money – In terms of growth, your money may grow at
the same pace each year, but compounding means that your money will grow
quicker and faster each year because of earning money not only on your
investment but also the profits from that investment.
Keep a Household Budget – This idea is required to truly comprehend the
breakdown of your own finances and learn how to maximize them.
Opportunity Costs – Recognize whatever you spend your time and money on is a
cost you can’t avoid. The money spent on an automobile could be put to better
use by investing it in the stock market or elsewhere.
Interest Rates – Almost everything in your financial life is influenced by interest
rates and total rate of returns. This is also why its critical to keep your investing
fees as minimal as possible.