Part 1: The Environment for Financial Decision Personal finance – This is the study of personal

Making and family resources considered important in

achieving financial success; it involves how people
Module 1: Introduction to Personal Financial
Management spend, save, protect, and invest their financial
resources.

Topic 1: 10 Axioms of Finance Financial responsibility – This means that you

The Foundations of Financial Decision Making are accountable for your future financial well-being
and that you strive to make. Studying personal
1. The Risk-Return Trade-off finance will help you avoid financial mistakes and
The more risk an investment has, the higher
show you how to take advantage of financial
its expected return should be
2. The Time Value of Money opportunities.
A dollar received today is worth more than a
dollar received in the future. The sooner you
invest your money, the better (i.e.
Sub-topic 2.1: The Building Blocks to Achieving
retirement)
3. Cash is King Financial Success
You cannot spend “profit” or “net income”.
a. Spend less to save and invest
These are paper figures only.
People are likely to have more funds
4. Incremental Cash Flows
available for future consumption when they
It’s only the increase or decrease in cash
save and invest. Saving for future
that really counts.
consumption entails human desire to get to a
5. Curse of Competitive Markets
certain standard of living.
It’s hard to find and maintain exceptionally
profitable projects. High profits attract  Savings – income not spent on current
competition. consumption.
6. Efficient Capital Markets  Investments – assets purchased with
The markets are quick and the prices are the goal of providing additional income
right. from the assets itself.
7. The Agency Problem  Standard of living – Material well-
Managers are typically not the owners of a being and peace of mind that
company. Managers may make decisions individuals or groups earnestly desire
that are in their best interests and not in line and seek to attain, to maintain if
with the long term best interests of the attained, to preserve if threatened, and
owners. to regain if lost. It is where you would
8. Taxes Bias Business Decisions like to be and your level of living is
Because cash is king, we must consider the where you actually are.
after-tax cash flow on an investment. The b. Financial success and happiness
tax consequences of a business decision  Financial success is the achievement of
will impact (reduce) cash flow. financial aspirations that are desired,
9. All Risk is Not Equal planned, or attempted. Success is defined
Some risk can be diversified away and by the person that seeks it. Some define
some cannot. Don’t put all your eggs in one financial success as being able to actually
basket. live according to one’s standard of living.
10. Ethical Behavior Means Doing the Right Many seek financial security, which
Thing, Ethical Dilemmas are everywhere in provides the comfortable feeling that your
finance financial resources will be adequate to fulfill
Unethical behavior eliminates trust, results in any needs you have as well as most of your
loss of public confidence. Social responsibility wants. Others want to be wealthy and have
an abundance of money, property,
means firms have to be responsible to more than
investments, and other resources.
just owners. - all stakeholders! (Palolan, n.d.)  Financial happiness encompasses a lot
more than just making money. It is the
satisfaction you feel about money matters.
Topic 2: Achieving Personal Financial Success People who are happy about their finances
are likely to be in control of their money, and
Financial literacy – This is your knowledge of this happiness spills over in a positive way
to feelings about their overall enjoyment of
facts, concepts, principles, and technological tools
life.
that are fundamental to being smart about money. c. Using the building blocks
Financial literacy empowers you. It improves your Bridging the gap between one’s level of
ability to handle day-to-day financial matters, helps living and one’s desired standard of living
you avoid the consequences of poor financial involves learning about how to achieve
decisions that could take years to overcome, and financial success. Figure 1.1 shows how the
helps you make informed and confident personal building blocks of a financially successful life fit
together.
money decisions.
 2. PLANNING. Planned spending through
budgeting is the key to achieving goals and
future financial security. Efforts to anticipate
expenses along with making certain financial
decisions can reduce taxes, increase savings,
and result in less financial stress.
3. SAVING. Long-term financial security starts with
a regular savings plan for emergencies,
unexpected bills, replacement of major items,
and the purchase of special goods and services,
such as a college education, a boat, or a
vacation home. Once you have established a
basic savings plan, you may use additional
money for investments that offer greater
financial growth.
Topic 3: Financial Planning in our economy 4. BORROWING. Maintaining control over your
credit-buying habits will contribute to your
Daily economic transactions facilitate financial goals. The overuse and misuse of
financial planning activities. Exhibit 1–2 shows the credit may cause a situation in which a person’s
monetary flows among providers and users of debts far exceed the resources available to pay
those debts. Bankruptcy is a set of federal laws
funds that occur in a financial system. These
allowing you to either restructure your debts or
financial activities affect personal finance decisions. remove certain debts. The people who declare
bankruptcy each year may have avoided this
Economics – The study of how wealth is created
trauma with wise spending and borrowing
and distributed. decisions.
5. SPENDING. Financial planning is designed not
to prevent your enjoyment of life but to help you
obtain the items you want. Too often, however,
people make purchases without considering the
financial consequences. Some people shop
compulsively, creating financial difficulties. You
should detail your living expenses and your
other financial obligations in a spending plan.
Spending less than you earn is the only way to
achieve long-term financial security.
6. MANAGING RISK. Adequate insurance
coverage is another component of personal
financial planning. Certain types of insurance are
commonly overlooked in financial plans. For
example, the number of people who suffer
disabling injuries or diseases at age 50 is
greater than the number who die at that age, so
Sub-topic 3.1. Factors Affecting the Economy people may need disability insurance more than
they need life insurance. Yet surveys reveal that
a. Global influences – The global economy can most people have adequate life insurance but
influence financial activities. few have adequate disability insurance.
Global economy – This refers to the 7. INVESTING. Although many types of
interconnected worldwide economic activities investments are available, people invest for two
that take place between multiple countries which primary reasons. Those interested in current
comprises of several characteristics such as income select investments that pay regular
globalization, international trade, international dividends or interest. In contrast, investors who
finance and global investment. desire long-term growth choose stocks, mutual
b. Inflation – A rise in the general level of prices. funds, real estate, and other investments with
In times of inflation, the buying power of the potential for increased value in the future. You
dollar decreases. can achieve investment diversification by
c. Interest rates – This represent the cost of including a variety of assets in your portfolio —
money. Like everything else, money has a price. these may include stocks, bond mutual funds,
The forces of supply and demand of money real estate, and collectibles such as rare coins.
influence interest rates. 8. RETIREMENT AND ESTATE PLANNING. Most
people desire financial security upon completion
Sub-topic 3.2. Financial Planning Activities of full-time employment. But retirement planning
also involves thinking about your housing
1. OBTAINING. You obtain financial resources situation, your recreational activities, and
from employment, investments, or ownership of possible part-time or volunteer work. Transfers
a business. Obtaining financial resources is the of money or property to others should be timed,
foundation of financial planning, since these if possible, to minimize the tax burden and
resources are used for all financial activities. maximize the benefits for those receiving the
 financial resources. Knowledge of property Topic 5: The Personal Financial Planning
transfer methods can help you select the best Process
course of action for funding current and future
living costs, educational expenses, and We all make hundreds of decisions each day. Most
retirement needs of dependents. of these decisions are quite simple and have few
consequences. However, some are complex and
Topic 4: Developing and Achieving Financial have long-term effects on our personal and
Goals financial situations, as shown here:

Sub-topic 4.1. Types of Financial Goals

What would you like to do tomorrow? Believe it or

not, that question involves goal setting, which may
be viewed in three time frames:

 Short-term goals will be achieved within the

next year or so, such as saving for a vacation
or paying off small debts.
 Intermediate goals have a time frame of two
to five years.
 Long-term goals involve financial plans that
are more than five years off, such as While everyone makes decisions, few people
retirement, money for children’s college consider how to make better decisions. As
education, or the purchase of a vacation home. Exhibit 1–4 shows, the financial planning process
can be viewed as a six-step procedure that can be
Long-term goals should be planned in coordination adapted to any life situation.
with short-term and intermediate goals. Setting and
achieving short-term goals is commonly the basis
for moving toward success of long-term goals.

Sub-topic 4.2. Goal-Setting Guidelines

An old saying goes, “If you don’t know where you’re

going, you might end up somewhere else and not
even know it.” Goal setting is central to financial
decision making. Your financial goals are the basis
for planning, implementing, and measuring the
progress of your spending, saving, and investing
activities. Your financial goals should take a
SMART approach, in that they are:

 S — specific, so you know exactly what your Step 1: Determine your current financial
goals are and can create a plan designed to situation
achieve those objectives.
 M — measurable by a specific amount. For In this first step, determine your current financial
example, “Accumulate $5,000 in an investment situation regarding income, savings, living
fund within three years” is more measurable expenses, and debts. Preparing a list of current
than “Put money into an investment fund.” asset and debt balances and amounts spent for
 A — action-oriented, providing the basis for various items gives you a foundation for financial
the personal financial activities you will
planning activities.
undertake. For example, “Reduce credit card
debt” will usually mean actions to pay off
Step 2: Develop your financial goals
amounts owed.
 R — realistic, involving goals based on your
income and life situation. For example, it is
probably not realistic to expect to buy a new
car each year if you are a full-time student.
 T — time-based, indicating a time frame for
achieving the goal, such as three years. This
allows you to measure your progress toward
your financial goals.
You should periodically analyze your financial financial planning information sources.
values and goals. The purpose of this analysis is c. Financial planning information sources
to differentiate your needs from your wants. Relevant information is required at each
stage of the decision-making process. In
Specific financial goals are vital to financial
addition, common sources available to help
planning. Others can suggest financial goals for you with your financial decisions include
you; however, you must decide which goals to 1. Internet;
pursue. Your financial goals can range from 2. Financial institutions, such as banks,
spending all of your current income to developing credit unions, and investment
an extensive savings and investment program for companies;
your future financial security. 3. Media sources, such as newspapers,
magazines, television, radio, podcasts,
Step 3: Identify alternative courses of action and online videos; and
4. Financial specialists, such as financial
Developing alternatives is crucial when making planners, insurance agents, investment
decisions. Although many factors will influence the advisors, credit counselors, lawyers, and
tax preparers.
available alternatives, possible courses of action
Step 5: Create and implement your financial
usually fall into these categories:
action plan
 Continue the same course of action. For
You are now ready to develop an action plan to
example, you may determine that the amount
you have saved each month is still identify ways to achieve your goals. To implement
appropriate. your financial action plan, you may need assistance
 Expand the current situation. You may from others. Exhibit 1–5 offers a framework for
choose to save a larger amount each month. developing and implementing a financial plan,
 Change the current situation. You may along with examples for several life situations.
decide to use a money market account
instead of a regular savings account.
 Take a new course of action. You may
decide to use your monthly saving budget to
pay off credit card debts. Not all of these
categories will apply to every decision;
however, they do represent possible courses
of action.
Step 4: Evaluate your alternatives

You need to evaluate possible courses of action,

taking into consideration your life situation,
personal values, and current economic conditions.

a. Consequences of Choices – Every decision

closes off alternatives.
b. Evaluating Risk – Uncertainty is also part of
every decision. In many financial decisions,
identifying and evaluating risk are difficult.
Common risks to consider include:
 Inflation risk, due to rising or falling
(deflation) prices that cause changes in
buying power.
 Interest rate risk, resulting from changes in Step 6: Review and revise your plan
the cost of money, which can affect your
costs (when you borrow) and benefits (when Financial planning is a dynamic process that does
you save or invest). not end when you take a particular action. You
 Income risk may result from loss of a job or need to regularly assess your financial decisions.
encountering illness. You should do a complete review of your finances
 Personal risk involves tangible and at least once a year. Changing personal, social,
intangible factors that create a less than and economic factors may require more frequent
desirable situation, such as health or safety
assessments.
concerns.
 Liquidity risk occurs when savings and SUMMARY
investments that have potential for higher
earnings are difficult to convert to cash or to  The 10 axioms of finance serve as guide to
sell without significant loss in value. The financial management study.
best way to consider risk is to gather  Financial literacy and responsibility is important
information based on your experience and to achieve personal financial success.
the experiences of others and to use
 There are several keys to achieve financial 4. Identify your values
success. Start with spending less to save and Values are the principles, standards, or
invest. qualities considered worthwhile or desirable.
 The factors affecting the economy also affect Values provide a basis for decisions about how
your financial planning. to live, serving as guides we can use to direct
 The financial planning activities include our actions. For something to be a value, it must
obtaining, planning, saving, borrowing, be prized, publicly affirmed, chosen from
spending, managing risk, investing and alternatives, and acted upon repeatedly and
retirement and estate planning. consistently. Values are not right or wrong, or
 Setting short-, intermediate- and long-term goals true or false; they are personal preferences.
must be SMART. 5. Consider your costs, benefits and lifestyle
 The financial planning process can be viewed as trade-offs
a six-step procedure that can be adapted to any Selecting a career involves making
life situation. decisions about costs and benefits and lifestyle
trade-offs.
 Cost and benefits - When making career
Module 2: Career Planning choices, you must weigh the benefits
against the costs. The benefits could
Topic 1: Developing your Career Plan include a big salary, likelihood of personal
growth and job advancements, and high job
Career planning – Finding employment that will satisfaction.
use your interests and abilities and that will support  Lifestyle trade-offs – It is weighing the
you financially demands of particular jobs with your social
1. Create your career goal and plan and cultural preferences. When considering
Thinking about a career goal helps you any career, think about what lifestyle or
focus on what you want to do for a living. A social and cultural factors are important to
career goal can be a specific job (e.g., cost you.
accountant, teacher, human resources Steps in Career Planning
manager) or a particular field of work (e.g.,
health care, communications, construction). It
helps guide you to do the kind of work you
want in life rather than drift from job to job.
Formulating a career goal requires thinking
about your interests, skills, and experiences
and learning about different careers and
employment trends. The process of
establishing a career goal motivates you to
consider career possibilities that you may not
have thought of otherwise.
2. Clarify your interests 6. Align yourself with tomorrow’s employment
Your interests are topics and activities about trends
which you have feelings of curiosity or concern. Right now, you may be focused on school—
Interests engage or arouse your attention. graduating and getting a good job. But you also
They reflect what you like to do. Interests, need to find out where the jobs will be in the
including occupational interests, are likely to future. The job market today is rapidly changing
vary over time. —a result of economic downturns, corporate
3. Review your abilities, experiences and restructuring, downsizing, and globalization—
education and the career path you are considering
Reviewing your abilities, aptitudes, 7. Take advantage of networking
experiences, and education is a key step in Professional networking is the process of
career planning. The purpose is to see how making and using contacts, such as individuals,
well they match up with your career-related groups, or institutions, to obtain and exchange
interests. information in career planning. Every person you
 Abilities – They are the qualities that allow know or meet is a possible useful contact.
you to perform physically, mentally, Networking requires that you make a conscious
artistically, mechanically, or financially job- effort to use people you know and meet to
related tasks. Most of us think of ability as a maximize your job search process. Networking
word describing how well we do something, involves utilizing your social contacts, taking
a proficiency, dexterity, or technique, advantage of casual meetings, and asking for
particularly one requiring use of the mind, personal referrals. Most of your contacts will not
hands, or body. be able to hire you, but they could refer you to
 Experiences - Evaluate what you have the person who can, or they may be able to give
been doing in your life, including jobs and you useful information about a potential
internships; participation in student employer
organizations and community and church 8. Target preferred employers
groups; leadership on school projects; and Answering classified job advertisements
volunteer activities. probably is not the best way to start a career,
 unless you are lucky and the job listed is actually give their best judgments in these letters. This
in your field of interest. A key step in the career may include identifying some student
search process is to think about both the weaknesses as well as strengths.
industries in which you would prefer employment 5. Apply
and which employers might be best for you. You can’t get a job without applying for it.
9. Be willing to change career goals and plans Personalize your cover letter and résumé to fit
Your career plan should be realistic and the specific job of interest. Send it to the
flexible. Your career interests and goals will prospective employer.
change over time, especially as you continue 6. Interview for success
your education, gain work experience, and see A job interview is a formal meeting to
how your friends fare with their jobs and discuss an individual’s job qualifications and
avocations. suitability for an employment position. When you
are invited for an interview, be prepared.
Here are some tips during interview:
Topic 2: Effective Employment Search  Do some research before the interview
Strategies  Compile revealing personal stories
Once you have undertaken some career planning,  Prepare questions to ask the interviewer
you will want to get a job in your preferred career  Prepare responses for anticipated interview
field. This is a process that takes much effort. A questions
successful job search might require 25 to 30 hours  Create positive responses to negative
per week of your time. Effective search strategies questions
follow.  Be ready for telephone interviews
 After the interview, evaluate it and send a
1. Assemble a resume thank-you note.
A résumé is a summary record of your 7. Negotiate and accept the job
education, training, experience, and other Wait until after the job has been firmly
qualifications. It is often submitted with a job offered to discuss salary. Do not be the first to
application. Your résumé, usually one or two give a definitive dollar amount. Ask for the salary
pages in length, should be carefully written and range for the position. Your objective in
contain zero errors or inconsistencies in negotiating is to obtain a salary 20 percent
message, content, and appearance. above the highest figure because you are an
2. Identify job opportunities exceptional candidate and you will perform at
The next step is to identify job opportunities the highest level anticipated. Don’t sell yourself
that fit your skill set and provide opportunities short.
for advancement in your career.
a. Career fairs
Career fairs are university-, Topic 3: Choosing, Finding and Leaving a Job
community-, and employer-sponsored
opportunities for job seekers to meet with Sub-topic [Link] and Finding a Job
perhaps hundreds or even thousands of
Choosing and finding a job are discussed
potential employers over one or more days.
on topic 2 of this module.
Here you can schedule brief screening
interviews with a dozen or more employers Sub-topic 3.2. Leaving a Job
in a single day.
b. Classified advertisements A. Leaving voluntarily
Advertisements in newspapers and You may decide to leave a job and move to
professional and trade publications—as well another for the following reasons:
as their Internet equivalents—are an  move to a position with more responsibility,
excellent starting place in the job search opportunity to advance, or compensation
process.  be in a more compatible work environment
c. Employment agencies or corporate culture
An employment agency is a firm  learn a new skill
specializing in locating employment  become self-employed by beginning an
positions for certain types of employees, entrepreneurial venture
such as secretaries, salespeople,  make a transition from a military to a civilian
engineers, managers, and computer job
personnel In other cases, you may leave employment
3. Write and effective cover letter permanently or temporarily because of the
A cover letter is a letter of introduction sent following reasons:
to a prospective employer designed to express
your interest in obtaining an interview. The  further your education
cover letter should be specifically written for  assume family care, for example of a child
each position for which you are applying. or parent
4. Obtain strong reference letters  take time off for recreation
College students too often simply ask a
 retire
couple of professors they like to write them a
Whatever your motivation for leaving your job, your
letter of recommendation. Professors typically
decision should make sense; that is, it should be
based on a reasoned analysis of how it will affect
your life. If you have dependents, you will have to
consider how your decision may affect their lives
too.

Since your job is a source of income, leaving your

job means a loss of that income. You need to
consider how you can maintain or change your
current use of income (i.e., spending and saving
levels) with that loss.

B. Leaving involuntarily
Involuntary job loss may be due to your
employer’s decision, an accident or disability,
or unexpected circumstances, such as the
acquisition, merger, downsizing, or closing of
the company you work for. Your employer also
may decide to lay you off or fire you. A layoff
implies a temporary job loss due to a
circumstance in which your employer needs or
can afford less labor.
In the country, an employee is entitled
to separation pay equivalent to one-
month pay or at least one-month pay for every
year of service, whichever is higher. A fraction
of at least six months shall be considered as
one whole year. The period of service is
deemed to have lasted up to the time of
closure of the establishment.

SUMMARY

 Career planning is essential in these times.

The steps in developing a career plan would
help you towards the future.
 Effective search strategy is a key factor in
looking for and finding a job.
 Leaving a job would either be voluntary or
involuntary.