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Course: Managing Your Personal Finances

Unit 1: The Road Towards Financial Independence

Framework for Financial Stability

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.

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!

Unit 2: Smart Spending

Keep Track of Your Daily Expenses

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 "soft drinks" 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 an Expense Tracker Worksheet to help you track your monthly expenses.

Plus 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. A blank form for your daily spending can be downloaded

Once you've identified your spending leaks, you can determine ways to plug them by making small changes
in your habits. For example, if you're taking soft drinks every lunch at the cafeteria every work day, you
probably spend at least P10 each time. That adds up to P50 a week, P200 a month, and P2,400 a year. If
you weren't spending this extra money on lunch and take water (not bottled water!) instead, you could use
it to help reach your financial goals, such as paying for that personal computer or that bicycle which could
in turn save you some more money compared to renting at Internet cafe or riding a tricycle for those short

Plan for controlling unnecessary spending with the Plug Spending Leaks Worksheet.
Shop smarter
Yes, you can stretch your money by shopping smarter. Here are some tips to help you stretch your money.

 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

 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 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!

Unit 3: Savings and Investing

Pay Yourself First. The 10% Rule

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 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.
Save For What?

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
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.
Poor: Spend first and then save whatever is left.
Better: Save first and spend what is left.

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 b y 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.

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:

 Insured up to P500,000 by the PDIC.

 Liquid-depositors can withdraw money when needed (subject to various limits on different accounts).
 Used by most savers for short-term needs (financial emergencies or medium-term financial goals).
 Earns almost nothing from interest (at 0.5% p.a. compounded quarterly). Time deposits can earn from
2% to 4% p.a. For a minimum deposit of P50,000.
 Savings account opening account is P10,000.
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.
 Interest: The time value of money
 Compounding Interests. Banks give 0.5% pa on savings account (compounded quarterly) and
compare with Credit cards (3% per month, compounded monthly)
 Use calculators to compute for future value and payment calculators.

Unit 4: Setting Financial Goals

Set Financial Goals

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.

Be Smart About Your Goals

Try to set SMART goals, meaning goals that are Specific, Measurable, Achievable, Realistic, and Time-
bounded. Make sure you prioritize your goals. Which ones are the most important to you? Work toward
achieving these goals first.

To help you set your goals, download the Smart Goals Worksheet.
Unit 5: Managing Debts

Be Wary of Consumer Debts

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
You have too much Consumer Debt if..
The list below can be used as warning signals that you are already carrying (or close to) too much
consumer loans. If you find several items from the list which describe your situation, then you
really have to try to reduce your debts:

 You spend more than 20% of your paycheck to pay off car loans, credit cards, or other types of
consumer debt.
 You're borrowing to pay off other debts.
 You don't know how much money you owe.
 You make only minimum payments on each bill.
 You miss payments or you pay your bills late every month.
 Creditors are calling you.
 You're being refused an extended credit or additional credit.
 You use credit cards to pay other monthly bills.
 You write postdated checks.
 You must take an extra job to pay your bills.

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.

To create a get-out-of-debt plan, use the Debt Recovery Worksheet to help you organize your plan.
Focus first to pay off the loan with the highest interest faster and then move to the next loan. Although
every creditor must receive a payment each month, put any extra cash toward the debt with the highest
interest rate.
Debt Management Ideas
By combining financial planning with debt management techniques, you can reduce your debt with the

 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 could your absence have on
the well-being of your family.
 When one debt is paid off, keep paying the same amount - just put it toward another remaining
 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:

 Use only one card.

 Keep track of what you charge, just as you would with a checking account. This way, you won't be
shocked when the statement arrives.
 Save money for big-ticket items instead of putting them on a card. If you must borrow for that item,
less expensive loans usually are available from banks and credit unions.
 Pay credit card bills as soon as they arrive to avoid late-payment fees. Always pay more than the
minimum balance due. If at all possible, pay off the entire balance each month.

 If the balance begins to increase, quit using the card for a while.
 If you still use the card and the balance continues to mount, call the credit card company and request
to have the credit limit lowered.
 Use a low-interest-rate card, preferably with no annual fee. Take note that Purchase Orders (P.O.)
issued by department stores tend to charge the highest interest rates.
 Be wary of cards that offer extremely low interest rates "for a limited time." Frequently, when the
"limited" time expires, a new interest rate is charged, and it may be well above average.

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.

Sources of Filipino Loans

A comparison table of common sources of loans for Filipinos

Loan option/loan Time to
Typical interest rate APR Some notes
window release

Payments collected
Bombay (1-10 thousand 20% per 2 months. 2 daily Popular among
1 One day 120%
pesos) months to pay small-time business
Will require jewelry or
other valuables as
4% first month, 6% for
Pawnshop (up to 80% of pawn items. Pawned
2 succeeding months. 1 to instant 48%
pawn item value) item will be
4 months to pay
foreclosed after 6
Credit Cooperatives 2% per month. 12 Open to cooperative
3 One day 24%
(Salary loan) months to pay members only

Lending Companies 10% per 2 months. 60 Requires collateral

4 One day 60%
(salary loan) days to pay. Usually ATM card
Credit card (cash 3.5% per month. 30 days 6% surcharge on due
5 instant 42%
advance) to pay. amount per month
14% per annum. 12 Requires guarantee
6 Bank (salary loan) Few days 14%
months to pay from employer
Requires minimum
SSS or PAG-IBIG 21% per 24months. 2 number of monthly
7 Few days 10.5%
(salary loan) years to pay payments. Usually 2
10% per 2 months. 12 Open to group
8 Paluwagan (salary loan) One day 60%
months to pay members only
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.

Unit 6: Getting a Job

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.
The Professional Lifecycle
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
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 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.

Comparing Job Offers

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.

Unit 7: Making Your Spending Plan

Life-defining decision: Moving out from your parent's place
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 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.
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.
Another reason you will need to review your income and expenses is when there is a big change in the
income part or when there are changes on the expenses side like when you move to another place which
bring about changes in board and lodging and also in transportation, meal arrangements, etc.

Drawing a Spending Map

Putting your financial goals in writing can make them seem more concrete and achievable. However, it's
easy to allow everyday purchases and obligations to get in the way of saving for the future. One of the
best ways to make sure your daily spending habits don't overwhelm your life goals is to create a spending
plan. A spending plan is not meant to be a strict budget. Instead, it's a guide that will help you take control
of your financial future and ultimately, reach your goals. To create your spending plan, download
the Spending Plan Worksheet and follow these four steps:

Step One: Identify Income.

Step Two: Estimate your Periodic, Fixed, Controllable Expenses and calculate the monthly portion.
Step Three: Compare Income and Expenses.
Step Four: Set Priorities and Make Adjustments.

Unit 8: Marriage and Children

Life-defining Decision: Getting Married

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.
Emotional and Financial Preparations
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 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.


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"?