The Role of Money

Money is the medium of exchange used to measure value in financial transactions.

It would be difficult to set specific personal financial goals and to measure progress toward achieving them
without the standard unit of exchange provided by the peso. Money, as we know it today, is the key
consideration in establishing financial goals. Yet it's not money, as such, that most people want. Rather, we
want the utility, which is the amount of satisfaction received from buying certain types or quantities of goods
and services, that money makes possible. People may choose one item over another because of a special
feature that provides additional utility. The added utility may result from the actual usefulness of the special
feature or from the 66 'status" it's expected to provide or both. Regardless, people receive varying levels of
satisfaction from similar items, and their satisfaction isn't necessarily related to the cost of the items. We
therefore need to con- sider utility along with cost when evaluating alter- native qualities of life, spending
patterns, and forms of wealth accumulation.

The Psychology of Money

Money and its utility are not only economic concepts; they’re also closely linked to the psychological concepts
of values, emotion, and personality. Your personal value system – the important ideals and beliefs that offers
regular hours and less stress or choose an employer who offers flextime rather than a higher-paying position
that requires travel and lots of overtime. You may have plenty of money you may choose to live frugally and
do things yourself rather than hire someone to do them for you. Or if a status and image are important to you,
you may spend a high proportion of your current income on acquiring luxuries. Financial goals and decisions
should be consistent with your personal values. You can formulate financial plans that provide the greatest
personal satisfaction and quality of life by identifying your values.
Money is a primary motivator of personal behavior because it has a strong effect on self-image. Each person’s
unique personality and emotional makeup determine the importance and roe of money in his or her life. You
should become aware of your own attitudes toward money because they are the basis of your “money
personality” and money management style.
Trade-offs between current and future benefits are strongly affected by values, emotions, and personality.
Effective financial plans are both economically and psychologically sound. They must not only consider your
needs, wants, and financial resources but must also realistically reflect your personality and emotional
reactions to money.

Money and Relationships

Money can be one of the most emotional issues in any relationship, including that with a partner, your parents,
or children. Most of people are uncomfortable talking about money matters and avoid such discussions, even
with their partners. However, differing opinions on how to spend money may threaten the stability of marriage
or cause arguments between parents and children. Learning to communicate with your partner about money
is a critical step in developing effective financial plans.
The best way to resolve money disputes is to be aware of your partner’s financial style, keep the lines of
communication open, and be willing to compromise. It’s highly unlikely that you can change your partner’s
style (or your own, for that matter), but you can work out your differences. Financial Planning is an essentially
important part of the conflict resolution process. To gain a better understanding of your differences, work
together to establish a set of financial goals that takes into account each person’s needs and values.
Types of Financial Goals
Financial goals cover a wide range of financial aspirations; controlling living expenses, meeting retirement
needs, setting up a savings and investment program, and minimizing your taxes. Other important financial
goals include having enough money to live as well as possible, being financially independent, sending
children to college, and providing for retirement.
Financial goals should be defined as specifically as possible. Saying that you want to save money next year
is not a specific goal. A goas is such as “save 10% of my take-home pay each month to start an investment
program” states clearly what you want to do and why.
Your goals should be realistic and attainable. If you set a savings goal too high, then your goal is unattainable
and there’s no such way to meet it. But if savings goals are set too low, you may it accumulate enough for a
meaningful investment program. If your goals are unrealistic, they’ll put the basic integrity of your financial
plan at risk and be source of ongoing financial frustration.
Its important to involve your immediate family in the goal-setting process. When family members “buy into”
the goals, it eliminates the potential for future conflicts and improves the family’s chances for financial
success. After defining and approving your goals, you can prepare appropriate cash budgets. Finally, you
should assign priorities and a time frame to financial goals.

Putting Target Dates on Financial Goals

Financial goals are most effective when they are set with goal dates. Goal Dates are target points in the
future when you expect to have achieved or completed certain financial objectives. They may serve as
progress checkpoints toward some longer-term financial goals and/or as deadlines for others.

Long-term Goals
Long-term financial goals should indicate wants and desires for a period covering about 6 years out to the
next 30 or 40 years. Although it’s difficult to pinpoint exactly what you will want 30 years from now, It’s useful
to establish some tentative long-term financial goals. However, you should recognize that long-term goals
will change over time and that you’ll need to revise them accordingly. If the goals seem too ambitious, you’ll
want to make them more realistic. If they’re too conservative, you’ll want to adjust them to a level that
encourages you to make financially responsible decisions rather than squander surplus funds.

Short-term Goals and Intermediate Goals

Short-term financial goals are set each year and cover a 12-month period. They include making substantial,
regular contributions to savings or investments in order to accumulate your desired net worth. Intermediate
goals bridge the gap between short and long-term goals; and of course, both intermediate and short-term
goals short-term goals should be consistent with your long-term goals. Short-term goals become the key
input for the cash budget, a tool used to plan for short-term income and expenses. To define your short-term
goals, consider your immediate goals expected income for the year, and long-term goals. Short-term planning
should also include establishing an emergency fund with 3 to 6 months’ worth of income. This special savings
account serves as the reserve in case financial emergencies such as temporary loss of income.
Unless you attain your short-term goals, you probably won’t achieve your intermediate or long-term goals.
It’s tempting to let the desire to spend now take priority over the need to save for the future. But by making
some short-term sacrifices now, you’re more likely to have a comfortable future
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