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Golden Rule #2: Always plan for the future

UNIT – II | The Science of Handling - Get into the habit of saving money by paying
Money yourself first. Planning for the future means
preparing for the unexpected and building up
Definition of Personal Finance an emergency fund is the best way to handle
life's unforeseen expenses.
A personal finance deals with the management
of an individual's personal capital in a prudent manner Golden Rule #3: Help your money grow
that is conducive to asset growth and good financial - Once your savings start to build, you should
health. Personal finance deserves to be a cornerstone find ways to grow your money through
in any well-crafted financial education program investing.
- According to Investopedia, investing is putting
The following are some of the most accepted
money to work to start or expand a project - or
definitions of personal finance
to purchase an asset or interest - where those
National Financial Educators Council funds are then put to work, with the goal of
income and increased value over time.
- Possessing the skills and knowledge on - The term "investment" can refer to any
financial matters to confidently take effective mechanism used for generating future income.
action that best fulfills an individual's personal, - This is especially important for long-term
family, and global community goals. savings strategies, such as retirement planning.
- Investing your money will always be better
Anthony G. Lanza, Spectra Investment
than doing nothing with it.
Management
- Personal Finance is made up of various parts OPENING A BANK ACCOUNT IN THE
but can be summarized as budgeting, setting PHILIPPINES
spending and saving priorities, cash flow
planning, and efficiently maximizing benefits While it is certainly possible to store your money in
through rewards programs. physical cash, there are many reasons why you should
have a bank account. These are the following:
Glenn Moore, Gibraltar Financial
1. Security is an important reason why people
- This is anything pertaining to the financial store their money in bank accounts.
picture for an individual and/or family. This 2. Convenience is another major benefit of
would include budgeting, savings, retirement having a bank account.
planning and evaluating different scenarios, 3. Earning interest is another important reason to
investment management, evaluating insurance have a bank account.
needs, benefits from employers, estate
planning, tax planning, etc. What is a savings account?

National Endowment for Financial Education - This is a bank account where you can keep your
extra cash or emergency fund, and it is
- The ability to read, analyze, manage, and available for withdrawal.
communicate about the personal financial
conditions that affect material well-being. - You can deposit cash and checks, but you
cannot issue checks with this type of bank
THE GOLDEN RULES OF PERSONAL
account.
FINANCE

Golden Rule #1: Don't spend more than you make - One of the biggest reasons why you would want
to start with a savings account is because the
- If you always spend less than you earn, your initial deposit and maintaining balance is
finances will always be in good shape. typically much lower than other types of
Understand the difference between needs and accounts. You can open one for as low as ₱100
wants, live within your income, and do not take with ₱2,000 as a maintaining balance.
on any unnecessary debt.
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- The biggest downside to it is that its annual - Educates. Having a budget allows people to
interest rates are typically less than 1%. Like view money as a tool, shifting the mindset to
other accounts, you can also incur penalties up focus on long-term goals and future needs
to ₱500 if your account goes below its
maintaining balance for over 30 days. Types of Budgets to Create Your Personal
Budget
- You're also limited to a specific withdrawal
amount and even per transaction per day. This 1. The Envelope Method
varies from bank-to-bank o Pros: It forces you into a disciplined
budgeting system.
o Cons: Carrying cash is not a practical
system for some consumers.
2. 50-30-20 Budgeting Method
o The 50-30-20 budgeting method,
coined by Elizabeth Warren and
Amelia Warren Tyagi, is a super-easy
way to organize your money and
budget.
o Essentially, you'll spend:
▪ 50 percent of your income on
living expenses (rent,
HOW TO CREATE AND MANAGE A mortgage, groceries, bills,
BUDGET transportation, etc.)
▪ 30 percent of your income on
A budget is an estimation of revenue and expenses wants and lifestyle choices
over a specified future period of time and is usually (fun and entertainment, dining
compiled and re-evaluated on a periodic basis. out, etc.)
▪ 20 percent of your income
- Budgets can be made for a person, a family, a toward debt payments and
group of people, a business, a government, a saving.
country, a multinational organization, or just o Pros: A simple method which only
about anything else that makes and spends needs a calculator (to work out the
money. percentages). Easy to stick to, and the
Budgeting can improve your life because it: '20%' part will help you accumulate
more money and build wealth faster.
- Reveals waste. Creating a budget sheds light on o Cons: Not ideal for people who have
areas that many people neglect on a day-to-day an unsteady monthly income.
basis. 3. Zero-Based Budgeting Method
- Directs priorities. A budget allows for people o Zero-based budgeting is a way of
to look at the big picture of their spending budgeting where your income minus
habits and set new priorities to maximize their your expenses equal zero.
money's potential. o With a zero-based budget, you have to
- Creates new habits. When people get a clearer make sure your expenses match your
picture of how they've been using their money, income during the month. It does not
it allows them to shift expenditures into mean you have zero pesos in your bank
different categories, making them more account. It just means your income
conscious of unnecessary spending. minus all your expenses equals zero.
- Reduces stress. Finances are one of the top o Pros: Teaches you to stop spending
stress-inducing situations. When there is a more than you earn.
sense of control over the money coming in and o Cons: It needs to be done every month,
the money going out, the stress can transform so it takes dedication. It also doesn't
into a feeling of empowerment. allow for unforeseen spending, the
outgoing you might not know is
coming in that month. This is where
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your emergency fund will come in

handy.

PERSONAL BUDGETING TIPS FOR FIRST

TIMERS