Performance Task

In

FABM-2 and Business Finance

Submitted by:

Christalyn S. Gabuay 12-St. Dominic

Submitted to:

Merlyn L. Medel, MBA

Personal finance is a term that covers managing your money as well as saving and investing. It

encompasses budgeting, banking, insurance, mortgages, investments, and retirement, tax, and

estate planning. The term often refers to the entire industry that provides financial services to

individuals and households and advises them about financial and investment opportunities.

Individual goals and desires—and a plan to fulfill those needs within your financial constraints—

also impact how you approach the above items. To make the most of your income and savings,

it’s essential to become financially savvy—it will help you distinguish between good and bad

advice and make intelligent financial decisions.

THE IMPORTANCE OF PERSONAL FINANCE

Personal finance is about meeting your personal financial goals. These goals could be anything

—having enough for short-term financial needs, planning for retirement, or saving for your

child’s college education. It depends on your income, spending, saving, investing, and personal

protection (insurance and estate planning).

AREAS OF PERSONAL FINANCE

THE FIVE AREAS OF PERSONAL FINANCE ARE INCOME, SAVING, SPENDING,

INVESTING, AND PROTECTION.

1. INCOME

Income is the starting point of personal finance. It is the entire amount of cash inflow that you

receive and can allocate to expenses, savings, investments, and protection. Income is all the

money you bring in. This includes salaries, wages, dividends, and other sources of cash inflow.
2. SPENDING

Spending is an outflow of cash and typically where the bulk of income goes. Spending is

whatever an individual uses their income to buy. This includes rent, mortgage, groceries,

hobbies, eating out, home furnishings, home repairs, travel, and entertainment.

3. SAVING

Savings is the income left over after spending. Everyone should aim to have savings to cover

large expenses or emergencies. However, this means not using all your income, which can be

difficult. Regardless of the difficulty, everyone should strive to have at least a portion of savings

to meet any fluctuations in income and spending—somewhere between three and 12 months of

expenses.

Beyond that, cash idling in a savings account becomes wasteful because it loses purchasing

power to inflation over time. Instead, cash not tied up in an emergency or spending account

should be placed in something that will help it maintain its value or grow, such as investments.

4. INVESTING

Investing involves purchasing assets, usually stocks and bonds, to earn a return on the money

invested. Investing aims to increase an individual's wealth beyond the amount they invested.

Investing does come with risks, as not all assets appreciate and can incur a loss.

Investing can be difficult for those unfamiliar with it—it helps to dedicate some time to gain an

understanding through readings and studying. If you don't have time, you might benefit from

hiring a professional to help you invest your money.

Protection refers to the methods people take to protect themselves from unexpected events, such

as illnesses or accidents, and as a means to preserve wealth. Protection includes life and health

insurance and estate and retirement planning.

5. PERSONAL FINANCE SERVICES

Several financial planning services fall under one or more of the five areas. You're likely to find

many businesses that provide these services to clients to help them plan and manage their

finances. These services include:

 Wealth Management

 Loans and Debt

 Budgeting

 Retirement

 Taxes

 Risk Management

 Estate Planning

 Investments

 Insurance

 Credit Cards

 Home and Mortgage

The sooner you start financial planning, the better, but it’s never too late to create financial goals

to give yourself and your family financial security and freedom. Here are the best practices and

tips for personal finance.

1. KNOW YOUR INCOME

It's all for nothing if you don't know how much you bring home after taxes and withholding. So

before deciding anything, ensure you know exactly how much take-home pay you receive.

2. DEVISE A BUDGET

A budget is essential to living within your means and saving enough to meet your long-term

goals. The 50/30/20 budgeting method offers a great framework. It breaks down like this:

 Fifty percent of your take-home pay or net income (after taxes) goes toward living

essentials, such as rent, utilities, groceries, and transport.

 Thirty percent is allocated to discretionary expenses, such as dining out and shopping for

clothes. Giving to charity can go here as well.

 Twenty percent goes toward the future—paying down debt and saving for retirement and

emergencies.

3. PAY YOURSELF FIRST

It’s important to “pay yourself first” to ensure money is set aside for unexpected expenses, such

as medical bills, a significant car repair, day-to-day expenses if you get laid off, and more. The

ideal safety net is three to 12 months of living expenses.

4. LIMIT AND REDUCE DEBT

It sounds simple enough: Don't spend more than you earn to keep debt from getting out of hand.

But, of course, most people have to borrow from time to time, and sometimes going into debt can

be advantageous—for example, if it leads to acquiring an asset. Taking out a mortgage to buy a

house might be one such case. Still, leasing sometimes can be more economical than buying

outright, whether renting a property, leasing a car, or even getting a subscription to computer

software.

5. ONLY BORROW WHAT YOU CAN REPAY

Credit cards can be major debt traps, but it’s unrealistic not to own any in the contemporary

world. Furthermore, they have applications beyond buying things. They are crucial to

establishing your credit rating and a great way to track spending, which can be a considerable

budgeting aid.

Credit needs to be managed correctly, meaning you should pay off your entire balance every

month or keep your credit utilization ratio at a minimum (that is, keep your account balances

below 30% of your total available credit).4

6. MONITOR YOUR CREDIT SCORE

Credit cards are the primary vehicle through which your credit score is built and maintained, so

watching credit spending goes hand in hand with monitoring your credit score. If you ever want

to obtain a lease, mortgage, or any other type of financing, then you’ll need a solid credit report.

There are a variety of credit scores available, but the most popular one is the FICO score.5
Factors that determine your FICO score include:

Capital One. "CreditWise: Get Your Free Credit Report."

7. PLAN FOR YOUR FUTURE

To protect the assets in your estate and ensure that your wishes are followed when you die, be

sure you make a will and—depending on your needs—possibly set up one or more trusts. You

also should look into insurance and find ways to reduce your premiums, if

possible: auto, home, life, disability, and long-term care (LTC). Periodically review your policy

to ensure it meets your family’s needs through life’s major milestones.

8. BUY INSURANCE

Insurance can cover most of the hospital bills as you age, leaving your hard-earned savings in

your family's hands; medical expenses are one of the leading reasons for debt.12 If something

happens to you, life insurance can give those you leave behind a buffer zone to deal with the loss

and get back on their feet financially.

9. MAXIMIZE TAX BREAKS

Due to an overly complex tax code, many people leave hundreds or even thousands of dollars

sitting on the table every year. By maximizing your tax savings, you’ll free up money that can be

invested in your reduction of past debts, enjoyment of the present, and plans for the future.

10. Give Yourself a Break

Budgeting and planning can seem full of deprivations. Make sure you reward yourself now and

then. Whether it’s a vacation, a purchase, or an occasional night on the town, you need to enjoy
the fruits of your labor. Doing so gives you a taste of the financial independence you’re working

so hard for.