Senior High School

Business Finance
Module 11:
Managing Personal Finance

AIRs - LM
LU_Business Finance_Module 11
ABM – BUSINESS FINANCE
Module 11: Managing Personal Finance
Second Edition, 2021

Copyright © 2021
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form without written
permission from the copyright owners.

Development Team of the Module

Authors: Ronald June Balsomo

Iren F. Abenes
Editor: SDO La Union, Learning Resource Quality Assurance Team
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Language Reviewer: Clarita C. Montemayor
Illustrator: Ernesto F. Ramos, Jr. P II
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LU_Business Finance_Module 11
 Senior High School

Business Finance
Module 11:
Managing Personal Finance

LU_Business Finance_Module 11
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear
learners, can continue your studies and learn while at home. Activities,
questions, directions, exercises, and discussions are carefully stated for you
to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you
step-by-step as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge on lessons in

each SLM. This will tell you if you need to proceed on completing this module
or if you need to ask your facilitator or your teacher’s assistance for better
understanding of the lesson. At the end of each module, you need to answer
the post-test to self-check your learning. Answer keys are provided for each
activity and test. We trust that you will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are
also provided to our facilitators and parents for strategies and reminders on
how they can best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on
any part of this SLM. Use a separate sheet of paper in answering the exercises
and tests. And read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in

answering the tasks in this module, do not hesitate to consult your teacher
or facilitator.

Thank you.

LU_Business Finance_Module 11
 Target

Discovering Your Goal

First ask yourself: What does money mean to you? The answer to this
question will determine your unique philosophy and approach to personal finance.
The one thing that is always true is that money enables mobility. It allows us to
satisfy our basic needs and enjoy some of life's luxuries. Money brings happiness
because it brings us peace of mind and a sense of security and stability.

The second and equally important question is: what are your financial
goals? How do you see yourself living life five or ten years from now? The answer
to this second question is crucial in mapping out your spending habits and patterns
and your savings and investment plan. Your end goal keeps you going; it's the
reason for you to stick to your route and your financial plan. What the two questions
have in common is the vision and the daily dedication to reaching it.

In today’s ever-changing world, one needs to be careful and follow best

practices for saving and spending money. Importance of saving cannot be overstated.
It shelters us during emergencies and empowers us to spend on things without
having to borrow. And yet, many postpone including saving in their budget as they
give spending precedence over saving.

This module will provide you with necessary information and understanding
about money management philosophies, money management cycle and examples of
sound practices in earning, saving and investing money.

After going through this module, you are expected to attain the following
objectives:

Learning Competencies:
1. Enumerate money management philosophies. (ABM_BF12-IVo-p-26)
2. Illustrate the money management cycle and gives examples of sound
practices in earning, spending, savings, and investing. (ABM_BF12-IVo-27)

Subtasks:
1. Define personal finance and money management.
2. Identify money management philosophies.
3. Enumerate and define the personal financial planning process.
4. Describe the six key areas of personal financial planning.
5. Describe the ways in earning, spending, savings and investing.
6. Apply basic personal finance principles and practices in earning, spending,
savings and investing money.

1 LU_Business Finance_Module 11
 Jumpstart

Activity 1. TRUE or FALSE

Directions: Read and understand each statement carefully. Write TRUE if
the statement is correct or FALSE if the statement is incorrect. Use separate
sheet of paper for your answers.
_______1. Retirement Planning is planning for disposition of one’s asset after death.
_______2. Quantity monetary objectives with indefinite time frames is an example of
Objective Setting.

_______3. On Financial Plan Recommendation, the individual can comment on the

proposed solution.

_______4. Adequate protection includes risk of liability, property, death, disability,

health and long-term care.

_______5. Plan Monitoring comes first before Plan Implementation in the step of
personal financial planning process.

_______6. Personal Finance includes all financial decisions and activities of an

individual except retirement planning.

_______7. Investment and accumulation goals refer to planning on wealth

accumulation to large purchases such as house.

_______8. Plan monitoring is to evaluate the financial plan regularly to see if it

effectively meets the individual’s goals and objectives.

_______9. Data Gathering uses surveys, questionnaires and interviews to gather

quantitative and qualitative information from the individual.

______10. Financial Position as a key area of personal financial planning process

helps in determining the time frame to which the personal goals can
realistically be met.

2 LU_Business Finance_Module 11
 Discover

Managing Personal Finance

Finance is an integral part of everyone’s life and financial principles are
based on pure and simple common sense. The ability to take financially intelligent
decisions is financial management.

Financial management is the ability to understand the impact of every

financial decision on net worth and to ensure that all those actions should be
undertaken that will strengthen it and do nothing that weakens it.

Managing personal finances is essential to one’s financial well-being. Money

management is a critical function in self-management. It aims to give the power and
the knowledge to take control of the money. It provides the means to keep track of
personal expenses, personal debt and subsequently helps in calculation and
enhancement of personal net worth.

Money management is the process of budgeting, saving, investing, spending,

or otherwise overseeing the capital usage of an individual or group. The predominant
use of the phrase in financial markets is that of an investment professional making
investment decisions for large pools of funds, such as mutual funds or pension
plans. Money management can also be referred to more narrowly as "investment
management" and "portfolio management."

Personal financial management can be defined as the management of the

finances of an individual, in order to achieve his/her financial goals including long-
term financial security. It is concerned with procurement and utilization of funds for
an individual. It is concerned with efficient planning and controlling of the financial
affairs, budgeting, financial forecasting, cash management, credit administration,
investment analysis, and fund management and so on. It helps individuals determine
the past performance, predict future performance, and assess the capability of
generating future cash flows.

Personal Finance
• It includes all financial decision activities of an individual including
budgeting, insurance, mortgage planning, savings, and retirement planning.
• It involves analyzing current financial positions, projecting short-term and
long-term funding needs, and executing a plan to fulfill those needs
considering individual financial constraints.
• It is primary dependent on one’s earnings, cost of living and personal goals
and wants.
Source: https://www.investopedia.com/terms/m/moneymanagement.asp.

3 LU_Business Finance_Module 11
Financial insecurity is the result of the choices we make rather than the income
we earn. The principles that lead to financial security are largely the same as the
ones underlying a prosperous economy.

Basic Economic Activities of Consumers:

1. Earning
2. Spending
3. Savings
4. Borrowing
5. Investing

Spending
• using money to purchase goods and services
• The way a person spends money determines the value received and
influences the economy.
• Each purchase contributes to the demand for the product or service
purchased.

❖ Responsible spending includes researching and planning purchases in

advance and making wise choices in light of opportunity costs and trade-
offs that apply

Saving
• putting aside money for later use
• Money may be “saved” in a bank account or in a wallet.
• The form of savings used to determine the financial return

4 LU_Business Finance_Module 11
 ❖ Later uses for savings
- Emergencies
- Recurring expenses
- Future purchases
- Financial goals
- Retirement
❖ Benefits for savings
- Provide money for future purchases
- Can be used to earn income
- Produce a healthy economy
- Increase personal financial security
- Provide growth opportunities for business ventures

❖ Responsible Saving – forming the habit of saving regularly and finding

forms of saving that yield high returns

Borrowing
• obtaining money, goods or services at present in exchange for the promise
of future payment…. “Buy now, pay later.”

❖ Examples of Borrowing
- Buying with a credit card
- Buying on installment
- Payday loans
- Cash advances

❖ Reasons for borrowing:

- Major purchases
- Emergencies
- Convenience
- Prepare for future goals
- Take advantage of good sales/offers

❖ Responsible borrowing means borrowing only what can be paid back

when due.

Investing
• It relates to the purchase of assets that are expected to generate a rate of
return, with the hope that over time the individual will receive back more
money than they originally invested. Investing carries risk, and not all assets
actually end up producing a positive rate of return. This is where we see the
relationship between risk and return.

5 LU_Business Finance_Module 11
Basic Principles of Personal Finances
Keown (2010) summarized the basic principles of personal finance
management in the following:

1. The Best Protect is Knowledge

The essential finance concepts such as time value of money and the risk return
trade-off also apply to personal finance and should be the guiding principles in
assessing potential investment schemes and the related returns promised by the
schemes. Individuals should be cautious when reading and understanding the
advertisements and leaflets disseminated by the organizers especially if the returns
are way above the ordinary. It will be wise to carefully analyze the details of the
prospectus of any financial instrument being offered and determine its risk and
return characteristics. The financial statements of the issuer are a good starting
point of your analysis in determining the ability of the company to meet its
obligations to the investors.

2. Nothing Happens Without a Plan

Financial planning is not restricted to companies alone. Individuals also prepare
their financial plans in order to meet their set objectives and goals. Basic financial
plans include the preparation of annual, monthly, weekly, or even daily budgets.
Adults prepare the household budget to determine if the sources of funds (earnings,
etc.) of the family will be able to meet the required living expenditures and if there
will be an excess available for savings and investment.

3. The Time Value of Money

Remember the power of compound interest. Albert Einstein acknowledged its
importance and individuals must use it to their advantage by investing wisely and
avoiding its dangers by borrowing judiciously. Do not forget to select the best
investment alternative by determining first a common valuation date, today for
example, then comparing its (present) value before deciding which offers the most
attractive proposition. Financing or borrowing options (whether home or car loans)
should also be compared on the present values. The time value of money is also the
basis in computing the return promised by an investment scheme and whether
this is realistic, given the applicable investment time horizon.

4. Taxes Affect Personal Finance Decisions

Almost all transactions involve taxes. Analyze the returns of potential
investments on an after-tax basis. Even in determining the earnings of an individual,
just like a company, almost 1/3 of the income will go to taxes. Passive income is
also subject to taxes and this must be incorporated in the analysis before making
any investment decisions.

5. Stuff Happens, or the Importance of Liquidity

Remember to provide enough leeway for liquidity in the form of cash or any
assets easily convertible to cash or with a ready market. This will allow the individual
to cover for any unexpected needs and take advantage of unexpected opportunities.
Illiquidity may lead the individual to seek funds haphazardly and be subjective to
onerous terms by creditors.

6 LU_Business Finance_Module 11
6. Waste Not, Want Not – Smart Spending Matters
Individuals must identify priority goals—both near-term and long-term. This
should be the basis in ranking potential purchases whether staples or capital
expenditures. Only when the necessities are taken care of should an individual
indulge in more luxurious items. Impulsive buying should be minimized and a
specific budget should be set for these lower priority items.

7. Protect Yourself Against Major Catastrophes

Risk management involves protecting the individual and his property from event
risks such as natural calamities. This is more urgent in calamity-prone countries
such as the Philippines. Insurance policies should include provisions that will cover
for these events. These clauses are sometimes referred to as ―Act of God‖ riders. In
this case, the individual must not forget payments for insurance premiums as
necessary fixed obligations just like principal and interest payments of his mortgage.

8. Risk and Return Go Hand in Hand

If you desire to achieve higher returns, you must understand that investments
that will provide this higher risk. Asset classes being considered by the individual
should fall within his risk tolerance level. Risk minimization is also achieved by
remembering the adage, ―Do not put all your eggs in one basket.

9. Mind Games and Your Money

Achieving financial proficiency does not solely involve formulae and
computations. Finance is a much broader field that includes the study of behavioral
traits and reactions of individuals. Behavioral finance is an interesting field to study
and seek applications to personal finance problems.
10. Just Do It!
Now that you have covered the basic concepts in financial management, it is up
to you to apply these concepts now and in the future regardless of the field or career
you will specialize in.

a.) Objective
Setting

f.) Plan b.) Data

Monitoring Gathering

e.) Plan c.) Data

Implementation Analysis

d.) Financial Plan

Recommendation

Figure 1. Step of Personal Financial Planning

7 LU_Business Finance_Module 11
Personal Financial Planning Process
A. Objective Setting
• Quantify monetary objectives with definite time frames.
• Prioritize objectives
• Examine these objectives with an individual’s resources and limitations.

B. Data Gathering
• Use surveys, questionnaires, and interviews to gather quantitative and
qualitative information from the individual.
➢ Quantitative – for assessing financial status (i.e. investment, cash
flow, liabilities& etc.)
➢ Qualitative – to identify individual’s goals and objectives, lifestyle,
risk-tolerance, etc.

C. Data Analysis
• Analyze the individual’s financial position and cash flows
• Review legal papers (i.e. insurance policies, trust agreements
• Evaluate objectives vis-a-vis the individual’s resources and economic
conditions.

D. Financial Plan Recommendation

• Propose financial products.
• At this point, the individual can comment on the proposed solutions.

E. Plan Implementation
• Assist the individual in the execution of the recommended financial plan
• Implementation may involve other entities so assist the individual in
dealing with the parties involved in the execution of the financial plan.

F. Plan Monitoring
• Review the financial plan periodically to evaluate changing market
conditions (i.e. economic conditions, taxes, interest rates, etc.)
• Evaluate the financial plan regularly to see if it is effectively meets the
individual’s goals and objectives.

Six Key Areas of Personal Financial Planning

1. Financial Position

• Understanding of personal resources by checking an individual’s net worth

and cash flow.
❖ Net worth = assets less liabilities at a point in time
❖ Cash flow = expected sources of income less expected expenses within a
period (i.e. year)
• Helps in determining the time frame to which personal goals can realistically
be met.
• May need to answer the following questions:
• Do they have a clear understanding of their goals?

8 LU_Business Finance_Module 11
 • How do they track their income, expenses and network? What financial
benefits do they get from their employer?

2. Adequate Protection
• Analysis of protection needed for unforeseen risks.
• Includes risk of liability, property, death, disability, health, and long-term
care.
• Some insurance plans enjoy some tax benefits.
• May need to answer the following questions: What things can they not
afford to lose?
• How will they take care of their dependents?
• How have they planned to financial risks such as disability, illness, long-term
care or death?

3. Tax Planning
• Management of when and how much taxes will be paid.
• Understanding possible tax incentives, deductions, rebates, etc. can have a
significant impact on managing personal finances given the magnitude of
taxes paid by an individual.
• May need to answer the following questions:
• How do they manage their taxes?
• How do they plan the timing of income and deductions for tax purposes?
• Are they comfortable with the tax environment and applicable in them?

4. Investment and Accumulation Goals

• Planning on wealth accumulation for large purchases such as house,
educational expenses, investment for retirement, etc.
• May need to answer the following questions:
• What are their goals for wealth accumulation? (i.e. education, home,
business, retirement comfort, etc.)
• How are their current investments performing to meet their goals?
• How much will they need? When will they need it?

5. Retirement Planning
• Understanding the cost of retirement.
• Analysis of cash flows to come up with investment plans that will meet the
costs of retirement in the future.
• Analysis of cash flows to come up with investment plans that will meet the
costs of retirement in the future.
• May need to answer the following questions:
• How are they preparing for their retirement?
• How are their liabilities affecting their retirement objectives?
• Do they think they can maintain their standard of living during their
retirement?

9 LU_Business Finance_Module 11
6. Estate Planning
• Planning for disposition of one’s assets after death.
• Estate taxes paid to the government are huge, so avoiding these taxes can
significantly impact one’s personal finances.
• May need to answer the following questions:
• How should their assets be distributed upon death?
• How will their intention be carried out? (i.e. will, trust, power of attorney, etc.)

Source: Chairperson: Patricia B. Licuanan, PhD., 2016, Teaching Guide for BUSINESS FINANCE, 4 th Floor,
Commission on Higher Education, C.P. Garcia Ave., Diliman, Quezon City: The Commission on Higher Education
pp. 314-320

10 LU_Business Finance_Module 11
 Explore

Activity 2. Spend vs. Save

Directions: List down at least five (5) items with their corresponding cost that
you bought but later regretted purchasing because you wanted the money for
other purposes. Use separate sheet of paper for your answers. (1point each)

Item Cost
________________________ ________
________________________ ________
________________________ ________
________________________ ________
________________________ ________

11 LU_Business Finance_Module 11
 Deepen

Activity 3. DRAW A PICTURE!

Directions: Draw a picture of something you would like to save your money
in the future. Use separate sheet of paper for your answers.

Rubrics

12 LU_Business Finance_Module 11
 Rubrics
Category 5 4 3 2

Relevance All graphics All graphics are All graphics Graphics do not
are related to related to the relate to the relate to the
the topic and topic and most topic. Most topic OR several
make it easier make it easier borrowed borrowed
to understand. to understand. graphics graphics do not
All borrowed All borrowed have source have source
graphics have graphics have citation. citation.
source source citation.
citation.

Originality Several of the One or two of The graphics No graphics

graphics used the graphics are made by made by the
on the poster used on the the student student are
reflect an poster reflect but are based included.
exceptional student on the
degree of creativity in designs or
student their creation ideas of
creativity in and/or others.
their creation display.
and/or
display.

Elements The poster All required All but 1 of Several required

includes all elements are the required elements were
required included on the elements are missing.
elements as poster. included on
well as the poster.
additional
information.

Attractiveness The poster is The poster is The poster is The poster is

exceptionally attractive in acceptably distractingly
attractive in terms of attractive messy or very
terms of design, layout though it poorly designed.
design, layout, and neatness. may be a bit It is not
and neatness. messy. attractive.

13 LU_Business Finance_Module 11
 Gauge

Multiple Choice. Read each statement carefully and write the letter of the
correct answer in a separate sheet of paper.

1. Which of the six Key Areas of Personal Financial Planning uses net worth and
cash flow to understand personal resources of an individual?
A. Adequate Protection
B. Financial Position
C. Investment and Accumulation Goals
D. Tax Planning

2. What key area of the personal financial planning includes risks of liability,
property, death, disability, health and long-term care?
A. Adequate Protection
B. Financial Position
C. Investment and Accumulation Goals
D. Tax Planning

3. What key area of the personal financial planning explains management of when
and how much taxes will be paid?
A. Adequate Protection
B. Financial Position
C. Investment and Accumulation Goals
D. Tax Planning

4. What key area will you use if you want to plan for wealth accumulation of large
purchases such as house, educational expenses or investments for retirement?
A. Adequate Protection
B. Financial Position
C. Investment and Accumulation Goals
D. Tax Planning

5. Which of the key area of personal financial planning will you use if you want to
understand the cost of retirement?
A. Adequate Protection
B. Financial Position
C. Investment and Accumulation Goals
D. Tax Planning

14 LU_Business Finance_Module 11
6. What is the personal financial plan if the individual is planning for the
disposition of his assets after his death?
A. Adequate Protection B. Estate Planning
C. Retirement Planning D. Tax Planning

7. What is the financial planning process where you quantify monetary objectives
with definite time frames?
A. Data Analysis B. Data Gathering
C. Objective Setting D. Plan Monitoring

8. What step of the personal financial planning process will you consider if you will
use surveys, questionnaires, and interviews to gather quantitative and
qualitative information from the individual?
A. Data Analysis B. Data Gathering
C. Objective Setting D. Plan Monitoring

9. Which of the personal financial planning process where the individual can
comment on the proposed solution?
A. Data Analysis
B. Financial Plan Recommendation
C. Objective Setting
D. Plan Monitoring

10. What step of the personal financial planning process will you use If you want to
assist the individual in the execution of the recommended financial plan?
A. Data Analysis
B. Financial Plan Recommendation
C. Plan Implementation
D. Plan Monitoring

15 LU_Business Finance_Module 11
LU_Business Finance_Module 11 16
JUMPSTART: ACTIVITY 1
1. False 2. False 3. True 4. True 5. False
6. False 7. True 8. True 9. True 10. True
EXPLORE: ACTIVITY 2
Answers may vary:
(Sample answers)
Bags 750.00
T-shirt 350.00
Pants 700.00
Watch 150.00
Total Purchases ₱ 2,250.00
Savings / month ₱ 500.00
X 12 mos.
Total Savings in a year ₱ 6,000.00
DEEPEN: ACTIVITY 3 ( Answers may vary)
GAUGE:
1. B
2. A
3. D
4. C
5. C
6. B
7. C
8. B
9. B
10. C
Answer Key
References

BOOKS:
• Arthur S. Cayanan and Daniel Vincent H. Borja, 2017, Business Finance,
856Nicanor Reyes Sr. St., Sampaloc, Manila: REX Book Store, Inc. pp. 63-70

• Chairperson: Patricia B. Licuanan, PhD., 2016, Teaching Guide for BUSINESS

FINANCE, 4th Floor, Commission on Higher Education, C.P. Garcia Ave.,
Diliman, Quezon City: The Commission on Higher Education pp. 314-320

LINKS:
• Keown (2010). Basic Principles of Personal Finances.
https://courses.lumenlearning.com/boundlessaccounting/chapter/overvie
w-of-receivables/

• Money Management Retrieved September 20, 2020 from

https://www.investopedia.com/terms/m/moneymanagement.asp.

17 LU_Business Finance_Module 11
 For inquiries or feedback, please write or call:

Department of Education – SDO La Union

Curriculum Implementation Division
Learning Resource Management Section
Flores St. Catbangen, San Fernando City La Union 2500
Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
[email protected]
[email protected]

18 LU_Business Finance_Module 11