Personal Finance

CLARENDON COLLEGE
Odiong, Roxas, Oriental Mindoro
Contact No.: (043) 289-2538 Email: [email protected]

LEARNING
MODULE IN
PERSONAL FINANCE

COURSE DESCRIPTION: This course equips students on how to budget effectively and
understand much more about the mysteries of the financial world. Students will also learn to
apply decision-making skills to evaluate career choices and set personal goals.

COURSE OBJECTIVES:

1. To understand the process of developing a personal financial plan

2. To analyze the importance of financial statements in making sound economic decisions
3. To apply basic personal finance principles and practices in earning, spending, saving,
and investing money

PREPARED BY: CATHERINE F. LARIRIT

Lecturer

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UNIT 1: PERSONAL FINANCIAL PLANNING

LESSON 1

MANAGING PERSONAL FINANCE

LEARNING OBJECTIVES
At the end of the topic, you should be able to:
 Define personal finance
 Analyze the process involved in making personal financial decisions
 Define personal financial planning
 Identify personal financial goals
 Identify and assess sound money management practices

INSTRUCTION/DELIVERY

1. Personal Finance.
• Define Personal Finance. (Source: Investopedia - Sharper Insight. Smarter Investing. |
Investopedia. (2016). Investopedia. Retrieved 8 May 2016, from http://investopedia.com)

• PERSONAL FINANCE includes all financial

decisions and 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 fulfil those needs considering
individual financial constraints.
• It is primarily dependent on one’s earnings, cost of
living, and personal goals and wants.
* Personal finance includes every aspect of your life that
deals with money. The emphasis of the phrase is
definitely on the word ―personal. - From: The Complete
Idiot’s Guide to Personal Finance in Your 20s & 30s

2. Personal Financial Planning is the process of sound money management that leads to
personal and economic situations.

Advantages:
1. Increased effectiveness in obtaining, using and protecting your financial resources
throughout your lifetime.
2. Increased control of your financial affairs by avoiding excessive debt, bankruptcy and
dependence on others for economic entity.
3. Improved personal relationships resulting from well-planned and effectively
communicated financial decisions
4. A sense of freedom from financial worries obtained by looking to the future, anticipating
expenses and achieving your personal economic goals.

Three (3) main decision areas:

1. Spending – when we talk about spending, we refer to both our daily routinary expenses
and a major expenses.
2. Saving- saving on the other hand refers to the portion of our money that we do not spend
for future needs or mostly, for financial security in case of need.

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3. Sharing- the portion of our money that we decide to give to charities, churches or other
institutions who are in need of a financial support.

PERSONAL FINANCIAL PLANNING PROCESS

Individuals are always confronted with the challenge of making sound financial decisions
every time. Provided below are logical steps for fruitful personal financial planning:

Step 1: DETERMINE YOUR CURRENT FINANCIAL POSITION

Step 2: DEVELOP YOUR FINANCIAL GOALS
Step 3: IDENTIFY ALTERNATIVE COURSES OF ACTION
Step 4: EVALUATE ALTERNATIVES
Step 5: CREATE AND IMPLEMENT A FINANCIAL ACTION PLAN
Step 6: REVIEW AND REVISE FINANCIAL PLAN

UNIT 1: PERSONAL FINANCIAL PLANNING

LESSON 2
MONEY MANAGEMENTCHOICES

LEARNING OBJECTIVES
At the end of the topic, you should be able to:
1. Explain personal money management choices in terms of income, spending, credit, saving,
and investing

INSTRUCTION/DELIVERY

1. MONEY MANAGEMENT
• Everyone makes choices about how to manage his or her money.
• The personal money management choices that you make will have a significant impact
on your life.
• It is really important to develop good money habits sooner rather than later!
• Money is the medium of exchange used to buy goods and services.
• There are several forms of money: currency (cash), coins, debit cards, and checks.
•
Forms of Money

Check Currency

Coins Debit Card

INCOME

•People earn an income by giving their time and services to an employer in an exchange
for money.
• Income is the money that you make from your job.
• Your income provides you with the money that you can save or spend on whatever you
want.
SPENDING

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•Your income provides you with the money that you can choose to spend now on goods
and services.
• When you spend your income, you are trading your money in exchange for goods or
services.
BUDGET
• To help people make decisions about their income, a budget can be developed.
• A budget is a saving-spending plan that is based on a person’s income and estimated
expenses.
SAVING

•You may also choose to save money from your income for the future.
•Your savings is the amount of money that you have not spent after buying the things that
you want or need.
• It is a good idea to save money so that you have it in case of an emergency.
• Typically, you put your savings into a bank account, but there are other ways that you can
choose to invest your money.
INVESTING

• Investing is how you make your money grow, or appreciate, to gain a financial return.
• You can increase your money by investing in many different ways: stocks and bonds, real
estate, collectibles, businesses, etc.
• Investing means postponing current consumption in order to pursue an activity with
greater benefits in the future.
• Basically, after a period of time, you should get more money than you put in due to
interest.

CREDIT

• People use credit to buy something now and pay for it later.
• When you buy something using credit, you have to pay back the money that you
borrowed, plus an additional amount in interest.
• Interest is a fee paid for the use of someone else’s money.
• People who can borrow money with a low interest rate are said to have good credit, while
those who cannot borrow such amounts are said to have bad credit
• While credit is extremely useful to the economy, excessive borrowing can be a problem
for people, businesses, and the government.
• Credit should not be used to pay for goods or consumption in the present that were
completely consumed in the past.

UNIT 2: FINANCIAL STATEMENTS

LESSON 3 4
STATEMENT OF FINANCIAL POSITION
Personal Finance

LEARNING OBJECTIVES:
At the end of the topic, you should be able to:
1. reflect on the importance of preparing the SFP.
2. reflect on the separation of current and noncurrent items in the SFP
3. reflect on the difference of the report form and the account form

INSTRUCTION/DELIVERY
1. Define the term Statement of Financial Position and introduce the term Permanent Accounts
STATEMENT OF FINANCIAL POSITION – Also known as the balance sheet. This
statement includes the amounts of the company’s total assets, liabilities, and owner’s equity
which in totality provides the condition of the company on a specific date. (Haddock, Price, &
Farina, 2012)
PERMANENT ACCOUNTS – As the name suggests, these accounts are permanent in a sense
that their balances remain intact from one accounting period to another. (Haddock, Price, &
Farina, 2012) Examples of permanent account include Cash, Accounts Receivable, Accounts
Payable, Loans Payable and Capital among others. Basically, assets, liabilities and equity
accounts are permanent accounts. They are called permanent accounts because the accounts are
retained permanently in the SFP until their balances become zero. This is in contrast with
temporary accounts which are found in the Statement of Comprehensive Income (SCI).
Temporary accounts unlike permanent accounts will have zero balances at the end of the
accounting period.
CONTRA ASSETS – Contra assets are those accounts that are presented under the assets
portion of the SFP but are reductions to the company’s assets. These include Allowance for
Doubtful Accounts and Accumulated Depreciation. Allowance for Doubtful Accounts is a contra
asset to Accounts Receivable. This represents the estimated amount that the company may not be
able to collect from delinquent customers. Accumulated Depreciation is a contra asset to the
company’s Property, Plant and Equipment. This account represents the total amount of
depreciation booked against the fixed assets of the company.

THE ACCOUNTING EQUATION

Assets = Liabilities + Owner’s Equity
2. Example of SFP
LEARNING IS FUN
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31,2016

Assets Liabilities and Owner’s Equity

Current Assets Current Liability
Cash ₱ 5,000.00 Accounts Payable ₱ 22,400.00
Accounts Receivable 2,600.00 Noncurrent Liability
Supplies 2,300.00 Loans Payable 77,500.00
Total Current Assets ₱ 9,900.00 Total Liabilities ₱ 99,900.00
Noncurrent Assets Owner’s Equity
40,000.00
Building ₱ 113,000.00 TotalLiabilities&Owner’sEquity ₱139,900.00
Equipment 17,000.00

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Total Noncurrent Assets ₱ 130,000.00

Total Assets ₱ 139,900.00
3. Differentiate the Report Form and Account Form
Report Form – A form of the SFP that shows asset accounts first and then liabilities and
owner’s equity accounts after. (Haddock, Price, & Farina, 2012)
Example:

HAPPY SELLING COMPANY

STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2016

Assets
Current Assets
Cash ₱ 5,000.00
Accounts Receivable 2,600.00
Supplies 2,300.00
Total Current Assets ₱ 9,900.00
Noncurrent Assets
Building ₱ 113,000.00
Equipment 17,000.00
Total Noncurrent Assets ₱ 130,000.00
Total Assets ₱ 139,900.00
Liabilities and Owner’s Equity
Current Liability
Accounts Payable ₱ 22,400.00
Noncurrent Liability
Loans Payable 77,500.00
Total Liabilities ₱ 99,900.00
Owner’s Equity 40,000.00
Total Liabilities and Owner’s Equity ₱ 139,900.00

Account Form – A form of the SFP that shows assets on the left side and liabilities and owner’s
equity on the right side just like the debit and credit balances of an account. (Haddock, Price, &
Farina, 2012) The balance sheet shown above is in account form. (2. Example of SFP)
4. Group accounts under Current Assets, Noncurrent Assets, Current Liabilities, Noncurrent
Liabilities and Owner’s Equity
Current Assets – Assets that can be realized (collected, sold, used up) one year after year-end
date. Examples include Cash, Accounts Receivable, Merchandise Inventory, Prepaid Expense,
etc. Current Liabilities – Liabilities that fall due (paid, recognized as revenue) within one year
after yearend date. Examples include Notes Payable, Accounts Payable, Accrued Expenses
(example: Utilities Payable), Unearned Income, etc.
Current Assets are arranged based on which asset can be realized first (liquidity). Current
assets and current liabilities are also called short term assets and shot term liabilities.
Noncurrent Assets – Assets that cannot be realized (collected, sold, used up) one year after
yearend date. Examples include Property, Plant and Equipment (equipment, furniture, building,
land), Long Term investments, Intangible Assets etc.
Noncurrent Liabilities – Liabilities that do not fall due (paid, recognized as revenue) within one
year after year-end date. Examples include Loans Payable, Mortgage Payable, etc.
Noncurrent assets and noncurrent liabilities are also called long term assets and long term
liabilities.
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