• A comprehensive financial plan can enhance the quality of life and increase satisfaction by
reducing uncertainty about future needs and resources. Specific advantages of personal
finance planning include:
o Increased effectiveness in obtaining, using and protecting financial resources
o Increased control of financial affairs by avoiding excessive debt, bankruptcy, and
dependence on others for economic security
o Improved personal relationships resulting from well-planned and effectively
communicated financial decisions
o A sense of freedom from financial worries obtained by looking to the future,
anticipating expenses, and achieving personal economic goals
6. Re-evaluate and revise the plan – Financial planning is a dynamic process that does
not end when the individual takes a particular action. He/she needs to regularly assess
financial decisions. It is recommended to have a complete review of your finances at
least once a year.
B. Setting Financial Planning Goals
• Factors influencing financial goals
o Timing of the goals – There are three (3) time frames enumerated: short-term goals,
which are achieved within the next year; intermediate goals, which has a time frame of
one to five years, and long-term goals, which are set more than five (5) years into the
future.
o Goals for different financial needs – A goal of obtaining increased career training is
different from a goal of saving money to pay a car loan. Consumable-product goals
usually occur on a periodic basis and involve items that are used up relatively quickly,
such as food, clothing, and entertainment. Durable-product goals usually involve
infrequently purchased, expensive items such as appliances, cars and sporting
equipment. Finally, there are intangible-purchase goals, which relate to personal
relationships, health, education, and leisure.
• SMART Goals in Personal Finance
o SPECIFIC, to know exactly what the goals are and create a plan designed to achieve
those goals
o MEASURABLE with a specific amount
o ATTAINABLE, providing the basis for the personal financial activities that must be
done
o RELEVANT, involving goals based on the individual’s income and real life situation
o TIME-BASED, indicating a time for achieving the goal. This allows the individual to
measure his/her progress towards financial goals.
C. Influences on Financial Decisions
• Life situation and personal values – People in their 20s spend money differently than those
in their 50s. Personal factors such as age, income, household size, and personal beliefs
influence spending and saving patterns. The table below shows some of the classifications
and life stages individuals go through.
Age Employment situation
• 18-24 • Full-time student
• 25-34 • Not employed
• 35-44 • Full-time employment or volunteer work
• 45-54 • Part-time employment or volunteer work
• 55-64
• 65 and over
Marital status Number and age of household members
• Single • No other household members
• Married • Preschool children
• Separated/ divorced • Elementary and secondary school children
• Widowed • Post-secondary students
• Dependent adults
• Nondependent adults
The life cycle approach is the idea that the average person goes through four (4) basic stages
in personal finance management:
o Early years (18 – 35) – The focus is on creating an emergency fund, saving for a down
payment on a house or condo, and, if necessary, purchasing life insurance. This is also
the ideal time to think about starting a retirement fund because the earlier one starts, the
less money should be saved later on to catch up.
o Middle years (36 – 55) – the focus is to start building wealth by paying down the
mortgage and increasing savings and investments.
o Middle age (50 – 65) – The focus during this age is to provide an adequate retirement
fund.
o Retirement years – After retirement, the focus is the effective management of
previously managed wealth.
Some common financial goals and activities:
o Obtain appropriate career training
o Create an effective financial recordkeeping system
o Develop regular savings and investment program
o Accumulate an appropriate emergency fund
o Purchase appropriate types and amounts of insurance coverage
o Create and implement a flexible budget
o Evaluate and select appropriate investments
o Establish and implement a plan for retirement goals
on a fixed income. The increase in prices without a corresponding increase in pay will
cause them to afford fewer goods and services.
o Consumer spending – The total demand for goods and services in the economy
influences employment opportunities and the potential for income. As consumer
spending increases, the financial resources of businesses also increase. This situation
improves the financial condition of many households.
o Interest rates - Interest rates represent the cost of money. When consumer saving and
investment increase the supply of money, interest rates tend to decrease. However, as
consumer, business, government and foreign borrowing increase the demand for
money, interest rates tend to rise.
References:
Benito, P. P., Chan Pao, T. P., & Yumang, K. (2016). Exploring small business and personal finance
in senior high. Quezon City: Phoenix Publishing House.
Meter, M. V. (2015). Which personal finance philosophy is right for you?. Retrieved from Smarty
Cents Website: http://smartycents.com/articles/which-personal-finance-philosophy-is-right-
for-you/
Smith, J. (2017). 11 best budget apps for 2017. Retrieved from Gotta Be Mobile Website:
http://www.gottabemobile.com/best-budget-apps/