Unit 7: Managing Personal Finance

Lesson 7.2
Personal Financial Planning
Contents
Introduction 1

Learning Objectives 2

Quick Look 3

Learn the Basics 4

Personal Financial Planning 4
Steps of Personal Financial Planning 5
Importance of Personal Financial Planning 7
Money Management Philosophies and Principles 7

Case Study 9

Keep in Mind 10

Try This 11

Practice Your Skills 12

Challenge Yourself 14

Bibliography 15
Unit 7: Managing Personal Finance

Lesson 7.2

Personal Financial Planning

Introduction

Many individuals only realize the value of financial security when unforeseen circumstances,
such as the COVID-19 pandemic, hit them. Due to this experience, many vloggers, bloggers,
and TV personalities promote financial literacy and awareness through their platforms. They
aim to help individuals by providing basic knowledge on efficiently managing their funds.

People are now encouraged to diversify their sources of income, save enough to cover
several months of hardships, and secure their assets. As a student, even though you still
have limited finances, you must learn to manage your finances. Remember that personal
financial planning is necessary for attaining your overall life goals.

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Learning Objectives DepEd Competency

At the end of this lesson, you should be able to

Enumerate money management philosophies
do the following: (ABM_BF12_IVo-p-26).

● Enumerate the steps in personal

financial planning.
● Create a personal financial plan.

● Realize the importance of personal

financial planning by applying various
money management philosophies.

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Quick Look

Roadmap to Financial Freedom

Financial freedom is the financial end goal of every individual. Financial freedom means
having enough money to cover daily expenses, afford a comfortable lifestyle, and pay all
debts and obligations. It entails control over your own money. Unfortunately, many people
still do not know how to start and achieve this.

Below is a roadmap to your financial freedom. Now, consider the obstacles you may
encounter to achieve financial freedom. Write these in the space provided.

Questions to Ponder
1. How do these obstacles affect your end goal, which is financial freedom?
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2. How can you overcome the obstacles you have enumerated?

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3. In what way/s does a financial plan help one achieve any financial goal?

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Learn the Basics

To achieve financial freedom, one must be financially literate. Financial literacy refers to the
fundamental knowledge of an individual regarding the management and use of his/her
money. Financial literacy is the basic foundation of your relationship with money (Fernando
and Schmitt, 2021), as it aids you in setting your financial goals and crafting well-planned
strategies.

Essential Questions

Does financial planning guarantee the achievement of financial freedom?

Personal Financial Planning

Through financial literacy, one can plan for his or her financial security. Thus, financial
literacy and financial planning are equally important aspects of an individual's economic life.

In a broad sense, financial planning refers to systematically brainstorming ideas to identify

possible courses of action to achieve financial goals. From a more personal perspective,
personal financial planning involves setting your personal financial goals (often about
savings and investments) and identifying the most feasible ways to achieve these goals,
including tactical means of acquiring, spending, saving, and investing your funds.

A personal financial plan is a comprehensive document that includes one's financial goals,
savings and investments, a list of expenditures, and debts. One example of a personal
financial plan is the budget. Crafting your budget helps you to become financially healthy
and stable.

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Closer Look

Budgeting your funds

Students like you must learn how to save their money at an early age.
Some keep their money in piggy banks, while others in banks. Yet, it all
starts by creating a weekly or a monthly budget—any written document
that shows a list of your possible expenses, money from your allowances,
potential investments, and when and how to pay off your debts. These
are all part of your personal financial planning. A budget can help you
decide how to acquire more funds, spend your money wisely, and save
and invest in different investments for money growth.

Check Your Progress

How can an individual use financial planning to improve his/her current

financial situation?
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Steps of Personal Financial Planning

Personal financial planning is essential to assess the future of your financial health ("Financial
Plan | Personal Financial Plan | Investment Plan" 2019). Although it takes a lot of time to
plan, attaining your financial goals using a well-crafted financial plan can be
transformational. Figure 1 illustrates the six simple steps in personal financial planning.

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Figure 1. The steps in personal financial planning

Step 1: Determine the current financial status. Your present financial situation will give a
glimpse of your financial needs. It will be your headstart in identifying the right financial
goals you need to set.

Step 2: Set your financial goals. Your financial goals are essential to your financial plan as
they will show a clearer picture of what you want to achieve. These could be in the form of
short-term (less than a year), medium-term (up to three years), and long-term (more than
three years) goals.

Step 3: Identify your financial resources. Although you have financial goals now, you still
need to determine how and where you will acquire the necessary funds to achieve your
goals. Usually, individuals get their funds through salaries and income, while others may
obtain loans.

Step 4: List down your financial strategies. Your strategies must be specific, realistic,
attainable, and appropriate for your financial goals. It ensures that you can achieve the

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goals within the intended period. However, creating more than one option for a goal for
contingency purposes is necessary.

Step 5: Implement your financial plan. The implementation part is the heart of the whole
financial planning process. This phase will determine if your strategies worked out or not. It
can help you decide what to do next.

Step 6: Assess and evaluate. Even if you have successfully implemented the plan, you still
need to assess what went right and what needs improvement. Financial planning should
continue as you grow older because priorities and goals change. It means that you must
change some, if not all, parts of your plan too. Thus, the personal financial planning cycle
must go on.

Importance of Personal Financial Planning

When life surprises them, people often get anxious as they are unprepared for it. Most of
the time, they also blame these unforeseen events for their financial hardships. However,
there are a lot of circumstances that are beyond one's control. Therefore, the only way to
overcome the impact of these events is to prepare for them financially.
Here are some of the reasons why personal financial planning is a must for every individual:
1. It helps people track the flow of their funds.
2. It lets people understand their current financial standing.
3. People can organize their financial records, including income, expenditures, and
debts.
4. People can maintain discipline when using their finances.
5. People can work to attain financial freedom.

Money Management Philosophies and Principles

Money management is the process of saving, investing, and spending your funds (Scott,
2022). The concept of money management is one of the factors to consider when you want
to implement your financial plan successfully. So when you plan for your economic
well-being, you must hold on to management philosophies and principles that you value.
These values can help you maintain your discipline in executing your financial plan. Some of
the common financial management philosophies are as follows.

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1. Financial knowledge is the key.

2. Be responsible for your funds.
3. Fewer debts and more income-generating resources.
4. Do not spend more than what you earn.
5. Invest early and make more money.

Remember that these money-management philosophies and principles vary from person to
person, as each individual has their own financial goals. They must develop their personal
financial practice. They may also seek assistance from financial planners and other
professionals.

Check Your Progress

How do your money management philosophies affect your financial

planning? Explain your answer by providing an example.
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Case Study

The Philippines to Further National Financial Literacy

The pandemic has been an eye-opening experience. People now consider
their savings and investment practices. According to the Bangko Sentral
ng Pilipinas (BSP), the number of people purchasing health and life
insurance increased by 10.12% from 2019 to 2020. In addition, BSP
estimated that only 48% of Filipinos had savings before the pandemic, but
this number increased to almost 53%. It only shows that Filipinos are now
interested in different financial activities that benefit the whole economy
of the Philippines.

In relation to this, the governor of BSP emphasized the importance of

financial literacy, especially since most Filipinos are now transacting
digitally. Integration of different digital platforms and payment schemes
in various MSMEs has been one of the highlights of the present financial
era. BSP continuously conducts financial literacy programs that use digital
skills to boost economic resilience.

The Philippines to Further National Financial Literacy

Aineena Hani, “The Philippines to Further National Financial
Literacy”, OpenGov Asia (November 24, 2021),
https://opengovasia.com/the-philippines-to-further-national-f
inancial-literacy/, last accessed on June 13, 2022.

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Keep in Mind

● Financial planning refers to the process of identifying ways and strategies to achieve
the financial goals set by an individual.
● Personal financial planning involves setting your financial goals and identifying the
possible means, including different courses of action to acquire, spend, save, and
invest funds to attain your financial goals.
● A personal financial plan is a comprehensive document that includes one’s financial
goals, savings and investments, a list of expenditures, and debts.
● There are six common steps in personal financial planning.

● The concept of money management is one of the factors to consider when you want
to implement your financial plan successfully. Although there are different
philosophies and principles in money management, you can create one most
suitable for your goals.

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Try This

True or False. Write true if the statement is correct. Otherwise, write false.

________________ 1. Personal financial planning should always start with setting

financial goals.

________________ 2. Financial literacy and planning are equally important aspects of a

person's financial life.

________________ 3. Creating a personal financial plan is a crucial step to reaching

financial freedom.

________________ 4. In money management, one must spend more than what he earns.

________________ 5. One of the main goals of financial planning is to maintain an

individual's discipline in managing his/her finances.

________________ 6. An individual needs to assess and evaluate the financial plan he/she
has prepared to ensure that the strategies appropriately fit the
goals.

________________ 7. Anyone could be a registered financial planner.

________________ 8. Keeping financial records such as receipts or lists of expenses paid

is essential in personal financial planning.

________________ 9. There is a standard financial plan for everyone.

________________ 10. The different money management philosophies and principles vary
from one person to another.

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Practice Your Skills

My Financial Planning Process

Follow the steps in the personal financial planning process. Fill out the diagram by
answering the questions provided. Then, answer the next questions below the diagram.

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1. How did your current financial situation affect your decision in choosing your
ultimate financial goal?
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2. Which category (short-term, medium-term, or long-term) do your financial goals

belong to? Why did you categorize it as such?
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3. How did you choose the possible sources of funds appropriate for your financial
goal?
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4. Are there any factors that could still change your financial goals? If so, what are these
factors, and how will it affect your financial plan?
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5. Assume that another pandemic will strike the country again. How will it affect your
financial planning process?
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Challenge Yourself

Read the following situations. Cite one of the money management philosophies and use it to
provide sound financial advice. Aside from the philosophies presented in this lesson, you
also have the option to develop your own.

1. Anna hired you to become her financial planner. She is a mother of two children
aged 5 and 2, respectively. Her husband is the only one working for their family, with
an annual income of ₱600,000. Based on the previous month, their monthly
expenses amounted to ₱36,000. Their household does not have any existing loans.
According to Anna, their ultimate goal is to build a house of their own. What advice
would you give Anna regarding her possible strategies to reach their goal?
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2. Matthew is a BPO agent. Although contractual, his monthly salary amounts to

₱35,000. He is single and has no dependents. Because of this, he is known to be a
one-day millionaire during paydays and, afterward, acquire loans from his
colleagues, especially during month-end. All-in-all, his liabilities summed up to
₱150,500. With his current situation, what should be his ultimate goal? How would
this goal affect his financial health?
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3. Farrah, a government employee, plans to invest all her savings in cryptocurrencies

because she heard from a friend that there is a high return when investing in this
type of investment. Her friend also promised that they would create one joint
account and that her friend would manage everything. What will be your
recommendation to Farrah regarding her investment strategies?
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Bibliography
Braham, Lewis. “Chapter 1: Personal Financial Planning.” Jenks Public Schools. Accessed June
13, 2022. https://www.jenksps.org/pages/uploaded_files/chap01.pdf.

Danielsson, Matt. “How to Reach Financial Freedom: 12 Habits to Get You There.”
Investopedia. Last modified May 12, 2022.
https://www.investopedia.com/articles/personal-finance/112015/these-10-habits-will-
help-you-reach-financial-freedom.asp.

Fernando, Jason, and Kirsten R. Schmitt. “Financial Literacy Definition.” Investopedia. Last
modified October 29, 2021.
https://www.investopedia.com/terms/f/financial-literacy.asp.

“Financial Plan | Personal Financial Plan | Investment Plan.” 2019. M1 Finance. Last
accessed July 19, 2022. https://m1.com/articles-1/financial-plan/.

Hani, Aineena. “The Philippines to Further National Financial Literacy.” OpenGov Asia. Last
modified November 24, 2021.
https://opengovasia.com/the-philippines-to-further-national-financial-literacy/.

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Scott, Gordon. “Money Management Definition.” Investopedia. Last modified May 25, 2022.
https://www.investopedia.com/terms/m/moneymanagement.asp.

“Personal financial planning - top tips to secure your future.” N26. Last modified February
11, 2022. https://n26.com/en-eu/blog/personal-financial-planning.

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