UNDERSTANDING
THE FINANCIAL
PLANNING
PROCESS
MANILA BUSINESS COLLEGE
PRAYER
Lord, we offer to You our class today.
We pray that through Your Divine Guidance,
we would learn how to listen attentively to the inputs of our
teacher.
May we appreciate his effort in imparting his knowledge to
us.
May we participate actively in the discussions and
activities, so we could learn more while having fun.
May we value each other’s contributions as a building block
towards harmony and peace.
PRAYER
Grant that as we interact with one another, we recognize
the fact that all our learning activities should be
accomplished for Your greater glory.
Grant that we recognize YOU in each of our classmates
and teachers.
As we learn at home, we pray that You keep us safe from
harm and illnesses.
And we would be able to apply correctly what we have
learned from school.
All these we ask in Your powerful name.
Amen.
LEARNING GOALS
Identify the benefits of using personal financial planning
techniques to manage your finances
Describe the personal financial process and define your goals
Explain the life cycle of financial plans, the role they play in
achieving your financial goals, how to deal with special planning
concerns, and the use of professional financial planners
Examine the economic environment’s influence on personal
financial planning
Evaluate the impact of age, education, and geographic location on
personal income
Understand the importance of career choices and their relationship
to personal financial planning
THE REWARDS OF
SOUND FINANCIAL PLANNING
What does living “the good life” mean to you?
THE REWARDS OF
SOUND FINANCIAL PLANNING
Improving Your Standard of
Living
Spending Money Wisely
Accumulating Wealth
ORGANIZATIONAL
PLANNING MODEL
STANDARD OF LIVING
• Varies from person to person
• Represents the necessities, comforts,
and luxuries enjoyed by a person
• Reflected in the material items a
person owns, as well as the costs
and types of expenditures normally
made for goods and services.
STANDARD OF LIVING
• Quality of life is closely tied to our
standard of living
• Geographic location, public facilities,
local costs of living, pollution, traffic,
and population density affect one's
quality of life
• Main determinant of quality of life is
believed to be wealth
CONSUMPTION PATTERNS
• Related to quality of life, which depends
on a person's socioeconomic strata
• Implies that wealthy persons, who are
likely to consume non-necessity items,
quite often live higher quality lives than
persons whose wealth permits only
consumption of necessities.
AVERAGE PROPENSITY TO
CONSUME
• Percentage of each peso of a
person's income that is spent (rather
than saved), on average, for current
needs rather than savings
• Quite possible to find two persons
with significantly different incomes
with the same average propensity to
consume
AVERAGE PROPENSITY TO
CONSUME
• Many people will increase their level of
consumption as their incomes rise, i.e.,
buy a nicer home or a newer car.
• Thus, even though they may have more
money, they may still consume the
same percentage (or more) of their
incomes as before.
ACCUMULATING WEALTH
• An individual's wealth is the
accumulated value of all items he or
she owns.
• People accumulate wealth as either
financial assets or tangible assets.
FINANCIAL ASSETS
• Intangible, paper assets, such as
savings accounts or securities, such as
stocks, bonds and mutual funds
• Expected to provide the investor with
interest, dividends, or appreciated
value
TANGIBLE ASSETS
• Physical items, such as real estate,
automobiles, artwork, and jewelry
• Held for either consumption or
investment purposes or both
• Based on the 2019 Financial Inclusion
Survey of the BSP, 53% of adult
Filipinos are savers but 51% of them
save at home.
• While account ownership has
improved in the last 2 years, more than
two-thirds of Filipinos still lack access
to a formal account.
FORMAL ACCOUNT
DEMOGRPAHICS
FORMAL ACCOUNT
DEMOGRPAHICS
SAVINGS DEMOGRPAHICS
BANKING THE UNBANKED
BANKING THE UNBANKED
BANKING THE UNBANKED
PERSONAL FINANCIAL
PLANNING PROCESS
Systematic process that
considers important elements of
an individual’s financial
affairs in order to
fulfill financial
goals
SIX-STEP FINANCIAL
PLANNING PROCESS
1. Define financial goals
2. Develop financial plans and strategies
3. Implement financial plans and strategies
4. Develop and implement budgets
5. Use financial statements to evaluate results
6. Redefine goals, revise plans as circumstances
change
FINANCIAL GOALS
• Results that an individual wants to
attain
• Examples include buying a home,
building a college fund and achieving
financial independence
MONEY AND HAPPINESS
Can money buy happiness?
“Happy people say that they spend less and appreciate what they
have more.”
THE ROLE OF MONEY
• Medium of exchange used
to measure value in
financial transactions
• Utility amount of
satisfaction
derived from purchases
versus
cost
• Link to personal
psychological concepts and
key role in personal
relationships
MONEY
• Provides the standard unit of
exchange (in the case of the
Philippines, the peso) by which
specific personal financial
plans—and progress with
respect to these plans—can be
measured
• Is therefore the key
consideration in establishing
financial plans
THE PSYCHOLOGY OF
MONEY
• Not only an economic concept but also
a psychological one that is linked
through emotion and personality
• Each person has a unique personality
and emotional makeup that determines
the importance and role of money in his
or her life, as well as one’s particular
money management style.
THE PSYCHOLOGY OF
MONEY
• Personal values also affect one's
attitudes to money.
• Money is a primary motivator of
personal behavior and has a strong
impact on self-image.
• To some, money is of primary
importance, and accumulation of
wealth is a dominant goal.
THE PSYCHOLOGY OF
MONEY
• For others, money may be less
important than lifestyle considerations.
• Therefore, every financial plan must be
developed with a view towards the
wants, needs, and financial resources of
the individual and must also realistically
consider his or her personality, values,
and money emotions.
MONEY AND RELATIONSHIPS
Frequently a source of conflict in
relationships, often because
• the persons involved aren't comfortable
discussing this emotion-laden topic;
• different financial goals and personal
values lead to different opinions on how
to spend/save/invest the family's money
MONEY AND RELATIONSHIPS
To avoid arguments and resolve
conflicts,
• first become aware of each person's
attitude toward money and his or her
money management style,
• keep the lines of communication open,
and
• be willing to listen and to compromise
MONEY AND RELATIONSHIPS
To accommodate various money
management styles within a
relationship or family
• establish personal financial plans that
take individual needs into account.
• establish separate accounts with a set
amount allocated to each account
each pay period.
PUTTING TARGET DATES ON
FINANCIAL
GOALS
• Long-term
6 years or
more
• Intermediate-term
the next 2-5 years
• Short-term
in the next
year
FROM GOALS TO PLANS:
A LIFETIME OF PLANNING
• Early childhood
• High school and college
• Family formation
• Career development
• Pre-retirement
• Retirement
PERSONAL FINANCIAL
PLANNING LIFE CYCLE
HOW A $1,000 INVESTMENT
GROWS OVER TIME
PLANS TO ACHIEVE YOUR
FINANCIAL GOALS
Asset acquisition planning
Liability and insurance planning
Savings and investment planning
Employee benefits planning
Tax planning
Retirement and estate planning
THE PLANNING
ENVIRONMENT
Financial planning
environment
contains various
interrelated groups
of players, each
fulfilling certain
goals.
MAJOR PARTICIPANTS IN
THE ECONOMIC SYSTEM
Government
• provides the structure within which
businesses and consumers function
• also provides a number of essential
services that generally improve the
quality of the society in which we live
MAJOR PARTICIPANTS IN
THE ECONOMIC SYSTEM
Government
• To create this structure, various
regulations are set forth, and to
support its activities and provision of
essential services, taxes are levied.
• These activities tend to constrain
businesses and consumers
MAJOR PARTICIPANTS IN
THE ECONOMIC SYSTEM
Businesses
• provide goods and services for
consumers and receive money
payments in return
• also employ certain inputs in producing
and selling goods and services
MAJOR PARTICIPANTS IN
THE ECONOMIC SYSTEM
Businesses
• In exchange, they pay wages, rents,
interest, and profit.
• are a key component in the circular
flow of income that sustains our
economy
MAJOR PARTICIPANTS IN
THE ECONOMIC SYSTEM
Businesses
• create the competitive environment in
which consumers select from many
different types of goods and services
MAJOR PARTICIPANTS IN
THE ECONOMIC SYSTEM
Consumers
• are the focal point of the personal
finance environment
• Their choices ultimately determine the
kinds of goods and services that
businesses will provide.
MAJOR PARTICIPANTS IN
THE ECONOMIC SYSTEM
Consumers
• Also, consumer spending and saving
decisions directly affect the present
and future circular flows of income.
• must; however, operate in the
financial environment created by the
actions of government and business.
MAJOR PARTICIPANTS IN
THE ECONOMIC SYSTEM
Consumers
• may affect change in this
environment through their elected
officials, purchasing decisions
and/or advocacy groups.
• Yet, basically, change occurs slowly
and tediously, often with less than
favorable results.
MAJOR PARTICIPANTS IN
THE ECONOMIC SYSTEM
Consumers
• Thus, should attempt to optimize their
financial plans within the existing
financial environment
FINANCIAL PLANNING
ENVIRONMENT
GOVERNMENT
• Federal government plays a
major role in regulating the
level of economic activity
• Taxation and regulation
constrain personal financial
planning
THE ECONOMY
Monetary Policy Fiscal Policy
• Controls money • Controls levels of
supply taxation
• Used to stimulate
• Sets levels of
or contract
economic growth government
spending
THE ECONOMY
Economic Cycles Inflation
• Stages related to • Measured by
employment and changes in CPI
production levels • Affects purchasing
• Growth measured power and interest
by changes in rates
GDP • Affects financial
plans and goals
THE BUSINESS CYCLE
The business cycle consists of four stages: expansion,
peak, contraction, and trough
STAGES OF ECONOMIC
CYCLES
• The stronger the economy, the
higher the levels of real GDP and
employment.
• During an expansion, real GDP
increases until it hits a peak, which
usually signals the end of the
expansion and the beginning of a
contraction.
STAGES OF ECONOMIC
CYCLES
• During a contraction (recession), real
GDP falls to a trough, which is the end
of a contraction and the beginning of
an expansion.
STAGES OF ECONOMIC
CYCLES
• An understanding of these four basic
stages, coupled with knowledge of
the stage in which the economy is
presently operating, should permit
individuals to adjust and implement
financial actions in order to efficiently
and successfully achieve their
personal financial goals.
INFLATION
• a state of the economy in which the
general price level is rising
• important in financial planning because
– affects what we pay for goods and
services;
– impacts how much we earn on our jobs;
– directly affects interest rates and,
therefore, it affects such things as
mortgage and car loan payments
INFLATION
• The most common measure of inflation
is the consumer price index, which is
based on the changes in the cost of a
typical "market basket" of consumer
goods and services.
• This can be used to compare changes
in the cost of living over time for the
typical family.
INFLATION
• measured by the percentage change in
the consumer price index from one
time period to another, so that as the
CPI rises, the cost of living also
increases.
WHAT DETERMINES
PERSONAL INCOME
• Demographics and income
– Age, marital status
• Education
• Where you live
• Career
HOW AGE AND EDUCATION
AFFECT FAMILY INCOME
FINANCIAL PLANNING
EXERCISE
• Assume that you graduated from
college with a major in finance and took
a job with a large bank. After 3 years,
you are laid off when the company
downsizes. Describe the steps you’d
take to “repackage” yourself for
another field.
REFERENCES
• Gitman, Lawrence J., Joehnk, Michael D.
and Billingstey, Randall. (2014).
Investment Management with Personal
Finance, 2014-2016 Edition. Singapore:
Cengage Learning Asia Pte Ltd
• https://www.bsp.gov.ph/
Media_And_Research/Financial
%20Inclusion%20Dashboard/2020/
FIDashboard_1Q2020.pdf
