Personal Financial Management

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a Presentation by Association of Bank Remittance Officers, Inc. (ABROI) at the BSP Regional Financial Literacy Campaign for OFWs in Cebu City, Philippines on February 28, 2006

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  • Personal Financial Management

    1. 1. <ul><li>Personal Financial Management </li></ul>
    2. 2. <ul><li>Every person, rich or poor goes through stages of financial difficulty. However financial freedom can be within everyone’s reach. </li></ul>
    3. 3. When are you wealthy? <ul><li>Wealth cannot be equated to how much money you have in your pocket or in the bank </li></ul><ul><li>Wealth is relative to your income as well as your lifestyle </li></ul>
    4. 4. <ul><li>Your living expenses are supported by the earnings of your assets and investments </li></ul><ul><li>Money working for you not you working for money. </li></ul><ul><li>Nagtratrabaho ka dahil gusto mo; hindi dahil kailangan mo </li></ul>When are you wealthy?
    5. 5. <ul><li>Two types of income: </li></ul><ul><li>1. Active Income </li></ul><ul><li>2. Passive Income </li></ul>Paano ka kumikita?
    6. 6. <ul><li>Two types of income: </li></ul><ul><li>Active Income </li></ul><ul><ul><li>Primary Income </li></ul></ul><ul><ul><ul><li>Salary </li></ul></ul></ul><ul><ul><ul><li>Commissions </li></ul></ul></ul><ul><ul><ul><li>Business </li></ul></ul></ul><ul><ul><li>Additional Income </li></ul></ul><ul><ul><ul><li>Overtime </li></ul></ul></ul><ul><ul><ul><li>Sidelines </li></ul></ul></ul>Paano ka kumikita?
    7. 7. <ul><li>Role of Active Income </li></ul><ul><li>To Fund Needs </li></ul><ul><li>To Fund Savings and Investments </li></ul>Paano ka kumikita?
    8. 8. <ul><li>Two types of income: </li></ul><ul><li>2. Passive Income </li></ul><ul><ul><li>Investment Income </li></ul></ul><ul><ul><ul><li>Interest from Bank Accounts and Time Deposits </li></ul></ul></ul><ul><ul><ul><li>Stocks </li></ul></ul></ul><ul><ul><ul><li>Treasury Bills </li></ul></ul></ul><ul><ul><ul><li>Rent earned from properties </li></ul></ul></ul>Paano ka kumikita?
    9. 9. <ul><li>To achieve Financial Independence, you need Passive Income from Savings and Investments </li></ul>Paano ka kumikita?
    10. 10. Active Income 80% to fund your needs and living expenses 20% to build your wealth Passive Income To further build your wealth and Fund your wants 80 / 20 Rule How do we create wealth?
    11. 11. Active Income Keep what you earn!! How do we create wealth? Passive Income Do more with what you keep!!
    12. 12. Developing a Personal Financial Strategy <ul><li>Know where you are </li></ul><ul><ul><li>Determine your Personal Net Worth </li></ul></ul><ul><ul><li>Determine your present income and expenses </li></ul></ul><ul><li>Know where you want to go </li></ul><ul><ul><li>Determine your goals to achieve Financial Independence </li></ul></ul>
    13. 13. <ul><li>What You Own </li></ul><ul><li>Cash </li></ul><ul><li>House and Lot </li></ul><ul><li>Car </li></ul><ul><li>Jewelry </li></ul><ul><li>Investments </li></ul><ul><ul><li>Bank Deposits </li></ul></ul><ul><ul><li>Shares of stock </li></ul></ul><ul><ul><li>T-bills </li></ul></ul><ul><ul><li>Pension Plans </li></ul></ul><ul><li>What You Owe </li></ul><ul><li>Personal Debts </li></ul><ul><li>Bank Loans </li></ul><ul><li>Credit Cards </li></ul><ul><li>Payables </li></ul>Net Worth: What you own less what you owe Personal Net Worth
    14. 14.       18,000   LIVING EXPENSES         1,000 Eskwelahan         2,000 Allowance &quot;Baon ng mga bata&quot;         500 Tubig         1,500 Kuryente 2,985   Net Income   1,500 Cellphone 32,915   TOTAL MONTHLY EXPENSES   1,500 Pamasahe 8,915   OTHER CASH PAYMENTS   1,000 Gastos sa bahay (ex. Gasul, etc)   1,880 Pension Plans   0 Renta sa bahay   2,000 Other personal debts   9,000 Food Pamalengke at Groceries   1,660 Credit Cards     Less:   3,375 House Amortization   0 Other Income (Lupa) 6,000   OPTIONAL EXPENSES   300 Interest Income   1,000 Biglaan gastos (Gifts, etc)     PASSIVE: SECONDARY   1,000 Babasahin   5,600 Additional: (sidelines)   2,000 - clothes/personal (etc)   30,000 Primary: Sahod   2,000 - movies/pasyal     ACTIVE:     R & R (Optional Expenses) 35,900   Gross Monthly Income PERSONAL INCOME STATEMENT
    15. 15. <ul><li>Obstacle </li></ul><ul><li>Inflation </li></ul><ul><li>Loss of purchasing power due to inflation </li></ul><ul><li>Gov’t estimate 5% pa for next 30 yrs </li></ul><ul><li>Solution </li></ul><ul><li>Income growth (both passive and active) should be higher than inflation </li></ul><ul><li>Avoid consuming items that have high inflation rates e.g. softdrinks, cigarettes </li></ul>Obstacles to Financial Freedom
    16. 16. Beating Inflation <ul><ul><li>Comparative Growth Rates of Financial Assets </li></ul></ul><ul><ul><li>Jan 1987 – Dec 2000 </li></ul></ul><ul><ul><li> Ave After tax Value of PhP 10,000 </li></ul></ul><ul><ul><li>% Return per yr at 31 Dec 2000 </li></ul></ul><ul><ul><li>T-Bills 12.22 49,885 </li></ul></ul><ul><ul><li>$ Deposit 13.06 49,928 </li></ul></ul><ul><ul><li>Savings Deposits 6.83 25,172 </li></ul></ul><ul><ul><li>Time Deposits 10.23 38,850 </li></ul></ul><ul><ul><li>Common Stocks 14.40 17,861 </li></ul></ul><ul><ul><li>INFLATION 9.34 34,703 </li></ul></ul><ul><li>* Study of Prof. Roy Ybañez of the UP College of Business Administration on the RATES OF RETURN ON FINANCIAL ASSETS in the Philippines, 1987-2000. </li></ul>
    17. 17. Obstacle Inflation Procrastination Solution Obstacles to Financial Freedom
    18. 18. <ul><li>Obstacle </li></ul><ul><li>Procrastination </li></ul><ul><li>Mamaya na </li></ul><ul><li>Putting off for tomorrow what you can do today </li></ul><ul><li>Solution </li></ul><ul><li>Start now!! </li></ul>Obstacles to Financial Freedom
    19. 19. Jack & Jill Jack @ age 18 started to save P500 / mo. Or P6,000/yr @ age 26 he stopped saving Saved P48,000 only in 8 years Jill @ age 26 started to save P500 / mo. Or P6,000/yr @ age 65 she stopped saving Saved P240,000 in 40 years At Age 65, who has more money?
    20. 20. Jack & Jill Jack @ age 18 started to save P500 / mo. Or P6,000/yr @ age 26 he stopped saving Saved P48,000 only in 8 years FV: P3,245,366 Jill @ age 26 started to save P500 / mo. Or P6,000/yr @ age 65 she stopped saving Saved P240,000 in 40 years FV: P2,775,174 It is not how much you save. It is when. Start Now !!
    21. 21. Obstacle Inflation Procrastination Personal Behaviour Solution Obstacles to Financial Freedom
    22. 22. <ul><li>Obstacle </li></ul><ul><li>Personal Behaviour </li></ul><ul><li>Fears </li></ul><ul><li>Spending habits </li></ul><ul><li>Solution </li></ul><ul><li>Failure and success are life partners </li></ul><ul><li>Buy only what you need and not necessarily what you want </li></ul>Obstacles to Financial Freedom
    23. 23. Obstacle Inflation Procrastination Personal Behaviour Cultural Issues Solution Obstacles to Financial Freedom
    24. 24. <ul><li>Obstacle </li></ul><ul><li>Cultural Issues </li></ul><ul><li>Fiesta when OFW comes home </li></ul><ul><li>Everyone asking for more money </li></ul>Solution Talk it over with family members with regards to financial goals Obstacles to Financial Freedom
    25. 25. Obstacle Inflation Procrastination Personal Behaviour Cultural Issues Taxes Solution Obstacles to Financial Freedom
    26. 26. Obstacle Taxes Solution Know the tax implications of every purchase and investment Obstacles to Financial Freedom
    27. 27. <ul><li>Time </li></ul><ul><ul><li>Great Equalizer </li></ul></ul><ul><li>Compound Interest </li></ul>Tools to Financial Freedom
    28. 28. Value of P1 / day @ 10% per year 5.8 20.9 60.0 161.5
    29. 29. <ul><li>Time </li></ul><ul><ul><li>Great Equalizer </li></ul></ul><ul><li>Compound Interest </li></ul><ul><ul><li>Trust the power of Compound Interest </li></ul></ul><ul><li>Leverage </li></ul><ul><ul><li>Good debt vs Bad debt </li></ul></ul>Tools to Financial Freedom
    30. 30. Work Smarter Not Harder Working Harder Save P500/mo for 30 yrs. @ 7% interest = P609,985 Save P1,000/mo for 30 yrs. @ 7% interest = P1,291,971 Working Smarter Save P500/mo for 30 yrs. @ 10% interest = P1,130,243 @ 12% interest = P1,747,482 3 x
    31. 31. Journey to Wealth Generation <ul><li>Set your financial goal (Plan your net worth) </li></ul><ul><li>Save </li></ul><ul><li>Invest wisely and regularly </li></ul><ul><li>Leave your money alone </li></ul>
    32. 32. Net Worth Planning Assumptions: You are 35 years old today. You are earning P360,000/yr or P30,000/mo Ave inflation is 5% per year How much should you be earning 30 years from now? Answer: P1,555,899/yr P 129,658/mo
    33. 33. If I have to earn P1,555,899 per year 30 years from now, how much earning assets should I have at that time? Answer: @ 7% - P22,227,132 @ 10% - P15,558,990 @ 12% - P12,965,827 Net Worth Planning
    34. 34. Target Net Worth P15.5 Million in 30 years P 6,880/mo. @ 10%/yr 1.4 5.2 9.1 15.5 Net Worth Planning
    35. 35. How to Look at Savings <ul><li>Savings Equation </li></ul>
    36. 36. <ul><li>Savings Equation </li></ul>How to Look at Savings
    37. 37. <ul><li>Savings Equation </li></ul>How to Look at Savings
    38. 38. <ul><li>Savings Equation </li></ul>How to Look at Savings
    39. 39. <ul><li>Savings Equation </li></ul>How to Look at Savings
    40. 40. <ul><li>Savings Equation </li></ul>How to Look at Savings
    41. 41. Start Your Journey Your first source of capital Pay yourself first Spending means you pay others first.
    42. 42. Pay Yourself First <ul><li>Savings is your first source of Capital </li></ul><ul><li>Save to build cash reserves 1 st </li></ul><ul><li>Save to protect life and health </li></ul><ul><li>Save to start wealth generation </li></ul>SAVINGS IS AN EXPENSE. IT IS AN EXPENSE TO BUY YOUR FUTURE!!!
    43. 43. Savings is not enough Be a Passive Entrepreneur
    44. 44. Active vs Passive Income Earning P360,000/yr @ 5% increase per year 20% savings earning 10% per year interest rate 19,464,037 24,697 296,362 2,022,623 1,481,809 30 17,364,195 23,521 282,249 1,803,481 1,411,246 29 15,475,529 22,401 268,809 1,606,416 1,344,044 28 13,777,446 21,334 256,008 1,429,275 1,280,042 27 12,251,328 20,318 243,818 1,270,109 1,219,088 26 10,880,353 19,351 232,207 1,127,158 1,161,036 25 5,868,866 15,162 181,940 605,021 909,702 20 2,984,017 11,880 142,555 305,002 712,775 15 1,356,846 9,308 111,696 136,231 558,478 10 151,370 6,300 75,600 11,892 378,000 2 72,000 6,000 72,000 3,770 360,000 1 Total Savings Monthly Savings Annual savings Passive Income Active Income Year
    45. 45. Active vs Passive Income
    46. 46. Basic Rules in Investing <ul><li>Avoid losses (Pyramiding and Scams) </li></ul><ul><li>Be with winners (not always the peak performer) </li></ul><ul><li>Invest only based on your own financial goals (Investments are made for specific purposes) </li></ul>
    47. 47. Basic Rules in Investing <ul><li>Cash reserves demand liquidity </li></ul><ul><li>Capital growth demands track record </li></ul><ul><li>All investments have risks and benefits </li></ul>
    48. 48. Types of Investments Fundamentals of Investing Ownership Investment (LT) Speculative (ST) Lending Investment (ST/MT/LT)
    49. 49. Fundamentals of Investing Fundamentals of Investing Risk/Safety Liquidity Rate of Return/Yield Capital Requirement Investor Risk Profile Term of Investment Tax Investment Expertise Timing
    50. 50. Wealth Generation Products <ul><li>Bank Products : Savings, Time Deposits, Foreign Currency Deposits, CTFs </li></ul><ul><li>Government : T-Bills, T-Notes, ROP’s, RTB’s </li></ul><ul><li>Private : CP’s, Corporate Bonds, Money Market </li></ul><ul><li>Equity : Stocks </li></ul><ul><li>Mutual Funds : Equity / Fixed Income / Balanced </li></ul><ul><li>Small Business </li></ul><ul><li>Franchise Business </li></ul>
    51. 51. Financial Intelligence is not about Money It is about mind set
    52. 52. Everytime you spend, always ask yourself the question… will it bring me closer to my desired networth?
    53. 53. We cannot control the wind But we can certainly adjust our sails
    54. 54. “ All we have been talking about are things that money can buy… But in our journey to financial independence, let us not lose sight of those that money cannot buy …

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