THE BPM HANDOUTS Introduction 1. Concept and Meaning of Financial Literacy. 1.1.

A process of acquiring the knowledge necessary to understand concepts and principles related to personal finance and of translating this knowledge into SMART ACTION PLAN. Knowledge of facts, concepts, principles, and technological tools that are fundamental to being SMART about money. This leads to economic wellbeing through informed judgments and decisions.

1.2.

2.

Aims of Financial Literacy. 2.1. To enhance ones ability to successfully handle the more ambiguous and qualitative aspects of the day-to-day financial decision making in an informed, proficient, and confident manner. To help people to avoid or ameliorate the negative consequences of poor financial decisions that otherwise might take years to overcome.

2.2.

3.

Adverse Effects of Lack of Financial Literacy. 3.1. 3.2. 3.3. 3.4. 3.5. 3.6. Negative Cash Flow (Personal bankruptcy/insolvency) Debt Trap Financial Dislocation of the Family Due to the Untimely Death of the Breadwinner Lack or Absence of Fund in Emergency Situations Insufficient Retirement Income and Absence of Long Term Care Unable to Preserve Estate

4.

Obstacles to Financial Literacy

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4.1. 4.2. 4.3. 4.4. 5.

Comfort Zone (job, career, business, lifestyle) Arrogance (professional, academic, financial: omniscient, omnipotent) Absence of Personal Financial Planning No Time to Learn About Personal Finance

Meaning and Scope of Personal Finance. 5.1. The study of personal and family resources considered important in achieving financial success. It involves how people spend, save, protect, and invest their financial resources. It includes budgeting, cash flow management, debt management, risk management (protection of income and healthcare, property and assets), investment, retirement and estate planning.

5.2. 5.3.

6.

Concept of Financial Planning. 6.1. Financial planning is the process of developing and implementing a coordinated series of financial plans to achieve financial success. It requires the application of financial knowledge, tools, strategies and tactics necessary for one to plan effectively and achieve personal financial success.

6.2.

7.

Essential Components of Financial Planning 7.1. 7.2. 7.3. Specified Values that Underlie the Plan Explicitly Stated Financial Goals Logical and Consistent Financial Strategies

Values are fundamental beliefs about what is important, desirable and worthwhile. They serve as the basis for financial goals as one considers some things more important than others. We express our values, in
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part, by the ways we spend, save, and invest our money. Financial Goals are the specific long-term and shortterm objectives to be attained through financial planning and management efforts. Goals should be consistent with values. To serve as a rational basis for financial actions, they must be stated explicitly. Financial goals should be specific both in terms of peso amounts and the projected dates by which they are to be achieved. Setting goals helps you visualize the gap between your current financial status. Financial Strategies are pre-established plans of action to be implemented in specific situations.

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The Six Financial Strategies are: 8.1. 8.2. 8.3. 8.4. 8.5. 8.6. Increase Cash Flow Eliminate Debt Ensure Proper Protection Set Up Emergency Fund Build Long Term Asset Preserve Estate

9.

Increase Cash Flow 9.1. Cash flow is a measurement of the difference between what we spend and what we earn. 9.2. Cash flow can have either a negative or a positive value. If our cash flow is positive it means that we are spending less than we are earning over time. If our cash flow is negative it means we are spending more than we are earning over time. 9.3. For example, if you find yourself Php 1,000 short at the end of the month, it means you've got a negative cash flow. If you've got an extra Php 1,000 at the end of the month then you've got a positive cash flow. 9.4. Basic Rules in Increasing Cash Flow 9.5. Pay Yourself First Live Below Your Means

10.
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