managing personal finances

MANAGING PERSONAL FINANCES(Personal Finance Planning- PFP)

By

Prof. Waswa Balunywa

Paper Objective

1. Enable participants understand the need for Personal Finance Planning(PFP)

2. Learn the steps in PFP

3. Describe the steps in PFP

4. Challenges in PFP

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Paper Structure

1. What is personal financial planning?

2. What to Plan?

3. Steps in Planning

4. Challenges of Financial Planning

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Outcomes

• Awareness of the need for PFP• Describe individual assets and liabilities• Able to draw and review PFP• Awareness of challenges in Personal Financial

Management

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What is Personal Financial Planning?

Personal finance management is how you earn income and how the income is spent.• Involves ascertaining sources• Where does my money come from?• Involves understanding your expenditures. • Where do I spend it?

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Objectives of PFP

• Enable you live a happy life• Enable you look for income• Enable you plan your life• Enable you plan and control your expenditure.• Enable your plan for unforeseen• Grow your wealth

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Importance of Financial Planning

• Enables you know your limits• Enables you schedule your activities• Enables you pursue your goals• Reduces stress• Enables you pursue your mission• Prepare yourself for emergencies

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Problems in Personal Financial Management

• Lack of discipline• Lack of planning• Not taking future into account• Not controlling expenditures• Abuse ATM/Credit card• Arrogance• Gambling

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What to Plan?

• Income• Expenditure• Assets• Liabilities• Surplus/deficit

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Assets

Are what you own• Cash• Land• House (s)• Stock (s)• Vehicles• Household durable items

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Liabilities

What you owe to others e.g.• Bank loans • Loan from friends• Credit card balance (s)• Unpaid bills e.g. electricity

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Income

What you earn• Salary and allowances• Dividends• Rent income• Profit for ventures• Proceeds from sale of assets

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Expenditure

What you spend money on i.e.• House rent• Food• Electricity, water, time changes• Interest on loans• School fees• Holiday costs

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Balance Sheet

• A stalement that compares your assets and liabilities.

• The difference is your net worth

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Steps in Financial Planning

• Assess your current position• Determine your goals• Establish your sources of income• Determine your expenditures• Evolve strategies to increase income or

contain expenditure• Indicate timing for receipts and disbursement.

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Assess your current position

• What is your net worth• What are your current incomes• What are your current expenditures• What is your current employment• What challenges do you have?– Children– Parents– Spouse

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Determine your goals• What is your mission in life?• What do you want to achieve and when?– Property– Education– Health– Vocation– Family– Insurance

• Do the reality check• Put the frame or the goals

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Develop Your Source of Income

• What is my current employment?• Can I do something else?• Can I take another job?• What are my current skills?• Do I have any income generating assets?• Can I borrow money and from where?• What can I invest in?• What are the investment opportunities

available?

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Determine Your Expenditures

What am I currently spending on?• Home maintenance• Utility charges – Insurance– Retirement

• Internet payments• Rental charges• School fees• Medical fees• Leisure

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Determine Your Expenditures- Cont’d

• Family unique expenditures– Vacation– Extended family

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…..Strategies

• Do I get another job?• Do I start a business?• Do I invest in stocks?• Do I borrow?• Do I build/buy property?• Do I send children abroad to study?• Do I buy a generator?• Do I buy a car?

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What to Plan?

1. Cash budget

2. Debt management

3. Insurance planning

4. Retirement planning

5. Investment planning

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What to Plan? – Cont’d

6. Estate planning

7. Tax planning

8. Other special situations

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Consequences of Not Planning

The outcome of not planning your finances can effect your life in the short and long term in many ways such as:• Not knowing what happened to your money,• Just getting by instead of enjoying life,• Family conflicts over money,•Never discovering or realizing your mission in life,•Always being caught off guard when unexpected challenges arise

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Actual Budget Item Monthly -Exp (UG. Shs) Total Annual Exp.

(UG. Shs)

Travel-Vacation 6,000,000 6,000,000

Insurance 100,000 1, 200,000

Investment 2,000,000 4,000,000

Children Fees 1,800,000

Medical 250,000 3,000,000

Food 300,000 3,600,000

Other Utilities 1,000,000 12,000,000

Ext. Family 500,000 6,000,000

Internet 100,000 1,200,000

Rental Charges 300,000 3,600,000

Leisure 100,000 1,200,000

Home maintenance 400,000

42,800,000

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Recommended Reading

1. Rich Dad Poor Dad

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Conclusion

• Planning enables you develop• Planning goals enable you focus• Planning guide your expenditure• Planning gives you peace of mind

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