Introduction to Household Financial Management

Chapter 1 Chapter 1

Introduction to Introduction to Household Financial Household Financial

ManagementManagement

SINOPSISSINOPSIS

Pengurusan pendapatan; perancangan Pengurusan pendapatan; perancangan kewangan dan perbelanjaan. Masalah kewangan dan perbelanjaan. Masalah kewangan isirumah. Alternatif dalam kewangan isirumah. Alternatif dalam penggunaan kredit pengguna, simpanan, penggunaan kredit pengguna, simpanan, pelaburan dan pengurusan risiko isirumah pelaburan dan pengurusan risiko isirumah mengikut sistem konvensional dan Islam.mengikut sistem konvensional dan Islam.

(Management of income; financial (Management of income; financial planning and expenditure. Household financial planning and expenditure. Household financial problems. Alternatives use of consumer credits, problems. Alternatives use of consumer credits, savings, investments and household risks savings, investments and household risks management in conventional and Islamic management in conventional and Islamic systems).systems).

Financial ManagementFinancial Management

Financial management involves the use of Financial management involves the use of financial resources to achieve one’s goals financial resources to achieve one’s goals

It is a financial problem solving process – It is a financial problem solving process – managing financial matters wisely helps managing financial matters wisely helps to avoid financial problemsto avoid financial problems

In managing financial matters wisely, a In managing financial matters wisely, a proper and suitable financial planning proper and suitable financial planning using available resources is importantusing available resources is important

Financial Management (cont.)Financial Management (cont.)In financial management, the following strategies In financial management, the following strategies

should be considered:should be considered: To obtain maximum return or satisfaction from To obtain maximum return or satisfaction from

the money ownedthe money owned Manage money to meet spending & avoid Manage money to meet spending & avoid

wastewaste To create savingsTo create savings

Unspent money resulted from wise spending. Unspent money resulted from wise spending. Savings is important to achieve goals & to face Savings is important to achieve goals & to face financial emergencies need. financial emergencies need.

To control what we haveTo control what we have By obtaining protection or steps of protection By obtaining protection or steps of protection

to reduce financial lossto reduce financial loss To increase income To increase income

By investing part of the unspent moneyBy investing part of the unspent money

Financial Management (cont.)Financial Management (cont.)

Several aspects of financial management Several aspects of financial management must be considered;must be considered;

It is an overall financial planningIt is an overall financial planning Spending must be appropriate with Spending must be appropriate with

incomeincome Spending must be controlled to enable Spending must be controlled to enable

savingssavings It must be able to solve financial problemIt must be able to solve financial problem

Financial Management (cont.)Financial Management (cont.)Financial planning involves the following components;Financial planning involves the following components; Job selection: Job selection:

Choosing jobs suitable with ones ability; education level Choosing jobs suitable with ones ability; education level determine the job; private or public sector; employer that determine the job; private or public sector; employer that cares about employee welfare cares about employee welfare

Financial situation:Financial situation: Determine financial situation (net worth) through the Determine financial situation (net worth) through the

financial records.financial records.

Determine life goals & financial goalsDetermine life goals & financial goals Determine life‘s goals especially financial goals; short-Determine life‘s goals especially financial goals; short-

term (<5 years) or long-term, should be reasonable & term (<5 years) or long-term, should be reasonable & appropriate goals. Family members‘ activities & financial appropriate goals. Family members‘ activities & financial situation determine the life‘s goal situation determine the life‘s goal


Cash-flow managementCash-flow management Budgeting - Plan spending carefully so Budgeting - Plan spending carefully so

that income is spent wisely, spending less that income is spent wisely, spending less than income; unspent money is the than income; unspent money is the surplus of incomesurplus of income

Expenses involving use of large amount Expenses involving use of large amount of money for durable goods, credit, of money for durable goods, credit, transportation, insurance, housing, and transportation, insurance, housing, and tax give high impact on the balance of tax give high impact on the balance of income, need wise spending. income, need wise spending.

Daily expenses gives small effect on the Daily expenses gives small effect on the balance of income.balance of income.


Savings & investmentSavings & investment To be able to save in achieving specific To be able to save in achieving specific

financial goal, budgeting is essential. financial goal, budgeting is essential. Think how to invest extra from income Think how to invest extra from income

to achieve goals – save or invest, to achieve goals – save or invest, retirement planretirement plan

After spending, refer to the life’s goal to After spending, refer to the life’s goal to determine whether expenses achieve the determine whether expenses achieve the goals, need feed-back.goals, need feed-back.


Managing riskManaging risk Make sure risk is managed with suitable Make sure risk is managed with suitable

insurance policy; involve family membersinsurance policy; involve family members

Effect of tax & changes in economic Effect of tax & changes in economic situationsituation Study on how tax & changes in economic Study on how tax & changes in economic

situation affects your financial situation; situation affects your financial situation; income tax; govt. policy on labour & tax income tax; govt. policy on labour & tax

Time Value of MoneyTime Value of Money Making choices among various financial Making choices among various financial

decisions needs to consider the time value of decisions needs to consider the time value of money – the increases in an amount of money as money – the increases in an amount of money as a result of interest earned.a result of interest earned.

Saving or investing RM1 instead of spending it Saving or investing RM1 instead of spending it results in a future amount greater than RM1results in a future amount greater than RM1

An RM1 received today is worth more than an An RM1 received today is worth more than an RM1 received one year from today, as the RM1 RM1 received one year from today, as the RM1 received today can be saved or invested.received today can be saved or invested.

Time Value of Money (cont.1)Time Value of Money (cont.1) 3 amounts are used to calculate the time value of money 3 amounts are used to calculate the time value of money

for savings in the form of interest earnedfor savings in the form of interest earned Amount of savings (principal) (P in RM)Amount of savings (principal) (P in RM) Annual interest rate (i)Annual interest rate (i) Length of time the money is on deposit (T in year) Length of time the money is on deposit (T in year)

Interest earned = P x i x T Interest earned = P x i x T Eg. RM500 deposited at 6% for 6 monthsEg. RM500 deposited at 6% for 6 months Interest earned = RM500 x 0.06 x 6/12 = RM15Interest earned = RM500 x 0.06 x 6/12 = RM15

The increased value of money of interest earned can be The increased value of money of interest earned can be calculated in two ways:calculated in two ways: Total amount available later – future valueTotal amount available later – future value Current value of an amount desired later – present Current value of an amount desired later – present

valuevalue

Time Value of Money (cont.2)Time Value of Money (cont.2)1.1. Future value of a single amountFuture value of a single amount Amount to which current savings will increase by interest Amount to which current savings will increase by interest

rate & timerate & time RM100 deposited in a 6% account for 1 yearRM100 deposited in a 6% account for 1 year

Future value = RM100 + (RM100 x 0.06 x 1 year) = RM Future value = RM100 + (RM100 x 0.06 x 1 year) = RM 106106

If more than 1 year, eg. 2 years; Future value calculated asIf more than 1 year, eg. 2 years; Future value calculated as= future value 1st year + interest earned in 2nd year= future value 1st year + interest earned in 2nd year

= RM106 + (RM106 x 0.06 x 1 year) = RM 106 + RM6.36 = RM106 + (RM106 x 0.06 x 1 year) = RM 106 + RM6.36 = RM112.36 = RM112.36

Future value table simplify the above calculations: table for Future value table simplify the above calculations: table for future value of single amountfuture value of single amount

The table provide a factor value for certain interest rate & The table provide a factor value for certain interest rate & time period. Interest rate must be constant & full year for time period. Interest rate must be constant & full year for the deposits for this table to be used the deposits for this table to be used

Future value = The factor multiply with the amount Future value = The factor multiply with the amount deposited deposited

Time Value of Money (cont.3)Time Value of Money (cont.3)

Eg. RM500 deposited in 6% account for 6 yearsEg. RM500 deposited in 6% account for 6 years This is to determine future value of a single This is to determine future value of a single

amount depositedamount deposited From table, the factor is 1.419From table, the factor is 1.419 Future value = RM500 x 1.419 = RM 709.50Future value = RM500 x 1.419 = RM 709.50

Future Value of Single AmountFuture Value of Single AmountYearYear 5%5% 6%6% 7%7%

55 1.2761.276 1.3381.338 1.4031.403

66 1.3401.340 1.4191.419 1.5011.501

77 1.4071.407 1.5041.504 1.6061.606


2.2. Future value of a series of depositFuture value of a series of deposit Sometimes deposits are made regularly Sometimes deposits are made regularly

by year (annually)by year (annually) Series of equal deposits or payment Series of equal deposits or payment

annually is called annuity.annually is called annuity. Use table Future Value of Annuity (or Use table Future Value of Annuity (or

series of annual deposits)series of annual deposits) Interest rate must be constant & full year Interest rate must be constant & full year

for the deposits for this table to be used for the deposits for this table to be used

Time Value of Money (cont.5)Time Value of Money (cont.5) Eg. RM50 deposited in 7% account for 6 yearsEg. RM50 deposited in 7% account for 6 years This is to determine future value of a series of This is to determine future value of a series of

equal deposits with constant interest rateequal deposits with constant interest rate From table, the factor is 7.153From table, the factor is 7.153 Future value at end of 6 years = RM50 x 7.153 Future value at end of 6 years = RM50 x 7.153

= RM 357.65= RM 357.65

Future Value of AnnuityFuture Value of AnnuityYearYear 5%5% 6%6% 7%7%

55 5.5265.526 5.6375.637 5.7515.751

66 6.8026.802 6.9756.975 7.1537.153

77 8.1428.142 8.3948.394 8.6548.654

Time Value of Money (cont. 6)Time Value of Money (cont. 6)

3.3.Present value of a single amount (aka discounting)Present value of a single amount (aka discounting) Current value for a future amount (known) based on Current value for a future amount (known) based on

interest rate & time periodinterest rate & time period Can determine how much to deposit now to obtained Can determine how much to deposit now to obtained

desired amount in the future. desired amount in the future. If you want RM1,000 in 5 years time, & will deposit If you want RM1,000 in 5 years time, & will deposit

money in a 5% account, you need to depositmoney in a 5% account, you need to deposit Refer table Refer table Present Value of Single AmountPresent Value of Single Amount, the , the

factor is 0.784factor is 0.784 amount deposited = RM1,000 x 0.784 =RM 784amount deposited = RM1,000 x 0.784 =RM 784


4.4.Present value of a series of depositPresent value of a series of deposit To determine how much you will deposit if you want To determine how much you will deposit if you want

to withdraw equal amounts each yearto withdraw equal amounts each year Current value for a future amount (known) based on Current value for a future amount (known) based on

interest rate & time period with condition of interest rate & time period with condition of withdrawing equal amounts annuallywithdrawing equal amounts annually

If you want to withdraw RM400 annually in 9 years If you want to withdraw RM400 annually in 9 years & will deposit money in an 8% account, you need to & will deposit money in an 8% account, you need to depositdeposit Refer table Refer table Present Value of Annuity (Series Present Value of Annuity (Series

of Deposits)of Deposits), the factor is 6.247, the factor is 6.247 amount deposited = amount withdraw x factor amount deposited = amount withdraw x factor

value = RM400 x 6.247 =RM 2,498.80value = RM400 x 6.247 =RM 2,498.80

Chapter 2Chapter 2

The Role Of Individual/Household The Role Of Individual/Household In The EconomyIn The Economy

Individual/Household in the Individual/Household in the EconomyEconomy

Financial & Personal Aspects of Career ChoiceFinancial & Personal Aspects of Career Choice Trade-offs of Career DecisionsTrade-offs of Career Decisions

Also involved risk & opportunity cost (What you Also involved risk & opportunity cost (What you give-up by making a choice or trade-off decision) give-up by making a choice or trade-off decision)

Family values & personal fulfillment versus Family values & personal fulfillment versus money gainmoney gain

Career Training & Skill DevelopmentCareer Training & Skill Development Education, trainingEducation, training

Personal FactorsPersonal Factors Abilities, interest & personal qualitiesAbilities, interest & personal qualities

Career Decision MakingCareer Decision Making Changing personal & social factorsChanging personal & social factors

Individual/Household in the Individual/Household in the Economy (cont.1)Economy (cont.1)

Career opportunities are based onCareer opportunities are based on Social influencesSocial influences

Demographic, geographic trendsDemographic, geographic trends Economic conditionsEconomic conditions

Interest rate, inflation, consumer Interest rate, inflation, consumer demandsdemands

Industry trendsIndustry trends Foreign competition, changing use of Foreign competition, changing use of

technologytechnology


Employment Search StrategyEmployment Search Strategy

1.1. Obtaining employment Obtaining employment experienceexperience Part-time employmentPart-time employment Voluntary workVoluntary work InternshipInternship Campus projectCampus project


2.2. Career Information SourcesCareer Information Sources LibraryLibrary

Government materials, industry brochures Government materials, industry brochures MediaMedia

Newspaper, magazines, television, radioNewspaper, magazines, television, radio InternetInternet

World wide web, e-mail contactsWorld wide web, e-mail contacts CampusCampus

Students affairs officeStudents affairs office Community organisation & professional associationCommunity organisation & professional association

Job training, employment service, meetings, Job training, employment service, meetings, publicationpublication

Business contactBusiness contact Friends, relative, teacher, employersFriends, relative, teacher, employers

Individual/Household in the Individual/Household in the Economy (cont. 4)Economy (cont. 4)

3.3. Identifying Job OpportunitiesIdentifying Job Opportunities Job advertisementsJob advertisements Career fairsCareer fairs Employment agenciesEmployment agencies Job creationJob creation

Individual/Household in the Individual/Household in the Economy (cont. 5)Economy (cont. 5)

Financial & Legal Aspects of EmploymentFinancial & Legal Aspects of Employment1.1.Accepting an employment positionAccepting an employment position

The work environment – management style, The work environment – management style, work intensity, dress codes, social interactionswork intensity, dress codes, social interactions

Factors affecting salary –education, training, Factors affecting salary –education, training, company sizecompany size

2.2.Evaluating employee benefitsEvaluating employee benefits Meeting employee needsMeeting employee needs Comparing benefitsComparing benefits

3.3.Employment rightsEmployment rights No discriminationNo discrimination Work’s compensation, social security (SOCSO), Work’s compensation, social security (SOCSO),

employer provident fund (EPF)employer provident fund (EPF)

Introduction to Household Financial Management

Economy & Finance

Transcript of Introduction to Household Financial Management