Personal Financial Management and Cash Flow Planning
Personal Financial Management and Cash Flow Planning
This domain tests day-to-day financial control: budgeting, emergency reserves, debt, net worth, and goal funding. Expect questions on cash-flow statements, financial ratios, credit costs, and prioritizing competing goals.
Core rules
- Track cash inflow and outflow; distinguish fixed, variable, and irregular expenses.
- Build an emergency fund of three to six months of essential expenses in liquid, low-risk accounts.
- Measure net worth as assets minus liabilities; review it periodically.
- Keep debt service within a manageable share of income and prioritize high-interest debt.
- Set specific, time-bound goals and fund them in order of urgency and cost.
Worked example
Monthly income ₱80,000; essential expenses ₱60,000; surplus ₱20,000. Emergency target at six months = ₱360,000. Current emergency savings ₱100,000, so the gap is ₱260,000; at ₱20,000 monthly, it takes 13 months. If the client also carries credit-card debt at 18% while savings earn 1%, redirect surplus to the card first, then rebuild the fund. Reasoning: compare after-tax interest costs and keep a minimum liquidity buffer.
Traps
- Counting investments as emergency funds when they can fall in value.
- Ignoring annual or irregular costs such as insurance and tuition.
- Using gross income instead of take-home pay.
- Paying low-yield savings while carrying high-interest debt.
- Setting vague goals without amounts or dates.