1. You have been presented with the basic principles of personal finance, why do you think it is important to study this topic for a finance student?
2. Among the basic principles of personal finance, what are the principles that you think a student might possibly use in the future and why?
    
    

 

Basic Principles of Personal Finance: Keown (2010) summarized the basic principles of personal finance management in the following points: 1. The Best Protection is Knowledge Individuals and business may be protected from risk if they are well-versed in financial literacy. They should understand basic financial and investment concepts, be informed of the time value of money and the risk-return trade-off. This is also applicable to personal finance and should be the guiding principles in assessing potential investment schemes. Individuals should be cautious when reading and understanding the advertisements of potential investments, especially if returns are way above the ordinary. It will be wise to carefully analyse the details of any financial instrument being offered and determine the risk and the return or benefits from the instrument. Business profile or the financial statements are a good starting point to investigate the legitimacy of the investment. 2. Nothing Happens Without a Plan Financial planning is not restricted to companies alone. Individuals also prepare their financial plans in order to meet their set of objectives and goals. Basic financial plans include the preparation of annual, monthly, weekly, or even daily budgets. Adults prepare household budget to determine if the sources of funds will be able to meet the required living expenditures and if there will be excess for the savings and investment. If these sources are not enough, the family may seek other potential sources of income. 3. The Time Value of Money Remember the power of compound interest. Individuals must use this advantage by investing wisely and avoid its danger by borrowing judiciously. Do not forget to select the best investment alternative by determining its future and present value before deciding which investment option you will choose.