LIFE &PERSONAL FINANCIAL MANAGEMENT

PRESENTATION TO NEW EMPLOYEES OF BANK OF GHANA DR. BENJAMIN AMOAH MPAFSD

Outline
INTRODUCTION What is Personal Financial Management? Why pay attention to personal finances? PERSONAL FINANCIAL ANALYSIS Financial Statements
Income Statement Balance Sheet Cash Flow Analysis

LESSONS Overcoming Obstacles Dos and Donts INVESTING BASICS Financial Institutions Investments CONCLUSION / DISCUSSIONS LESSONS FROM WARREN BUFFET

Introduction
What is Personal Financial Management?
Personal financial management involves analyzing individuals current financial position, predicting short-term and long-term needs, and recommending a financial strategy. Generally, personal finance looks at how your money and future are managed.

Introduction
Why pay attention to personal finances
The ability to service critical personal expenditures without stress For mental / physical health and soundness For future security: (Retirement, Future Pmts.) Charity begins at home: Training children Financial sector stability Economic stability / Prosperity

What (The Rule) you MUST KNOW

Know the difference between assets & liabilities

Rich people acquire assets. The poor and middle class acquire liabilities but they think they assets
An asset is anything that puts money in your pocket A liability is anything that takes money out of your pocket

THE RULE: INCREASE ASSETS; REDUCE LIABILITIES!

PERSONAL FINANCIAL ANALYSIS

Income Statement
Sources of income:
Job Business Gifts Investments: Securities, Property etc.

PERSONAL FINANCIAL ANALYSIS

Income Statement
Items of Expenditure
Rent Food Clothing Childrens Education Transportation Utilities Entertainment Dependants

PERSONAL FINANCIAL ANALYSIS

Income Statement
Income - Pay cheque - Dividends - Interest - Rental Income - Royalties Expenses -Taxes - Food - Mortgage / Rent -Cloths - Entertainment -Transportation - Utilities

PERSONAL FINANCIAL ANALYSIS

Balance Sheet
Assets - Stocks - Bonds - Notes - Real Estate - Intellectual Property Liabilities -Mortgage -Consumer Loans -Credit Cards

PERSONAL FINANCIAL ANALYSIS

Cash Flow Dynamics

Cash Flow Pattern of an Asset
Income Expenses

Assets

Liabilities

PERSONAL FINANCIAL ANALYSIS

Cash Flow Dynamics

Cash Flow Pattern of a Liability
Income Expenses

Assets

Liabilities

PERSONAL FINANCIAL ANALYSIS

Young Person
Income = Expenses Assets = Liabilities = 0

Why the poor struggles

Income goes up; Expenses go up Assets = Liabilities = 0

PERSONAL FINANCIAL ANALYSIS

Cash Flow of the Young

Job
Income
-Pay Cheque -Allowances

Expenses
Taxes, Food, Rent, Clothing, Entertainment, Transportation

Assets

Liabilities

PERSONAL FINANCIAL ANALYSIS

Middle Class
Income = Expenses Assets < Liabilities

Why the Middle Class Struggles

Income goes up; Expenses go up Assets do not increase; Liabilities do not decrease

PERSONAL FINANCIAL ANALYSIS

Cash Flow of the Middle Class

Job
Income - Pay Cheque Expenses
Taxes, Mortgage, Fixed expenses, Food, Cloths, Entertainment,

Assets

Liabilities
Mortgage, Consumer Loans; Credit Cards

PERSONAL FINANCIAL ANALYSIS

Rich Person
Income > Expenses Assets > Liabilities

Why the Rich Gets Richer

Income Acquire Assets More Income Expenses are low; Liabilities are low

PERSONAL FINANCIAL ANALYSIS

Cash Flow of the Rich

Income
-Dividends -Interest -Rental Income -Royalties

Expenses

Assets
-Stocks -Bonds -Notes -Real Estate -Intellectual Property

Liabilities

Financial Aptitude
It is:
What you do with the money you make How to keep people from taking the money from you How long you keep the money How hard that money works for you

LESSONS
Overcoming Obstacles to success:
Fear Cynicism Laziness Bad habits / friends / highlife accounts Arrogance (Ego + ignorance)

LESSONS (Dos and Donts)

Dont spend more than you earn Spend less than you earn save Dont buy because it is for sale Buy what you need not what you want Dont borrow because there is a lender Never borrow to spend/consume But, borrow to invest
The investment should be able to pay back the principal and the interest with a margin for you.

Life Lesson
Financial Crisis
Caused by excessive consumption
Yt = Ct + St Yt = Ct + It St = It If Ct > Yt consuming future Yt+i (trouble) Savings deferring current Ct to the future Ct+I Y Income; C Consumption; I Investments

INVESTING BASICS
Financial Institutions
Banks Savings & Loans Companies NBFI
Susu Companies Lending Companies Finance Houses Discount Houses

INVESTING BASICS
Investments
Money Market Instruments
Placements Bills Bonds Mutual Funds EPACK Insurance Policies

Equity
Shares

Property
Real Estate Precious Metals (Jewelry)

Others: Pension schemes

CONCLUSION

Pay attention to your finances Spend less than you earn, no matter what Do NOT be ostentatious Trim your liabilities Grow your assets True assets generate income or appreciate in value Choose your assets sensibly Your family is an asset, take care of it

Lessons from Warren Buffet

1.He bought his first share at age 11 and he now regrets that he started too late!
Things were very cheap that time Encourage your children to invest

1.He bought a small farm at age 14 with savings from delivering newspapers.
He could have bought many things with his savings Encourage your children to start some kind of business

3.He still lives in the same small 3-bedroom house in mid-town Omaha , that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence.
Don't buy more than what you "really need" and encourage your children to do and think the same

4.He drives his own car everywhere and does not have a driver or security people around him.
You are what you are

4.He never travels by private jet, although he owns the world's largest private jet company.
Always think economically how you can accomplish things

6.His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis.
Assign the right people to the right jobs

7.He has given his CEO's only two rules.

Rule number 1: do not lose any of your share holder's money. Rule number 2: Do not forget rule number 1.
Set goals and make sure people focus on them

8.He does not socialize with the high society crowd. His past time after he gets home is to make himself some pop corn and watch Television.
Don't try to show off, just be your self and do what you enjoy doing

His advice to young people: "Stay away from credit cards (bank loans), invest in yourself and Remember: A. Money doesn't create man but it is the man who created money. B. Live your life as simple as you are. C. Don't do what others say, just listen them, but do what you feel good.

D. Don't go on brand names; just wear those things in which you feel comfortable. E. Don't waste your money on unnecessary things; rather spend it on those who are really in need. F. After all it's your life, why give a chance to others to rule it?

"The HAPPIEST people DO NOT necessarily have the BEST of all. They simply APPRECIATE what they find on their way

Let us choose the way to live

THANK YOU FOR YOUR ATTENTION!