Sources and Uses of Short-Term & Long-Term Funds

Think of capital structure as your financial recipe - it's how much of your assets come from borrowed money (debt) versus your own money (equity). Every peso you use to buy something had to come from somewhere!

Debt financing is like borrowing money from others - banks, cooperatives, or even that tita who lends at 5/6. You'll pay interest, but you keep full control of your business. Equity financing means selling pieces of your business to investors in exchange for their money. No interest payments, but you're sharing ownership and future profits.

When choosing short-term financing (paid back within a year), consider five key factors: cost (interest rates), availability (how easy it is to get), risk (what happens if you can't pay), flexibility (how accessible the funds are), and restrictions (what rules come with the money).

The main players in the Philippines include banks (regulated by BSP), credit cooperatives (supervised by CDA), and commercial finance companies. Banks use the 5 C's of Credit to evaluate you: Character, Capacity, Collateral, Capital, and Condition.

Pro Tip: Informal lenders like 5/6 might be easiest to access, but they're usually the most expensive option!

Basic Long-Term Financial Concepts (Simple Interest)

Long-term financing is money borrowed for more than one year - think big projects, business expansion, or that house your parents are saving for. It's like planting a tree; you invest now for benefits that'll grow over many years.

The magic behind all finance is simple interest: I = P × R × T $Interest = Principal × Rate × Time$. If you invest ₱10,000 for 3 years at 9%, you'll earn ₱2,700 in interest. Your future value becomes ₱12,700!

Compound interest is even more powerful - it's earning interest on your interest. This creates the time value of money concept: money today is worth more than the same amount tomorrow because you can invest it and watch it grow.

Long-term financing offers flexibility and supports major growth, but comes with strict regulations and monitoring requirements. The key is understanding that money has earning potential - every peso sitting idle is a missed opportunity.

Remember: As Benjamin Franklin said, "An investment in knowledge pays the best interest" - understanding these concepts now sets you up for financial success!

Types of Investments: Building Your Financial Future

Investment means buying something today hoping it'll be worth more tomorrow. It's like planting different seeds in your financial garden - some grow slowly but safely, others grow fast but might die if conditions aren't right.

Your investment options range from super safe $bank savings at 1-2$ to higher risk/higher reward choices. Bonds are like IOUs from companies or government with fixed interest. Stocks let you own tiny pieces of companies and earn through dividends and price increases. Managed funds pool everyone's money for professional management.

Investment risk comes in two flavors: systematic risk $affects everyone, like COVID-19$ and unsystematic risk (affects specific companies, like a CEO scandal). You can't avoid systematic risk, but you can manage unsystematic risk.

Smart investors minimize risk through diversification (don't put all eggs in one basket), due diligence (research before buying), and understanding their risk tolerance (how much loss you can handle). Government-guaranteed products like Treasury bonds offer the safest option.

Key Insight: Higher returns always come with higher risks - there's no such thing as a free lunch in investing!

Managing Personal Finance: Your Money, Your Future

Personal finance covers everything money-related in your life - budgeting, saving, investing, insurance, and planning for retirement. It's basically being the CEO of your own financial life!

The five main areas are income (salary, bonuses, dividends), spending (rent, food, entertainment), saving (excess cash for future use), investing (buying assets for returns), and protection (insurance against risks). Balance is key - if spending exceeds income, you're in trouble!

You need four types of insurance protection: term life insurance (protects your family if you die early), health and critical illness insurance (covers medical costs), mortgage protection (pays off loans if you die), and personal accident insurance $covers injury-related expenses$.

Smart personal finance means having more control over expenses than income. Discretionary spending (entertainment, shopping) is easier to manage than fixed costs (rent, utilities). The goal is creating surplus money for saving and investing.

Reality Check: Most Filipinos have more control over their spending than their earning - focus on managing what you can control!

Personal Financial Planning Process

Personal financial planning is your roadmap to financial success - it's about managing money strategically to achieve your dreams while reducing financial stress and uncertainty.

The six-step planning process starts with objective setting (clear, timed goals), then data gathering (understanding your current situation), analysis (reviewing your financial position), recommendations (proposing solutions), implementation (taking action), and monitoring $regular check-ups$.

The six key planning areas include: understanding your financial position (net worth and cash flow), ensuring adequate protection (insurance coverage), tax planning (minimizing what you owe), investment planning (wealth accumulation), retirement planning (maintaining lifestyle after work), and estate planning (asset distribution after death).

Your net worth equals assets minus liabilities - this snapshot shows your financial health at any point. Cash flow tracks income versus expenses over time, helping you see if you're living within your means and building wealth.

Success Formula: Net Worth = Total Assets - Total Liabilities. Track this number quarterly to measure your financial progress!

Money and Financial Literacy: Foundation for Success

Money serves four crucial functions that make modern life possible: medium of exchange $buying/selling$, unit of account (pricing everything), store of value (saving for later), and standard of deferred payment (buy now, pay later arrangements).

Before money existed, people used barter systems - imagine trading your chicken for someone's rice! Today's complex economy needs money to reduce transaction costs and make trade efficient across distances and time.

Financial literacy is your ability to understand finances, investment risks and rewards, and available financial products. It's like having a superpower in today's money-driven world - the earlier you develop it, the better your financial future.

You can become financially literate through multiple channels: learning from financially smart people, attending free courses, taking online classes, watching finance TV shows, and reading books from libraries. The key is starting now while you're young.

Planning and budgeting require five essential activities: analyzing spending habits, determining net worth, creating cash flow statements, preparing budgets, and regularly reviewing/revising your plans.

Life Hack: Start building financial literacy now - the compound effect of financial knowledge is just as powerful as compound interest on investments!