Entrepreneurship

Key Unit Competency: To be able to manage finances responsibly.

Introduction 

Your Money, Your Life, Your Future 

What does money mean to you? Seems like a simple question, doesn’t it? But if you really think about it, it may be difficult for you to come up with an immediate answer. Money means different things to all of us; that’s why we each have unique financial goals related to our wants, needs and values. For some, money means security. For others, it’s about freedom or success. Before you can learn how to manage your money, you must learn what money means to you. Spend some time thinking about your money values. Ask yourself the following questions to determine your money values and learn how they shape your spending and saving priorities.

• How did you view money as you were growing up?

• Did your parents ever talk to you about money?

• Have you ever felt richer or poorer than your friends? How did that make you

feel?

• How were your parents at handling money?

• Do you consider yourself a spender or a saver? Why?

• What’s your charitable-giving philosophy?

• Financially speaking, where do you see yourself in five to 10 years to come?

• Are you willing to live below your means for a while in order to have something

better later in life?

This unit therefore, is designed to guide you answer the above questions and finding an appropriate ways of managing finances. It will equip you with knowledge and skills as well as attitudes that will enable you to manage money. Under this unit, you will learn how to analyze financial needs effectively; determine ways to decrease expenses through reuse, recycling, reduction, and repair; develop personal budgets; setting saving goals; assess the various sources of finance; cut costs through reducing, recycling, repairing and reusing; develop strategies to manage debts; keep basic personal financial records; and develop plans to manage their finances.

Introductory activity:

 Importance of Coins. Read the case study below and answer the questions that follow. Every month, Kalisa and his cousins would go for the family meal at their grandparents’ house. They would always wait excitedly for the moment their grandfather would give them a few coins, “so you can buy yourself something. Then all the children would run out to buy different toys, and sweets. The grandparents, aunts, uncles, and parents commented that, behaving like this, the children would never learn to manage their money. So they proposed a special test, in which their children would have to show over the course of a year and observe just how they could manage to manage those few coins.

Some of the children thought that they would save their money, but Kaneza and Mucyo, the two youngest kids, paid no attention, and they continued spending it all on sweets. Every time, they would show off their sweets in front of the other children, laughing and making fun of their cousins. They made Kamana and Manzi so angry that these two could no longer stand to keep saving their money. They joined Kaneza and Mucyo in spending whatever they had, as soon as possible, on sweets.

Kamali, on the other hand, had a will of iron. He saved and saved all the coins he was given, wanting not only to win the competition but also to achieve his dreams of being Entrepreneur, and at the end of the year he had collected more money than anyone. Even better, with so much money, he managed to buy a bicycle and gave it to a bicyclist for paying him every month. He was the clear winner, and the rest of his cousins learnt from him the advantages of saving. When he was about to complete the third year of his plan, Kamali surprised everyone by turning up at the grandparents’ house with a motorbike.

His dream is to buy many vehicles for transport services. And he always tells people how it is possible, with just a few coins well spent, how one can make his/ her dreams a reality. Referring to the story above and your knowledge about entrepreneurship skills and competences learnt before, answer the questions below.

a. Who is supposed to save money?

b. When are you supposed to save money?

c. What are the best ways of saving money?

d. Why do we need to save money?

e. Explain the moral lesson that you learn from the above case study.

9.1. Need for Finance.

Activity 9.1

Observe the following figures and answer the questions that follow:

Questions

a. Where does money come from?

b. What do you understand by the terms “money” and “finance”?

c. Explain different sources of income.

d. Describe at least fifteen household expenses.

9.1.1. Need for money

 In everyday life, human beings have different needs. Money is used in exchange when selling and purchasing different products and services. Money is not only needed to be used personally but also in business activities. Money buys goods and goods buy money; but goods do not buy goods. ... Money is an asset (a store of value) which functions as a generally accepted medium of exchange, i.e., it can in principle be used directly to buy any good.

9.1.2. Accessing money

 There are different sources of money such as working as self-employed or being employee. Money is gotten from different sources and is used according to the purpose of the owner. The best and secure way of accessing money is through saving. But based on the purpose of expenditure, especially when investing, money can be borrowed from different financial institutions such as credit and saving cooperatives, microfinance agencies, banks, etc.

Application Activity 9.1

1. As a student of entrepreneurship, come up with different ways ofgetting

money.

2. Differentiate wants from needs.

3. Make the total cost of all household expenses in your family.

4. Find out different ways to proceed for getting the money needed.

9.2. Financial fitness

Activity 9.2

Look at the images below and answer the followed questions

a. What is the state of feeling of the person in the circle?

b. Why do you think she is in that mood?

c. What do you think should be done to be in good mood? Give clear

explanations.

9.2.1. Becoming financially fit.

Being financially fit means financial freedom. Financial freedom is found when one saves before spending and income is higher than expenses. In order to be financially fit, it requires to put into practice ways to decrease expenses through different ways such as reuse some used materials, recycling, reduction, repair and make financial plans for the future.

9.2.2. Decreasing spending

 Financial planning is designed not to prevent your enjoyment of life but to help you obtain the things you want. Too often, however, people make purchases without considering the financial consequences. Some people shop compulsively, creating financial difficulties. You should detail your living expenses and your other financial obligations in a spending plan. Spending less than you earn is the only way to achieve long-term financial security.

Some practices of decreasing expenses

• Cut-down expenses relating to the things you want

• Retain expenses relating to the things you need

• Save before spending

• Track and record spending

• Compare expenses to income.

• Make a budget (spending and savings plan)

Make financial plans for the future 

Personal financial planning is the process of managing your money to achieve personaleconomic satisfaction. This planning process allows you to control your fi nancial situation. Every person, family, or household has a unique fi nancial position, and any fi nancial activity, therefore, must also be carefully planned to meet specifi c needs and goals. A comprehensive fi nancial plan can enhance the quality of your life and increase your satisfaction by reducing uncertainty about your future needs and resources.

The specific advantages of personal fi nancial planning include:

• Increased eff ectiveness in obtaining, using, and protecting your fi nancial

resources throughout your lifetime.

• Increased control of your fi nancial aff airs by avoiding excessive debt,

bankruptcy, and dependence on others for economic security. It can help you

avoid mistakes/ sidetracks

• Improved personal relationships resulting from well-planned and eff ectively

communicated fi nancial decisions. Makes money work for you.

• A sense of freedom from fi nancial worries obtained by looking to the future,

anticipating expenses, and achieving your personal economic goals. Helps you

make smarter decisions

The Financial Planning Process

1. Determining your current fi nancial situation: In this fi rst step of the fi nancial planning process, you will determine your current fi nancial situation with regard to income, savings, living expenses, and debts. Preparing a list of current assetand debt balances and amounts spent for various items gives you a foundation for fi nancial planning activities.

2. Developing financial goals: You should periodically analyze your financial

values and attitude toward money. They will play a major role in shaping your

financial goals. Analyzing your values involves identifying what beliefs you hold

with respect to money and how these beliefs lead you to act in certain ways.

3. Identifying alternative courses of action: Every decision closes off alternatives.

For example, a decision to invest in stocks may mean you cannot take a vacation. A

decision to go to school full time may mean you cannot work full time. Opportunity

cost is what you give up by making a choice. This cost, commonly referred to as

the trade-off of a decision, cannot always be measured

4. Evaluating alternatives: Uncertainty is a part of every decision. Selecting a

college or university major and choosing a career field involve risk. What if you

don’t like working in this field or cannot obtain employment in it? Other decisions

involve a very low degree of risk, such as putting money in a savings account or

purchasing items that cost only a few dollars. Your chances of losing something of

great value are low in these situations.

In many financial decisions, identifying and evaluating risk is difficult. Some types of risk can affect everyone, such as interest rate risk or inflation risk. They arise from the financial and economic environment in which we live or from the products and services that we choose. Other risks are personal in nature, such as the risk of premature death or the risk of disability or loss of health.

When you travel, you often need a road map. Travelling the path of financial planning requires a different kind of map. Relevant information is required at each stage of the decision-making process. This book provides the foundation you need to make personal financial planning decisions. Changing personal, social, and economic conditions will require that you continually supplement and update your knowledge.

5. Creating and implementing a financial action plan: In this step of the financial planning process, you develop an action plan. This requires choosing ways to achieve your goals. For example, you can increase your savings by reducing your spending or by increasing your income through extra time on the job. If you are concerned about year-end tax payments, you may increase the amount withheld from each pay cheque, file quarterly tax payments, or shelter current income in a tax-deferred retirement program. As you achieve your immediate or short-term goals, the goals next in priority will come into focus. To implement your financial action plan, you may need assistance from others. For example, you may use the services of an insurance agent to purchase property insurance or the services of an investment broker to purchase stocks, bonds, or mutual funds. Your own efforts should be geared toward achieving your financial goals.

6. Re-evaluating and revising the plan: Financial planning is dynamic process that does not end when you take a particular action. You need to regularly assess your financial decisions. You should do a complete review your finances at least once a year. Changing personal, social, and economic factors may require more frequent assessments. When life events affect your financial needs, this financial planning process will provide a vehicle for adapting to those changes. Regularly reviewing this decision-making process will help you make priority adjustments that will bring your financial goals and activities in line with your current life situation.

9.3. Saving

Activity 9.3

a. Referring to the illustration above, explain what is happening in each

image.

b. What are the consequences of overspending?

c. Explain why it very important to save money.

d. Where do you think you can you save money? Explain why? 

9.3.1. Meaning of Saving 

Saving is a conscious and deliberate way of setting aside a portion of the personal income for future use. It is advisable to avoid overspending through the use of budget. Going through the process of putting together a monthly or annual budget can help to prioritize expenses and uncover areas where you may be able to free up more money used for savings and investments.

Obstacles to Saving

Procrastination. Delaying savings or putting savings off for another time;

Poor Spending Habits. Includes spending on unnecessary items; Impulse buying;

hedonistic lifestyle

Culture of Dependency. Being over dependent on others.

Lack of Financial Literacy. Spending on liabilities or items that decrease in value over time; not knowing how your money will grow or work for you.

9.3.2. Saving goals 

Because a person does not know what will happen in the future, money should be saved to pay for unexpected events or emergencies. Without savings, unexpected events can become large financial burdens. Therefore, savings helps an individual or family become financially secure. Money can also be saved to purchase expensive items that are too costly to buy with monthly income. Buying a new house, clothes, purchasing an automobile, or paying for a vacation, etc can all be accomplished by saving a portion of income. We usually save for:

• Basic needs,

• Household expenses,

• Education,

• Emergencies/safety,

• Retirement/security,

• Family wellbeing,

• Esteem,

• Self-actualization

9.3.3. Where to save 

Some savers place their money in a jar, coffee can or a piggy bank which all is not safe and not encouraged. For short periods of time and small amounts of money, the piggy bank method may work, but long-term savers should use a safer method. It is wise to store money in financial institutions like banks depository institution. A depository institution is a business that offers financial services to people, such as savings and checking accounts. Unlike money stored at home which could be lost to a fire, burglary, or some other type of disaster, money stored in depository institutions is protected from loss.

Application Activity 9.3

1. Set three saving goals that you want to achieve in your future life

2. Explain different strategies for achieving the goals mentioned in (1) 

above.

9.4. Managing debts

Activity 9.4 

After finishing secondary school, Mugisha had saved 50,000Frw from. He decided to invest in poultry farming in his village. He bought 4 laying eggs hens and the remaining money was used for cleaning, clearing where to keep the hens and feeding them. After one year, Mugisha found that the hens were growing in number; he decided to expand his business by investing more money for more benefits. He joined Bank of Kigali for borrowing more money to invest in his poultry farming. He used well his loan and then after the second year he managed to sponsor himself to the University for Animal Health Studies to acquire more skills and competences in poultry keeping. He is now a farming entrepreneur in the district where he lives.After reading the above story about Mugisha, answer the following Questions

1. Explain the Reasons why Mugisha went to Bank of Kigali

2. Explain strategies that you think Mugisha used having his loan settled

and benefited in growing his business

3. What lessons do you learn from Mugisha’s experience?

9.5. Good loans v/s bad loans, benefits and risks of borrowing,

Good loans v/s bad loans

Loan is the money borrowed from different sources either for buying needed goods and services or for investing. Loan can be either good or bad. Good loan is the one that is well performed. It means that the borrower pays well the loan and benefit from it and the lender is well repaid with having the desired profit. When the loan is not well performed, it means that it is not well repaid or even completely failed to be repaid.

Money can be borrowed from financial institutions such as banks, microfinance agencies, or even from credit and saving cooperatives. It can also borrowed from the people who have it but in this case no interest should be requested, when contrary individual personal borrow money with interest, it is a kind of financial malpractice that is taken as criminal and it is punishable by criminal laws.

Benefits of borrowing 

When you borrow money from a bank or other lender you enter into a contract with them which governs the repayment.When you borrow money most lenders will offer you collateral in form of payment protection insurance. This gives you protection in case you are suddenly unable to pay, for example due to ill health, an accident or loss of a source of income. It can cover car finance, personal loans, credit cards and store cards, catalogue debts and mortgages.

Risks of borrowing 

People get into debt for a variety of reasons and it is not always their fault. Sometimes overspending or bad budgeting is the cause of debt. Sometimes, it’s just bad luck and unexpected change of circumstances. Debt is something that can affect anyone at any time. For example the loan guarantee can be used to repay loan and the borrower become very poor.

It is an advice that if you find you are having trouble meeting your payments do not panic and don’t ignore the problem. Get to grips with your finances, review your budget and take action before it gets out of control. Contact lenders and tell them about the problem. If in doubt seek advice.

9.6. How to manage a debts 

Maintaining control over your credit-buying habits will contribute to your financial goals. The overuse and misuse of credit may cause a situation in which a person’s debts far exceed the resources available to pay those debts.

Everyone with even a little bit of debt has to manage their debt. If you just have a little debt, you have to keep up your payments and make sure it doesn’t get out of control. On the other hand, when you have a large amount of debt, you have to put more effort into paying off your debt while juggling payments on the debts you’re not currently paying.

Ways of debt management include the following;

1. Know who and how much you owe.

Make a list of your debts, including the creditor, total amount of the debt, monthly payment, and due date. You can use your credit report to confirm the debts on your list. Having all the debts in front of you will allow you to see the bigger picture and stay aware of your complete debt picture.

Don’t just create your list and forget about it. Refer to your debt list periodically, especially as you pay bills. Update your list every few months as the amount of your debt changes.

2. Pay your bills on time each month. 

Late payments make it harder to pay off your debt since you’ll have to pay a late fee for every payment you miss. If you miss two payments in a row and your interest rate and finance charges will increase.

If you use a calendaring system on your computer or Smartphone, enter your payments there and set an alert to remind you several days before your payment is due. If you miss a payment, don’t wait until the next due date to send your payment, by then it could be reported to a credit bureau. Instead, send your payment as soon as you remember to.

3. Create a monthly bill payment calendar. 

Use a bill payment calendar to help you figure out which bills to pay with which paycheck. On your calendar, write each bill’s payment amount next to the due date. Then, fill in the date of each paycheck. If you get paid on the same days every month, like the 1st and 15th, you can use the same calendar from month to month. But, if your paychecks fall on different days of the month, it would help to create a new calendar for each month.

4. Make at least the minimum payment. 

If you can’t afford to pay anything more, at least make the minimum payment. Of course, the minimum payment doesn’t help you make real progress in paying off your debt. But, it keeps your debt from growing and keeps your account in good standing. When you miss payments, it gets harder to catch up and eventually your accounts could go into default.

5. Decide which debts to pay off first. 

Use your debt list to prioritize and rank your debts in the order you want to pay them off. You can also choose to pay off the debt with the lowest balance first.

6. Pay off collections and charge-offs.

 You can only pay as much on your debt as you can afford. When you have limited funds for repaying debt, focus on keeping your other accounts in good standing. Don’t sacrifice your positive accounts for those that have already affected your credit. Instead, pay those past due accounts when you can afford to do it. Be aware that your creditors will continue collection efforts on your account until you bring the account current again.

7. Use an emergency fund to fall back on.

 Without access to savings, you would have to go into debt to cover an emergency expense. Even a small emergency fund will cover little expenses that come up every once in a while.

8. Use a monthly budget to plan your expenses.

 Keeping a  budget  helps ensure you has enough money to cover your monthly expenses. Plan far enough in advance and you can take early action if it looks like you won’t have enough money for your bills this month or next. A budget also helps you plan to spend any extra money you have left after expenses are covered. You can use this extra money to pay off debt faster.

9. Recognize the signs that you need help. 

If you find it hard to pay your debt and other bills each month, you may need to get help from a debt relief company, like a credit counseling agency. Other options for debt relief are debt consolidation, debt settlement, and bankruptcy. These all have advantages and disadvantages so weigh your options carefully.

Application Activity 9.4

Based on the knowledge from financial fitness, saving and managing debts and

setting saving goals, answer the following questions:

1. Kamana has taken a loan to grow his business. He recently missed a few

weeks of work due to illness. This resulted in lost pay of his business

sales and he has fallen behind in paying his loan. What actions would

you recommend for Kamana?

2. Set strategies that can help Kamana to settle the loan.

 9.7. Record-keeping and budgeting

Activity 9.5

1. Make a list of all important documents/records you think should be kept

at your home.

2. Give reasons why each of the mentioned documents/records should be

well kept.

3. Where do you think those documents should be kept and why?

9.7.1. Basic record-keeping 

Personal documents, household records and important legal papers accumulate continually. A recordkeeping system will help you organize the important information concerning your household financial affairs and keep track of your personal finances and hard-to-replace documents.

An important benefit of keeping orderly records is that you can retrieve document payments when required, such as to prove payment of child support, medical bills to insurance companies, or to obtain warranty coverage. Also you can document losses for fire damage or theft for insurance claims. Recordkeeping can help you save time and money while giving you peace of mind.

1. Setting up a record keeping system includes four steps:

2. Gather and organize financial information.

3. Decide where each type of record should be kept in a home file or safe

deposit

4. Organize the records kept in your home file and place appropriate records

in a safe deposit

5. Review and discard unneeded records.

Examples of some records to be kept

• Personal papers such as birth, marriage and death certificates, adoption

papers, passports, citizenship papers, etc.

• Automobile and other titles

• Certificates of deposit or bank savings certificates

• List of insurance policies and their numbers

• Property records, title and deeds

• Records of home improvements

• Legal papers, leases and contracts

• Copy of household goods inventory with photos or

• Names and addresses of your financial advisors and financial institutions

• Copy of financial plans, net worth statements

• List of checking and savings accounts by financial institution

• Etc.

9.7.2. What is budgeting?

 Budgeting is the process of setting targets, covering all aspects of expenses and income. Budget informs how much one can spend to achieve financial goals. Budgeting system shows how much can be spent, and gives managers a way to check whether they are on track. The following are steps in budgeting:

1. Set financial goals

• Identify and write them down

i. Long term (1-5 years)

ii. Short term (within a year)

• Make then achievable, practical, and owned by everyone

i. Keep them in the fore front

ii. Journal the process

iii. Celebrate their completion

• Write them into your monthly budget

• Adjust them as necessary

2. Estimate your income

• Make a list of each income stream that you receive on a regular basis each

month. The key is to only include that income you get every month.

• Include both monthly wages earned from your job(s) as well as monthly

supplemental income (i.e. child support, disability, etc.)

• Mark down the date these are received.

• Calculate the monthly income total.

• Record, but do not include any periodic income you may receive at this point.

3. Record what you spend

• Review the previous month’s check book ledger, bank statements etc. and

record you’re spending and income.

• Record what you spend for the next month and write down what your actual

expenses and income.

4. Budget for actual and unexpected expenses

Actual Expenses: Identify fixed expenses (i.e. rent, scholastic materials and

school dues, transport payment, food, entertainment, etc). Record the monthly

payment deadline and plan according to your payday date.

Unexpected expenses: Unexpected expenses are those expenses that are not

planned. The costs used in unforeseen circumstances.

5. Review and evaluate monthly

• Review on a monthly basis, especially when you begin the process.

• Evaluate the budget against your personal financial goals.

• All monthly deficits need to be addressed immediately

• All surplus experienced needs to be added to savings

• Consider operating on a cash envelope system

• Do not get discouraged.

Types of budget

There are mainly three types of Budget such as:

i. Balanced budget. It’s a budget where the expected income is equal to

expected expenditure in a given financial year.

ii. Surplus budget. It’s a budget where the expected income is more to

expected expenditure in a given financial year.

iii. Deficit budget. it’s a budget where the expected income is less to

expected expenditure in a given financial year.

Other types of budget include;

a. Income Budget: it’s a budget that sets minimum target for desired revenue level

to be achieved over a period of time.

b. Expenditure Budget: it’s a budget that sets a maximum target for costs.

c. Profit Budget: it’s a budget that sets a minimum amount of money for the profit

to be achieved over a period of time. 

Profit Budget is a function of income budget and expenditure budget. The higher the income budget, the lower expenditure and the higher the profit.

9.4.1. Personal Budgeting 

A personal budget is a sum of money that is made available to someone who needs to achieve personal financial goals. A Personal Cash Budget is useful for anyone who wants to know where their money is going. Completing a personal budget gives greater control over personal expenditure and lets you determine where savings could be made for larger items, such as to build up a sum of money for future investments or retirement.

Start by getting organized. Find bank statements, bills and receipts. These will help you see where your money is being spent (rent, mortgage, hire purchase, telephone, power, insurance, groceries and so on).

Creating a personal budget

• Recognize your income

• Track your expenses;

• Figure out the amount of money you’re spending;

• What do you have to spend?

• What are you spending on that is not a necessity?

Application activity 9.5

Budget statement of Mr. Mugisha

1. Complete the above budget statement of Mugisha

2. Each month Kayiranamura and Muhire have lengthy discussions about

their household spending. They do not understand why they are

continually short of money even though they both have good salaries.

What actions might be taken to avoid personal and financial difficulties?

3. Help them to make a six months budget if each one is paid 200,000Frw

month with the purpose of saving at least 100,000Frw per month.

4. What are the records that can you advise them to keep for their expenses

management? 

9.8. Exploring savings and loans in Rwanda

After reading very well the above structure answer the following questions:

1. Based on what you know, explain each level in the structure?

2. Where do you think loans can be more found among those institutions?

Explain your answer.

3. Give examples of different electronic banking categories used in banking

institutions especially commercial bank.

9.8.1. Financial structure and Institutions in Rwanda 

The financial institutions in Rwanda have been summarized to include the following: Ministry of Finance and economic planning, National Bank of Rwanda, Rwanda banking, and Non-Banking Financial Institutions. In banks there are Commercial banks, microfinance banks, Cooperative Banks and Development Banks.

The National Bank of Rwanda was founded in 1964 and has the mandate to supervise the financial sector.

Objectives of the central bank

• To maintain financial system stability with a view of encouraging and promoting

the development of the productive resources of Rwanda.

• To promote the access to finance whilst strengthening a stable and sound

financial system through licensing of banks, insurers, pensions schemes,

microfinance institutions, forex bureaus, and credit reference bureaus.

Mission is to ensure price stability and sound financial system

Vision to become a world-class central bank

Management of National Bank of Rwanda

The Bank is headed by the Governor who is appointed and dismissed by the

Presidential Order and the Vice Governor who is appointed and dismissed by a Prime

Minister’s Order

Activities of National Bank of Rwanda

For the Bank to achieve its missions, it shall perform the following duties:

• To define and implement the monetary policy

• To organize, supervise and regulate the Foreign exchange market

• To supervise and regulate the activities of financial institutions notably banks,

micro finance institutions, insurance companies, social security institutions,

collective placement companies and pension funds institutions

• To supervise and regulate payment systems

• To mint and manage money

• To hold and manage official foreign exchange reserves

• To act as State Cashier

• To carry out any other task that this law or any another law may assign to it

List of licensed banks-June 2017

I. Commercial Banks

1. Bank of Kigali Ltd              7. Equity Bank Rwanda Ltd

2. I&M Bank Ltd                      8. Access Bank (Rwanda) Ltd

3. COGEBANQUE Ltd            9. Bank of Africa Rwanda Ltd

4. KCB Bank Rwanda Ltd       10. Guarantee. Trust Bank (Rwanda) Ltd

5. Ecobank Rwanda Ltd          11. Crane Bank Rwanda Ltd

6. BPR Atlas Mala

II. Microfinance banks

1. Unguka Bank Ltd

2. Urwego Bank Ltd

3. Commercial Bank of Africa (Rwanda) Ltd

4. AB Bank Rwanda Ltd

III. Development Bank

Development Bank of Rwanda Ltd

IV. Cooperative Banks

Zigama css

9.8.2. Understanding ATMs (debit and credit cards). 

Automatic Teller Machine (ATM) card is used to access a computer that allows a bank customer to get cash, make deposits or transfer money between accounts. ATMs are found in banks and many other convenient locations and can be used 24 hours a day, seven days a week. However, when an account holder uses an ATM card at an ATM that is from a different bank, there is usually a fee charged for the transaction.

Credit Card: You borrow money from a credit card issuer and you pay later (with

interest, if you do not pay the balance in full and on time).

Debit Card: Your own money is taken directly from your checking account to make

the payment. It acts like a check, but it’s faster and more convenient.

Debit card is a “pay now” point-of-sale transaction card that replaces cash and checks. Debit card transactions are deducted electronically from a cardholder’s savings or checking account. Debit cards differ from ATM cards because they can be used to make purchases, and they differ from credit cards because they are not loans.

Activity 9.6

Make a list of financial institutions that are found in your community where you

live.

1. Choose one financial institution that you know and that you can work

with whenneeding to take loan and explain why.

2. Make field trip and visit where there is financial institution that use

ATM and request for a convenient bank officer to answer the following

questions:

3. How is ATM used?

4. What are the advantages of using ATM Cards?

5. Differentiate Credit Cards from Debit Cards? 

9.9. Financial fitness plan

Activity 9.7. 

Analyze the above illustration and answer the following Question:

1. Under guidance of the above illustration, explain different strategies in

sequential order for having financial freedom 

9.9.1. Preparing personal financial fitness plans

Steps in financial planning

1. Set family goals together;

2. Set a time frame for achieving family goals;

3. Discuss and determine how each member will contribute to achieving

family goals;

4. Remind everyone of their commitment from time to time; and

5. Monitor whether the family is achieving its goal or not.

Setting a time frame for each goal

Start by answering the following questions:

• Education. When will all the children/siblings finish high school or college?

• Housing. When can you buy your own home or at least make the down

payment for a new home?

• Retirement. At what age do you plan to retire?

• Health and Protection. Do all the children have the required vaccinations? Do

all adults have family health plans?

• Savings & Investment. How much & until when should you save? Where and

how much to invest?

Setting up and using a budget involves six basic steps:

1. The first step is to establish your financial goals: short, mid and long-term.

2. Next, you should examine your current financial position. What is your

household income, monthly and annually? How much do you spend? How

much is left over for savings and other purposes? What and how much is

your debts?

3. The third step is to write out a monthly budget for each of 12 consecutive

months, itemizing expenses in various categories and estimating how

much you can reasonably expect to spend in each category.

4. Now relate your budget to your overall financial planning. How much

money do you expect to have left over after expenses? How will this money

be allocated among your financial goals? Following the budget you have

set up, how long will it take you to reach each goal?

5. Throughout each month, make regular entries of your actual

expenditures in each expense category. At month end, total the amounts

in each category, and match these figures against your original estimates.

At year-end, total the monthly amounts for the year.

6. Finally, review and revise the budget to keep it useful and up-todate. At the end of every month, measure your performance against the

budget targets. Midway through the year, review the budget categories

and estimates and, if they need adjustment, make the necessary changes.

At year-end, repeat this review and prepare a new 12-month budget with

revised estimates of income and expenses. 

9.9.2. Giving Advice to others 

After being financially fit and have put into practices different process of becoming financially free you can help other as Financial Counselor and give advice about financial development based mainly on Planning, Saving and Investing.

Your financial future is in your hands. The following tips for financial fitness can be

helpful to you:

• It’s up to you. Remember, you are responsible for your money. Keep a budget,

review it regularly and make sure you include a plan for regular savings. By knowing what you earn and what you spend, you’ll know where you stand and

where you’re heading.

• Be realistic: Don’t spend more than you earn, and only borrow what you can

realistically afford to repay.

• Plan ahead: Map your financial future, including how you plan to fund your

retirement.

• Keep track: Keep records of all your financial transactions together in one place

– from bank statements to investment statements. Check your statements

regularly, and talk to your financial institution if there are any inconsistencies,

or if there is anything you don’t understand.

• Protect your assets: Make sure you’ve got adequate insurance – to cover your

belongings, your income and your health.

• Understand investment: Understand the basics of investments, including

future wellbeing. Remember that high returns generally equal high risk and

only take on a level of risk that you feel comfortable with. Do an annual ‘health

check’ on your investments.

• Know the cost: Know what your financial products are costing you – ask

questions if you don’t understand the fine print and shop around to find the

products that best suit your needs. Don’t sign up for anything you don’t fully

understand.

• Be cautious: Be wary of investments offering a high return with little or no risk.

If it sounds too good to be true, it probably is!

• Get expert advice: Seek professional and qualified financial advice when it

counts (eg. buying a house, planning for retirement, insurance, investing and

tax issues) and get a second opinion if you feel unsure.

• Educate yourself: Take the time to teach yourself more about finance and

don’t be embarrassed to talk about money with people you can trust.

Starting by today, it doesn’t matter how small your savings contribution is, try

to save. Go to the bank of your interest as chosen in the questions before and

open a student account. Before opening, ask the Bank officer the following

questions:

1. What is a student Account?

2. What are the benefits of that account?

After opening the Account, continue to save the amount of money gotten

and put into practice the Financial Plan and budget designed in the previous

questions.

3. Explain how you will use that account for achieving to financial fitness in

your five years from now.

Skills Lab Activity 9.8

• For any business activity of your choice, suggest strategies or how you will

cut costs/expenses using the 4Rs (reducing, recycling, repairing and reusing)

End of Unit 9 Assessment

1. Read the following dialogue and answerthe questions that follows;

Does what you know now about money management, affect your future?

• Of course what you know today affects tomorrow

- You couldn’t drive a car without a license

• That’s why you need to begin learning about how to spend your

money wisely today

How does your attitude toward money change as you age?

• Five-Year-Old:

Come On mom, can I have some money to buy that ring?

• Fourteen-year-old:

- Mom I want 10,000Frw to buy that designer label top and those cool

pants. 

• Eighteen-Year-old:

• Shoot, I know how i can get money for college. I’ll ask mom.

• Forty-Year-Old

I need to save for my retirement. No excessive spending.

Questions

i. With examples explain how your money management affects your

future wellbeing.

ii. When do you think can a person start to save? Explain your answer.

iii. Design a financial plan of your choice then do the following:

a. Explain the strategies of achieving that financial plan

b. Analyze that financial plan and make a budget for it

2. Based on the financial knowledge that you have about planning, saving

and investment, advise someone seeking your financial guidance so that

s/he may be financially fit.