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Personal Financial Situation – Study Notes

Paper – Investment Planning Specialist
Module – IA. Global Personal Financial Management
Chapter – 1: Personal Financial Situation

Learning Objectives

1-1 Identify the types of information to collect regarding a client’s assets and liabilities
1-2 Evaluate whether a client is living within financial means

Knowledge Items

1.1 Living within financial means

You have enough money to cover expenses. Earning > Spending. Allows to save for financial goals. Has cushion in case of emergency. Know expenses – Fixed (like rent/loan EMI) or variable (like gas, electricity bills). Having a budget, setting and saving/investing towards financial goals.


1.1.1 Statement of financial position – Balance sheet

Balance sheet = Statement of Net worth = Assets – Liabilities = Summary of what you own vs what you owe.

1.2 Assets

Any economic resources that has some monetary value today or in future. Try to use fair market value of asset during planning. 3 common types are below

1. Cash/Near Cash

Liquid assets or ones that can be easily converted to cash like money in saving account / current account / FD / Liquid Mutual Funds

2. Invested Assets

Assets that will give returns like stocks, Mutual Funds, property, PPF etc.

3. Personal Use assets

Assets that we use for but also have potential to give returns when sold like home, car or jewellery.


1.3 Liabilities

Debt / obligation to be paid back in future. Two types as under

1. Current Liabilities

Short term loans. Generally less than a year to pay back. Like Credit card bill, short term loan, etc.

2. Long Term Liabilities

More than a year to pay back loan fully. Like car & home loan


1.3.1 Net worth

Net worth = Actual wealth of person = fair value of assets – fair value of loan

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