Personal Finance Basics: An Overview (Video)

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Hi all,

I’m Ramon Cuenca, founder and director of Art and Finance, the website that makes learning Finance fun and accessible.

Ever since I started the site in October of 2014, the most-requested subject that people wanted me to address is personal finance.

I’ve only gotten around to it now, since I have my “quick intro to finance” blog posts up on our website (links below). If you’re not familiar with the basics of Finance – time value of money, basic economics, et cetera, I highly recommend that you check them out. I’ve done my best to make these posts as simple as possible.

Now, if you’re still here, I’m assuming you know the basics. Off we go!!

(Episode #2: Personal Finance Basics: An Overview)

Personal Finance. – Let’s define that as strategic planning of your assets (what you own) to help achieve life goals. Yes, you can actually do that. Maybe the garden gnome you inherited won’t pay for your retirement, but the cash you get from selling it, once invested, might be able to

Anyway, I feel that the best way to start learning about personal finance would be through the Chartered Financial Analyst (or CFA) Institute’s Investment Policy Statement, or IPS. The IPS is basically a framework that wealth managers use to plan their clients’ finances. Although we’re not trying to be professional wealth managers here, it’s a good way for YOU to get an overview of how to look at your finances.

Now, there are several moving parts in the IPS, so we’ll have a little mini-series going on to address all of them. In this video, I’ll give you an overview of the IPS, and in subsequent videos in this mini-series, we’ll go into further detail on individual components. And then, we’ll finish by going over more practical information, such as how to get your money invested. By the way, if you’re interested in learning more about wealth management I’ve also added a link to the relevant book, in the description.

So here’s the IPS. You’ll notice two objectives: return, and risk.

Below them are constraints: liquidity, time horizon, taxes, legal and regulatory environment, and unique circumstances.

Let’s start with the objectives of the IPS – these are basically your goals for what you want to do with your money.

The return objective is pretty self-explanatory: How much of a return are you trying to make with your assets? To that end, we’ll be going over asset allocation – basically, what to invest your money in so you reach your return objective.

Next, risk objective. What’s a risk objective? Doesn’t everyone want ZERO risk? Well, in Finance, a popular axiom is that larger rewards involve larger risks. So we need to specify what level of risk you are willing to take with you money to earn a certain return. In our upcoming video on the risk objective, we’ll also be talking a bit about behavioral finance – basically, investor psychology.

Next we have the constraints. These are real-world issues that help keep your objectives grounded.

Liquidity in the context of personal finance generally means having cash for immediate expenses.

Time horizon is an important issue, as your objectives may differ, for example, between your 20s and 60s.

Taxes – OK I’ll try and make the video on this one as entertaining as possible.

Legal and Regulatory Environment and Unique Circumstances – I won’t be spending too much time on these since they’re very specific. Furthermore, legal and regulatory environment applies more to the professional who would be managing your money, assuming you’re able to hire one. However, in our last video in the series, on how to get your money invested, we’ll talk a little bit about what sort of regulations financial advisors and investment managers face. And, of course, we’ll be discussing who would manage your money, and other alternatives if you can’t afford an investment manager.

So, that’s it for our overview on personal finance. Tune in on 27 March for the next video in our personal finance mini-series, which is on the return objective!

Ramon Rodrigo Cuenca, CFA

Assistant: Mack Agbayani


CFA Curriculum Level III, 2011, pp. 112-129

A Quick Intro to Finance, in our Finance Blog:

More on Wealth Management

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