Financial Management is an essential aspect of our daily life. We are caught up in our daily life so much that we forget to realise the importance of financial management.
Without the knowledge of financial management it is not possible to live a life of bondage and know how to adequately pay your bills and get out of your financial debts. Having necessary financial management skills will make sure that your money is managed well.
Here we discuss financial management at an individual level. It includes how you manage your money through Savings, investments and manage your expenditure. Broadly speaking other aspects of financial management are banking, budgeting, insurance, retirement planning and others.
Importance of financial management in life
Financial Management is about meeting long term and short term financial goals. There are numerous reasons why Financial Management is important but here we focus on a few of them.
- Ensures that financial needs are fulfilled
- Helps in managing your income
- Budgeting, Savings and expenses
- Personal Finance
- Ensures financial security
- Increase your Assets
- Increase in Standard of Living
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1. Ensures that financial needs are fulfilled
Money matters are most important for any individual. Earning money is one aspect and ensuring that money fulfills your needs is another aspect.
Having a plan that establishes how much is an individual income, what are the expenses, making plans about spending the income, planning for future goals are important aspects that ensure financial needs are fulfilled.
Financial management ensures the financial needs of an individual are fulfilled if the following are managed effectively.
- Creating a monthly budget and following it
- Payment of bills on time
- loan management
- Savings for retirement
- Managing credit cards and tracking credit score
When you have good knowledge of personal finance and money management skills, you have the advantage of facing financial challenges, use opportunities and work on responsibilities that come your way.
2. Helps in managing your income
If you do not have a plan for your income you will end up spending more than you earn or spend on items that you do not need. With a good financial management plan, you can manage your income effectively.
If you have a good financial plan then you will spend on what is necessary, save money for your future and make proper investments.
Financial management helps in knowing which expense to handle first and which one later. You will effectively make tax payments, do savings and pay monthly bills.
3. Budgeting, Savings and Expenses
If you spend your income without a plan on unnecessary expenses or if you spend your income according to your whims and fancies you will fall into a huge debt. This may happen because you spend more than required and you will become financially unstable.
Financial management helps you in Budgeting your income. Budgeting helps in planning your income where your money should be spent, how much income should be saved, how much should be invested.
According to your lifestyle plan, stick to what you have budgeted, avoid overspending and direct your money towards savings. Savings and Investments money will rescue you in tough times.
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4. Personal Finance
Personal finance helps you to increase your cash flow. Financial management helps you in tracking your expenses and spending patterns. It helps you to easily increase your cash flows.
Cash flow can be increased through the following.
- Tax planning
- Spending wisely
- Proper Budgeting
When you follow all these it will ensure that your money is not spent unnecessarily. Having a personal financial plan is very important because it ensures the right financial track.
5. Ensures Financial Security
Financial management ensures financial security for you and your family. Proper management of finance gives financial freedom. By having the Financial freedom it gives financial security.
Having a right investment plan, right insurance plan, proper savings, will ensure that it gives you and your family financial security.
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6. Increase your Assets
When you better understand your finances you have a possible chance of increasing your assets. When you own assets you are in a good financial position. Sometimes assets are attached with liabilities. Determining the value of assets you own will increase your net worth.
Financial management will help you to increase your assets. Settlement of your liabilities by paying off your debts and increasing your investments in fixed assets will make you financially sound. This way you can grow your assets by effectively managing your finances.
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7. Increase your Standard of Living
Financial management increases your standard of living. The more you are planning for your savings, the more you are increasing your net worth. The more you plan for your finances, the more your savings will be. Savings can help you to face financial challenges. Effective financial management will increase your wealth thereby increasing your standard of living.
Conclusion
Understanding your finances is the first step in financial management. If financial management is not effective then you will fall into a deep financial crisis. Make financial management so effective that it will make your future safe.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
