Countless times, we get to the store and end up buying a cart full of things we don’t need. There are ample instances of dining out and take-away when the refrigerator is already full. Although our paycheck is reasonably huge, the end of the month seems scorching.
These are a few consequential instances of improper financial management. The term ‘financial management’ is not confined only to banking personnel and financial advisors, but is related to every individual hoping to lead a stable and secure life with a decent standard of living.
Financial management does not demand sophisticated computing knowledge or algorithm solving capability. You just need basic maths skills and a focused mind to be successful at handling money and building a robust portfolio.
What Is Financial Management?
Financial management is a process of budgeting, expense tracking, evaluating, and investing ones’ money.
This applies to corporates, conglomerates, entrepreneurs, small business owners, working professionals, and also to every single homemaker, striving to reap the maximum benefits of their income and investments.
A few key reasons to know why you need to set up a budget are:
- Getting a clear picture of how much goes for the essential needs of the family like household bills, insurances, travel, and medical expenses
- Finding out how much is spent on leisure activities like clubs, eat-outs, party and recreation and decide what is reasonable depending on your income and family requirement
- Coming across areas that can contribute to savings
- Creating a portfolio for your dream car or holiday and start saving small
- Making concrete plans for long-term savings and retirement goals
This post will cover a few basic concepts related to money management that can be practiced by anyone irrespective of his profession.
Easy Money Management Tips
Budget planners share your burden of budget planning by offering personalized solutions depending on your requirement. One can track all expenses via an online tracker or note them down on paper. This gives a clear picture of the area that highly deviates from the budget and which domain needs intervention.
Once you’ve written down your figures, the budgeting process is half done. From there, you can make plans to cut costs on those segments to ensure strict adherence to the budget framed. Though the process might seem rigorous initially, it’ll give you a sense of accomplishment once in practice.
Loan Pay Off
An ideal way to cut expenses is to pay off loans and other high-value debts. Whenever there is a possibility of a pay-off, opt for the loan that charges the highest interest rate. This ensures a significant portion of your long-term monthly spending is cut off.
In general, credit cards charge higher interest rates than personal loans. Analyze which costs you more and pay it off and keep the least charging loan till the end.
This also prevents overspending from swiping credit cards everywhere for purchases that are in no way resourceful. Such options help in boosting your credit score.
If your credit score is low and you are stuck in an emergency, opt for a credit card-no credit check which offers a small amount of money without security. However, ensure you have the resources to repay it in time so that it does not hurt your credit score.
Set A Savings Goal
It is important to save from every months’ income to build an emergency fund. This might include the unexpected medical expense for a member of a family or a sudden trip for business’ sake or personal commitment.
If you’re swimming in debt, it might be useful to hold off on making big purchases. Instead, you can set savings goals for installments on a car or house as soon as the funds become available.
With flexible savings and comfortable cash flow, you can set aside some money periodically and gift yourself a holiday you always wanted.
Once you are on track with your savings, consider planning for your retirement. If you want a peaceful retired life, you need to start setting up a fund for it right away. Review your savings and opt for investment plans that help you build a portfolio.
Getting a tax refund is a process most people do not care for if the amount is meager. However, it is a good practice to claim what is entitled to you and save even if it is too little. Every penny counts and there is no point in being hesitant to file a claim for your hard-earned money.
Involve The Family
While making a budget, involve the family and explain the details to each family member based on their age and exposure. This makes everyone aware of the financial status of the family and motivates them to cultivate the habit of responsible spending as a routine.
Also, save up enough cash to buy large household appliances and home needs in one payment rather than going for equated monthly installments. This cuts the amount to be spent on interest, gives ample time to evaluate if the product is necessary, and also allows analysis of price fluctuations over time.
After all, you should admit, no plan is foolproof. Some expenses are unprecedented, and some savings are mandatory. You can never be on track all the time, and it is alright to allow room for a buffer zone.
Make use of coupons and discount sales to purchase products at the right time, at the place. When in an emergency, do not hesitate to go for small loans, say a 500 loan offered by credit unions or close circles.
Ensure you repay it as per the terms of the agreement. In short, allow deviation from the plan but be certain of the limits.
Money management is an important life skill not taught in educational institutions. Whether it’s rebuilding your funds or adjusting to a new stream of income, good financial knowledge is always handy.
It is only through smart financial decisions in investments and savings that one can establish a successful portfolio that is highly rewarding in the long run.