What makes personal financial management so crucial? That is a common question that people have, particularly fresh graduates who have not personally experienced the effects of financial illiteracy. Many educators and policymakers can cite scholarly studies as well as reports from money management foundations to answer this topic. Personal finance training leads to better awareness of financial goods, more effective budgeting, and more rupees being deposited into retirement accounts to construct a financially secure future, according to these documents. This article concentrates on a few basic aspects of personal financial planning.
M.Com, PhD, PGDBA.
Dean, Global Educare Foundation, Hubballi.
What is the meaning of personal financial management?
Personal financial management is a daunting and ongoing chore that may leave even the most financially informed person perplexed. Financial management is a trickier notion than ever before in a world where assets and investments move swiftly, and we link our bank accounts to a plethora of services and make purchases at the press of a button.
Making the most of the funds available to you necessitates constant vigilance and intelligent thought. Financial success requires an understanding of your financial condition in order to make the most of your assets in day-to-day life and in planning for the future. To many, though, all this implies is that you should keep track of your spending and save what you can.
That isn’t necessarily a terrible policy, but it ignores the complexities of financial planning.
Why Should You Manage Your Personal Finances?
Money is one of the most vital aspects of surviving in this world. You wouldn’t be able to attain the needs of life without it. Personal financial management is a critical component of making and maintaining money. Personal financial management is important since it assists you in planning for the future, saving money, and giving you control over your finances. Financial management mostly assists you in planning for the future.
People must understand that the unexpected occurs in life. It is essential to prepare for the unexpected so that you are prepared when it occurs. Those that are prepared can use financial management as a safety net.
The practice of balancing one’s own wealth and income with financial demands, ambitions, and goals is referred to as personal money management. Though some of us may be able to get by without sophisticated money management skills, none of us can completely avoid financial stress.
Most of us work during our most productive adult years, and the money we earn must be effectively managed if we are to meet our fundamental necessities and enjoy fulfilling lives.
The decisions we make about our personal finances can be complex, and they vary as we progress through life’s stages. While we may begin our adult life by simply depositing our paychecks into bank accounts and spending the majority of all of our earnings on cash credit cards, we may find ourselves lured further into the worlds of borrowing, saving and investing, and insurance as we become older.
At its most basic level, personal money management refers to the purchases you must make to meet your daily requirements and desires. This entails keeping track of your checking and other bank accounts, as well as credit card purchases, to ensure that your monthly costs do not exceed your monthly income.
Cash flow management:
Every month, you will almost surely pay some fundamental expenses, regardless of who you are. First and foremost, you must pay for your living quarters. You may pay rent to reside in someone else’s apartment or house. Alternatively, you might pay a monthly loan payment to the bank that provided you with the funds to purchase your own property. In either scenario, this will most likely be your largest monthly expense, but it is far from the only one to factor into your budget.
You’ll also need to budget for costs like electricity, phone service, Internet, and water, as well as groceries and other necessities. Furthermore, unless you reside in a major city with an excellent public transit system, you will almost certainly need a car to go to and from work and the grocery store, which may necessitate borrowing money from a bank or other financial institution, similar to the purchase of a property. In this situation, you’ll need to set aside money for an EMI payment.
In a perfect scenario, you’d earn enough money each month to cover all of these expenses while still having money saved away for the future. After paying costs and putting money aside for savings, money left over can be comfortably spent on amusement or other non-essential expenditures, but doing so instead of conserving money is usually a terrible decision.
It is nearly always a terrible decision to go into debt to make such purchases or to pay for basic expenses. You may be on the verge of a financial crisis if you can’t live properly without getting into debt each month.
(To be continued)