Financial Management: An Effective Way of Getting Over Financial Worries
While making money, just like lovemaking, is always an exciting topic for many individuals, learning about the need to manage the hard-earned money is not that appealing. Let’s say many are not interested in that aspect of finance. However, the two concepts are essential and interdependent; making money helps you buy your beautiful cars, live in your dream house, and even wear your favorite fashion brands; meanwhile, financial management enables you to sustain your wealthy status and make rational financial decisions.
The answer to the ‘Whys” of financial management is the same among virtually all individuals irrespective of our social class or how we earn our living. It is vital for all –employees, unemployed, self-employed, and even employers– to understand the concept of financial management and incorporate it into our decision-making processes.
Financial management helps in guiding you towards effective budget planning. I remember how I always nag about my first salary ($10,000) because I had the belief that I was earning a low income. It finishes about a week before the next payday. However, Mark, my childhood friend, was always there to lend me some money for upkeep. I maintained this financial habit for eight months. I stopped in the ninth month when I discovered that Mark was earning ($7500), well lower than I do. That was when I realized my salary was more than enough, but most of my spending was frivolous. We are always tempted to buy more and more items each time we have cash balances. However, having a well spelled out budget guides us to stay within our income space without the need to borrow, the very essence of financial management.
Financial management also enhances our mental health. Worries about the lack of money can be frustrating and stressful, thereby disrupting healthy thoughts. The mental stress can result in headaches, high blood pressure, among other physical indicators. It may also lead to immoralities as one can be tempted to indulge in gambling or drug dealing for fundraising. Although financial management can deprive you of fun (redundant ones), it enhances our mental health as we are free from financial stress.
Another crucial benefit of financial management is the credibility that comes alongside it. Financial management helps people around us trust our creditworthiness, which trickles down to how people rate our integrity level. This financial integrity would not only aid easy access to financial assistance; it also helps us with our career growth.
Ultimately, financial management is essential in actualizing our long-term financial goals. We can buy our fancy mansions, luxury cars, go for vacations and even afford to send our kids to an Ivy League school, through effective financial management. Hence, financial management is not only necessary for short-term budgeting, but also a life worth living.
How to improve your financial security through proper financial management
However, it is not enough to understand the importance of financial management without incorporating it into our financial lives. Hence, below are the tips for personal financial management.
Have a proper budget plan
A budget is a statement that shows the earnings details of an individual against his expenses. The first step in achieving financial management is by having a detailed budget. One of the mistakes many make is spending without tracking their expenses. This syndrome is common when we receive payments or grants. Our instinct triggers us to spend more and more, which may cause us to overspend. However, we can tackle this financial issue by having a well-documented budget in which we list out our earnings and compare them with our expenditures. This budget planning helps you to track your expenses to avoid spending above our financial capacity and cut unnecessary borrowing.
Prioritize your expenses
The economic saying that human wants are endless, and their end means are scarce, has become a known fact in our daily lives. This notion is a gentle reminder that you cannot buy all your needs in a short period or with a wage or salary payment. As a result, there is a need for proper financial planning in which we prioritize our needs in their order of importance. It is not financially wise to spend lavishly without tracking expenses. Hence, the first step is to list all the items you intend to buy. Secondly, arrange the items on the list according to their order of importance. Prioritizing your expenses enables you to take care of urgent needs while you can defer other needs in the interim. This financial planning helps you cut unnecessary expenses that can leave you stranded, thereby improving the efficiency of your financial management.
Do not base your expenses on a transitory income
Generally, there are two basic types of income, transitory and permanent income. Transitory income is short-lived earnings; that is, this type of income is irregular, or inconsistent income flows; they are one-off earnings, such as grants, income from side hustles, or selloff on properties. However, permanent income is steady income flows, such as wages or salary payments from our regular jobs. One of the costly financial mistakes many individuals make is planning on both the transitory and permanent incomes. This approach to finance makes the financial plan unrealistic, thereby disrupting the budget plan. However, you should endeavor to make the best use of transitory income to reduce the burden on permanent income, thereby boosting your savings and general financial health.
Always stay in line with your financial plan
In personal finance, it is crucial to understand that there are possible instances when you will pay some unplanned bills. It is also essential to know that emergency cases will arise, and if not well taken care of, they may cause distractions in financial planning. Due to these unintended payments or expenses, it is necessary to have what is called “Emergency funds.” These funds plug the gaps that may arise as a result of unplanned costs. This strategy guides us to stick with our financial plan without diverting or getting distracted.
A financial expert once said that ‘’It is not the man who has too little, but the one who craves for more, that is poor. This saying implies that a low income does not automatically translate to poor living standards, and earning relatively higher does not imply excellent financial health. Through an effective money management strategy, you can efficiently utilize the limited resources you have. With adequate financial planning, you can increase your savings, cut excessive expenses, avoid unnecessary borrowings, and enhance your financial health. This strategy will not only improve your financial stability but also boost your living standard.