What is the importance of Financial Management?
What does financial management mean?
Financial management refers to planning directing, organizing and controlling the financial activities such as utilization and procurement of funds to meet your present and future financial needs. Financial management refers to applying the principles of general management to the financial resources of the enterprise.
Why financial management is important?
Following are the reasons why you should consider managing your finances:-
Ensures That You Have Money When You Need It
Well, we all understand that money issues go beyond what we can imagine. We may need finances in the time of emergency and borrowing never fits in to be a good option. Therefore, it is important that we think of our finances in a much broader perspective. We must devise a plan to carefully spend the money and meet our future financial goals. When you have decided to manage your finances here are the things to keep in mind:-
- Create a budget
- Pay bills on time
- Manage your loan
- Keep an eye on credit card expenditures
Having a fair idea of your expenses will help you save your money for the present as well as when you need it in the future. Financial management allows you to be independent and ensures that you have money in the buffer.
Aids in managing the income
Financial management allows you to have a clear idea of your expenditure so that you do not end up overspending or spending on pointless items. With a personalized financial plan, you will be able to manage your income efficiently. You will spend on whatever required and invest or save the rest. Practicing financial management will allow you to know your expenses repay your personal loan and handle your tax payments, savings or your monthly bills.
Prevents you from debts
Even with a salary of AED 2,00,000 every month, you may end up having huge debts due to reckless spending or failing to plan your income. On the other hand, someone with just an earning of AED 25,000 per month may be living in a better financial state. This is so because; the person earning AED 25,000 per month has planned his/her expenditures and lives only within its means.
So what can prevent you from this reckless spending? The answer is budgeting. Budgeting forms a crucial part of financial management and prevents you from overspending. When you stick to your budget it becomes easier for you to avoid so many overspending temptations that you wouldn’t have ignored otherwise. For instance, you may avoid going to an expensive party because it won’t suit your pocket at that particular time. In order for the budgeting to work, you must consider even the tiniest of expenses such as transport bills, groceries, etc.
Improves Personal Finance and Cash Flow
Another reason why financial management is crucial is that it may help to increase your inflow of cash. Keeping track of your expenditure and your spending patterns can help you save on taxes and keep you on the right financial track.
Offers Family Security
No one wants to think of their families suffering due to a lack of money, especially when they are not around to help. And for this reason, everyone struggles to ensure that they earn enough to offer them a sense of security. If you manage your finances well and have had enough buffers for emergencies, you will be able to live in peace. In order to make sure that your family has no shortage of money even when you are not around, the insurance policy must be taken. This is also one of the efficient ways to save money for the secure future of your family.
In order to be financially secure, it is also important that you have an insurance policy so that even when something happens to you, your family still has the finances they need.
Raises Your Standards of Living
The way you live is largely determined by the amount of money you have and the better you manage your finances more is the amount of money you have. With good financial planning, you are able to save more and hence spend it in better places.
Good financial management can help you face financial challenges, opportunities, and responsibilities that come your way.