Money is a medium to facilitate the process of buying, selling, or exchanging various goods and services since ancient times. Money as a legal tender typically consists of notes and coins. Each country has its own money that its residents exchange for goods within its borders. Indian Rupee (sign: ₹; code: INR) is the official currency of India.
Indian trade history reflects – that despite frequent political and economic upheavals the country is still prosperous. India today is approximately five trillion-dollar economy. With improving literacy and mobile penetration across all sections of society in India – there is an ever-increasing demand for different types of goods and services available – thus leading to higher consumption patterns across society. With ever increasing trade of goods and services – it is very important that each one of us (be it individuals, families, or corporation) to handle their money properly and efficiently – to ensure sufficient money is always available, whenever needed to facilitate trade or exchange for meeting our needs. This brings us to an important topic of Money Management.
In most basic terms, money management is the process of handling money by keeping track of all –
1. Your Income – whatever you earn,
2. Your Expenses – whatever you spend, and
3. Your Savings – Entire Income minus entire expenses is your savings.
Each and every one of us does money management whenever we buy (expense) or sell (income) a product or a service – as we are using money to facilitate the exchange or trade.
In more professional terms, money management is defined as the process of budgeting, spending, expense tracking, saving, investing, and evaluating taxes or otherwise overseeing the capital usage of an individual or family or corporation. Today, the predominant use of “money management” term is in financial markets means an investment professional making investment decisions for larger pools of funds. However, for an individual the term “money management” means financial planning of their income, expense and savings.
Why is money management important for Individuals? The most important reason is – effective money management helps you meet your short term monthly (or day-to-day) expenses and at the same time helps in creating required assets to meet your life goals financially. Thus, money management for individuals is also called as financial planning process. Other reasons are as follows –
1. Helps in managing your income more effectively through effective planning.
2. Can increase your savings by carefully monitoring your spending pattern and expenses.
3. Provide for your family security via insurance and emergency fund.
4. Leads to more efficient handling of Taxes.
5. Increase in savings will lead to more investments.
6. Reduces liabilities and leads to more focused approach towards asset creation.
7. Improve your standard of living.
8. Help in leading a stress free and happier life.
For in individual, basic steps involved in efficient money management are as follows –
1. Taking account of your entire monthly income and expenses.
2. Create a budget for your monthly expenses.
3. Spending as per your budget.
4. Saving for the unknown and unexpected emergency.
5. Buying Insurance to transfer risk to protect yourself and family.
6. Paying of existing loans.
7. Investing for your future goals and needs.
8. Advance planning of your taxes.
Money management or financial planning process leads to creation of a financial plan for an individual or family by taking a 360-degree view of your current socio-economic conditions. This financial plan needs to be reviewed and updated whenever there is a major change in your life or family – for example, birth of a baby, change in job, buying a new house and many more such positive and negative happenings. This will ensure you always have a good understand and control of your money matters like – your income, your expenses, your savings and your overall asset creation process under most conditions.
We will discuss each and every step for efficient financial planning in greater deal over a period of time via a series of articles. However, you can start of by undertaking a financial planning exercise with a qualified expert or by yourself. For more information please feel free to reach out to us via email at – firstname.lastname@example.org or by phone – 91-9515475381.
Next Article – Income-Expense Analysis: Understanding your monthly income and expenses.
Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.