Finance management means managing funds. It covers the areas of finance like savings, investing, spending, borrowing and budgeting. Finance management also means administration and maintenance of financial assets, it covers the process of identifying and managing risks. It is a science of managing money.
Financial management is important in different areas of life because each and every individual needs to look after his money. Finance management is a process that is carried out at personal level and organizational level. On the personal level you need to manage your income and expenses by applying the basic principles of finance. Even if you are earning very well you have to manage the income and invest to earn more profits. If your income is not sufficient and you find it difficult to manage your expenses then you will have to borrow.
Personal Finance also includes ways to handle credit and repayment.
On the organizational level finance management includes achieving the goals set by the business by making optimum utilization of limited resources available. It deals with financial planning and financial control. Financial planning means planning the size and timing of the expenditures related to business and financial control means monitoring the business cash outflow (expenses and losses)and inflow (income and gains). Managing the movement of the funds of the organization and maximizing profit is the main aim of finance management in an organization.
Personal Finance Management
Personal finance management includes budgeting, saving, borrowing and investing the income of an individual. An individual has limited income and has to meet many expenses from this limited income so he has manage his expenses by budgeting. From the income whatever amount of money is left after deducting expenses can be saved for the future. If the individual income is not sufficient then one has to borrow or buy things on credit. Investing some amount every month is also a important as it will increase the income and saving.
Budgeting:
This is very important as an individual has to meet the daily expenses and without budgeting you cannot judge how much money is required. Budgeting will help you control your expenses and prevents excess spending. It helps you decide between a need and a necessity. Budget cuts all the unnecessary expenses and helps in saving. All households, institutions and even countries run by making annual or monthly budgets. Even if you are investing it should be within your budget. If you want to learn personal finance than you should master the art of making budgets.
Savings:
This aspect of personal finance is equally important as saving money will help you during an emergency. If you have enough savings then you can fund your future projects like children’s education, a vacation abroad etc. Savings are useful in an emergency situation when you loose your job or meet with an accident and cannot work for a long period, the savings amount will support you and your family.
Borrowing:
When the your income is not enough to meet the daily requirements, you have to borrow or take a loan. Money is also borrowed for other needs like education, purchase of a house or a car, medical expenses etc. This borrowed money has to be repaid on time else you will be burden with debt. There has to be proper planning for repaying the money taken. Before taking a loan you have to carry out research and find the cheapest loan available then compare the interest rates, here financial management is helpful. For repaying the loan you have to save money from your income and plan to pay your monthly installments. If you are weak in managing your debt then your financial life will be miserable and you will burden with unpaid debt.
Investments:
There are many investment options available in the market and you have to choose the option that gives good returns with less risk. Here financial management is required as you have to study each and every investments option and select the best. You have to take into account factors like risk, returns, period and the amount of investment before selecting the investment. Personal Investment must also include retirement planning. If you are good in financial management then your investment plans will yield good results else you may loose money.
Tax Planning:
Financial management is useful in planning your tax returns and assures that you do not pay more then you have to pay. It also helps you to save money.
In an Organization Financial Management Includes:
Financial Planning and financial control
Financial Planning in an organization is a process which involves setting objectives, assessing assets and resources and projecting future financial needs and making plans to achieve financial goals. It includes cash flow management, investment planning, risk management, asset management and tax planning.
Financial Control means setting up measures that ensures control over the organization, it also deals with preparing general accounts, financial statements, and budget of an organization. It covers all the streams of an organization that has direct impact on the financial position of the organization like credit risk, market risk, administrative budget, information and management systems and performance of the organization as per the set targets. Financial control’s function is to monitor the financial management instruments along with its associated systems like accounts and audit of an organization. It ensures that the organization is running smoothly according to the financial plan.
Thus financial management is very important for an organization and an individual. An organization without a financial plan and control will not be able to achieve its financial goals and will collapse within no time. Companies therefore are always prefer to employ individuals qualified in financial management. There are various courses that offers good financial management education and train individuals to be good financial planners.
