Thursday, 1 December 2011

The Importance of Financial Management in today’s time


Financial Management can be defined as the managing of finances by an individual, family or enterprise in an efficient manner. It is more to do than just managing one’s finances for the needs of the present and of the future. Financial Management also deals with future planning, keeping in mind how a person can support dependents in the event of his or her death. Death can be untimely or eventual. Even retirement planning and saving for a financial hardship are essential treats of Financial Management.
            The most important point in Financial Management is that a person should not live beyond his or her means, at any cost. If an earner has to decide on how to spend on a daily basis for all the present needs, that person should assume that roughly one - third part of the income can go to taxes, around one - third of the income can go towards daily expenses and around one - third of the income can be saved for a later point of time whether that is for any emergency, retirement and so on.
            The second half of a person’s post - tax income can go towards Savings, Retirement Planning, various types of investments and the list goes on. It is a good practice to put one - third of the post - tax income into Liquid Savings, another one – third into Retirement Planning and lastly another one – third into Stock Markets. Liquid Savings or Liquidities are known as the money stored in Savings Accounts and Fixed Deposits of banks. Liquidities are easily available when needed and are usually not subject to large fluctuations in terms of value. A person should use his or her Liquid Savings only during the time of an emergency. Retirement Accounts and all other investments should be organized in a way that they need not have to be accessed until the earner retires.
            A person’s daily expenditure should be budgeted and should include house tax / rent or mortgage payments , utilities , food , car payments , student loan payments , insurance related to home , medical or car and any work related expenditure . If the earner is a parent then there should also be a reasonable budget for clothing so that the children can get new shoes when they require them and so on. A person’s budget should also include any medical expenses that a person may have, if the insurance doesn't pay for that expense. A person’s budget should not include shopping expenses, any new car purchases or purchases of any unwanted things, especially if they are expensive.
            There are various advantages of Financial Management for individuals or families like Improvement of Personal Finances, Increase in Savings and Prevention from Debts. Similarly, for enterprises also, Financial Management is very useful as it gives advantages like Profit Maximization and Reduction in Misuse of Funds.
            There are also various disadvantages of Financial Management like unnecessarily buying Gold and other such hard currencies, purchasing insurance policies in the name of Financial Management and unnecessarily purchasing private or government bonds. Financial Management should not become too much rigid.

            Even in the world of Information Technology or IT, various IT companies are designing many softwares for handling Financial Management. SAP or Systemanalyse und Programmentwicklung is the German Name for System Analysis and Program Development. It has become a very popular Financial Management Software as it is well known for it’s ERP or Enterprise Resource Planning Solutions.

3 comments:

  1. Financial Management is only successful on the basis of a Good Financial Plan.

    ReplyDelete
  2. Good way of posting dear. it's really nice post. Thanks for sharing it dear.

    Financial Aid

    ReplyDelete
  3. Financial management is crucial nowadays - it's a growing industry with services becoming more and more in demand as time goes by.

    ReplyDelete

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