What is financial management you ask?
At the most fundamental level, financial management is concerned with the management of your money. Financial Management can be expressed further into the management of not only your money but also to the management of your assets and liabilities. When we talk about the ‘management’, we refer to the planning, organising, directing and controlling of your financial activities.
So, financial management is the process of managing your financial assets, liabilities and cash flows in a way that will consequently allow you to achieve your short, medium and long-term goal in the most effective yet efficient way possible.
How do you develop a successful financial management plan?
Here is an outline of what we define to be SOME of the important factors in achieving an answer to such an imperative question:
The first step in achieving successful financial management is as simple as your determination towards the matter. The difference between a person who desires positive financial management behaviour in comparison to someone who is determined to have it, is the difference between someone who will attain that and someone who will struggle to. Daily control and monitoring/tracking is the beginning of creating a successful financial management pattern, and it is the start of the challenge that is endured initially, in developing a good financial management system.
Budget & bank arrangements
How much money are you spending per week, fortnight, month or even annually in your discretionary spending? A budget can be seen as the lines along the road that you drive in, they are there for a reason and will see you get into an uncomfortable situation(s) on the way to your destination and can even see you comprise the destination all together if you fail to stay within the lines. A written budget is created to see you develop healthy spending habits, get out of debt, grow your cash flow surplus and have the money to achieve your goals.
Do you know the real interest you are paying on your credit card? Or the fees you pay with your current bank? Failing to understand the marketing and sales techniques on credit cards rates, bank account fees and interest rates presented to you can actually see you paying more for your financial management arrangements than you thought. More efficient bank account and card arrangements will make financial management simpler and reduce costs.
Asset and liability monitoring
Onwards from bank arrangements, rises the necessity to monitor any liabilities, or also known as ‘financial obligation’. Financial obligations can be those responsibilities that range from consumer debt right through to a home loan/mortgage. When dealing with your liabilities, you should be asking yourself ‘how well do my financial obligations meet with my overall capacity?’ and
‘Am I maximising my cash flow throughout these obligations?’
Understanding your capacity in your financial management system is a crucial step in creating great financial management behaviour. It is evident today that people are acquiring excessive financial obligation, without having the capacity to respond with, or for those with the financial capacity, it is the matter of ineffective or inefficient behaviour in dealing with it.
Furthermore, the monitoring of assets is equally as important to that of liabilities. Today, assets can be misconceived as ‘self-maintained’ or deemed to be performing at their highest without any analysis or question asked. Are you maximising the real returns that you are receiving on your assets?
The monitoring of your assets will enable you to ensure that you are maximising any opportunities that result from attaining them. The gains of holding assets range from capital gains to passive returns.
By analysing the returns and opportunity of your assets will enable you to again, improve your financial management behaviour.
Having a ‘plan b’ is crucial for everyone, whether you think it is necessary or not. Being able to fall back on something that will not jeopardise any hard work or success that you have created thus far is crucial. A back-up plan, instead a financial management system, is that of an emergency fund. An emergency fund minimises the risk that you will have to take money from long-term investments at what may not be an ideal time, or have to use expensive debt, when you are faced with unexpected costs. Again, resulting to this will prove to be a detrimental to everything you have planned or created to this point.