What is Money Management: Principles of Money Management

Money management is a process that deals with activities such as spending, saving, investing, budgeting, debt payments, etc.

If you don’t know how to care for money, money will stay away from you.

Robert T. Kiyosaki

The ultimate goal of money management or investment management is to utilize your money wisely and also to accomplish all your financial goals.

Why is money management important?

Money management is a very crucial aspect of everyone’s life. Here are 5 reasons why financial management is important for you:

  1. Financial stability: Financial stability is very crucial for a healthy financial life. Financial stability is attained when you can pay all your daily expenses with extra money left for emergencies, future goals, etc. managing your money properly can help you to attain financial stability.
  2. Investments: Investing in assets generates income for your future. Managing your money wisely will help you to save enough money to invest in such assets.
  3. Standard of living: Standard of living basically means the lifestyle of a person. Proper money management instills a sense of confidence in an individual’s life and also helps hime to achieve a better standard of living. This is because the person is ensured that he has enough money for any emergency, other expenses, etc.
  4. Nullify the consequences of poor financial management: Poor financial management gives rise to debts because you spend beyond your means. It also leads to poor financial health, reduced savings, etc. To save yourself from such consequences managing your money properly is very crucial.
  5. Future financial goals: Everyone has some or the other financial goals such as buying a house, retirement plans, trip to abroad, etc. Managing your money wisely helps in investing money in these goals regularly. It ultimately results in the accomplishment of your financial goals.

Principles of money management

  1. Set goals: Setting financial goals gives you a clearer picture of your financial objectives. Financial goals are something you want to achieve in the future. Setting realistic goals helps you to spend within your means and also gives you motivation. All you have to do is set your targets and try your best to achieve them. This will help you to accomplish your money management process with flying colors.
  2. Make a budget: A budget is a foundation for a healthy financial life as it helps to manage your money properly. Budgeting is considered as a very significant step in the process of money management. Do read our articles on budgeting to create a perfect personal budget for yourself: 
    1. What is a budget: The process of budgeting
    2. Why is the budget prepared: Purpose of budgeting
    3. Do’s and Don’ts of budgeting
  3. Be prepared for an emergency: Emergency funds are very crucial to tackle any unexpected financial emergency. Money management emphasizes the need for emergency funds. This is because emergency funds ensure that an individual has sufficient money to meet any unexpected expenses without hindering his or her regular expenses.
  4. Invest to earn: Investing is very essential to grow your money. Proper money management helps you to invest regularly in assets. Investing helps to earn more money either through interest or capital gains.
  5. The compounding effect: The compounding effect lets your money work for you, i.e., the compounding effect lets your money grow exponentially. The power of compounding allows your investment to grow exponentially as it ‘reinvests your earnings from an investment’. Money management helps you to take full advantage of the compounding effect. Do read our article on compounding to understand how compounding works: The power of compounding and compound interest.
  6. Keep an eye on taxes: You have to pay taxes on your income. It is better to plan your tax payments in advance with the help of money management. Track your receipts for good tax planning. Also, make investments to avail the benefits of tax reduction.
  7. Repay debts quickly:

Debt is the slavery of the free.

Publilius Syrus

Therefore it is very important to become debt-free. Money management involves repaying your debts quickly. Once you repay all your debts, an important step towards financial freedom will be achieved.

Closing thoughts

Money management is all about spending intelligently and saving even more intelligently.

So, it will be beneficial for you if you properly manage your money, also spend and save it wisely.

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