Money management helps individuals, companies and corporations to manage their finances in the most profitable way. It starts by setting goals and objectives. Goals give directions and shows what is to be achieved and when. Budgeting is done to allocate resources to achieve the goals. The resources available and expected are analyzed and decisions are made to allocate the income to the various expected costs and expenses which are important to achieving the set goals.
Income is allocated to investments and future growth which are expected to generate more income to pay expenses, pay debts and set aside money for savings.
Money is an important part of businesses. It is used to buy/rent premises, buy machines, equipment, supplies, pay salaries and wages, electricity, telephone, postage, internet and any other requirement for the smooth running of the business. It is important to manage the money available to maximize profits and finance expansion. Money management is vital for the smooth running of business operations and future growth of any business.
Individuals also need to manage money in the most efficient way. Money Management starts by setting short-term goals, middle-term goals and long-term goals. Short-term goals are set for one year, middle-term goals are set for 1-5 years and goals beyond 5 years are long-term. Short-term goals include rent, utilities, food, car expenses, medical bills, vacation, paying credit card debts, personal loans and other plans. Middle-term goals include paying college education, buying a car, changing a job, getting married, moving to another town or state and other plans. Long-term goals may include mortgages, college student loans and parent loans, investments, retirement, insurance and life insurance.
Money management takes into account the available income from employment, dividends, bonuses, overtime and any other current source of income. The future expected income is predicted and a plan is drafted. The costs and expenses are also analyzed to have a clear picture of where you are at the moment. The future expenses are also analyzed. A Budget is drawn allocating the income to the costs and expenses. This income and expenses are categorized in the budget on a monthly and yearly basis. The monthly budgeted amounts are compared with the actual to see if the person is sticking to the set budget. Remember to budget for emergencies. Money should also be set aside for savings and retirement.
When the actual amounts exceed the budgeted amounts then there is overspending which should be checked. There are software and online worksheets which can help by providing a running figure of how much money has been used for each category and show how much is remaining. The budget should be reviewed so it is realistic and attainable. Figures for the following month should be changed to convey realistic figures. Any money which is left after all the expenses are paid should be allocated to savings and retirement. If expenses exceed income you can change your lifestyle or earn more.
Discipline and commitment are vital in money management.