Introduction to personal financial management, its importance and scope.

What is financial management?

Financial management is being concerned about profit, expense, cash, credit, assets, liabilities so that the firm is able to carry out its objective smoothly. The main objective is to maximize the value of firm. Financial managers are the professionals that do the financial management.

What is financial literacy?

it mean being able to understand various financial statement, term etc and using different skill like budgeting, investment, financial management etc. which in turn helps the individual to grow financially strong.

financial literacy

What is personal finance?

It is financial management which revolve around  individual and family unit to perform the analysis.  It involves budgeting, calculating assets and liabilities, having saving plans, managing credit cards, looking for investments etc, in short any efforts or steps taken to improve individual’s financial condition.

personal finance

Personal financial process

It can be divided in 6 steps

1. Assessment: - going through different financial statement and getting the idea of your current financial situation.
2. Prioritizing: - as you can’t have it all. You have to choose for your need versus your wants.
3. Goal setting: - setting long term and short term goal.
4. Plan creation: - making plan to achieve those goals.
5. Execution: - following your plan.
6. Monitoring and reassessment:- monitor and make adjustment according to your needs.

Personal financial process

Objective of personal financial management

As the name says its personal financial management, objective may differ from person to person. But the main common objective which is applicable to every one of you is having a good debt free life and having enough resource to fill every need of yours in present and in future.

Scope of personal financial management

It involve

1. Investment
2. Paying off debt
3. Increasing assets
4. Retirement plans
5. Emergency fund
6. Managing between you income and expense etc

Importance of personal financial management

As someone has wisely said ‘money isn’t everything, but everything need money’. Everything needs money and your needs will keep on increasing with time, but will you source of income increase proportionately. So it becomes of utmost importance to effectively manage you need in whatever you have and for that you require financial knowledge.

Just how ridiculous it sound that everything require money, but you were not given money management lessons in school. And on top of that how many people make efforts to get one, not many. Everyone should be financially be literate no matter which field you belong to.

How this blog is going to help you?

If you wish to renew your mind, read. – Lailah Gifty Akita

There are number of books out there on personal financial management. Don’t worry I am not advising you to read those. I will be writing summaries of those books which will save your time and also help you understand concept quickly, as I will be explaining it in simple language so you don’t need to worry about the complexity of financial terms.

Also I will be giving tips on different topics. If there any book you want me to summarize you can let me know in comment section below and also let me know if you have any queries.

Conclusion

Someone has correctly said that ‘financial problems are not fixed by money but by financial education’. It’s important for everyone to be financially literate.

 Read more about personal money management principles