MONEY MANAGEMENT

 

Your financial planning is most likely to fail if you don't have a good hold on your money, regardless of how much (or little) you know about investments, stock markets, credit cards, and insurance. Understanding your finances or your financial status thoroughly and being able to handle them wisely is the first and perhaps most important step in financial planning.

So, what is your financial situation?

1) Earnings and Expenses: In order to assess how much money, you have in hand after taking care of your requirements and goals, what you make will be less important than how much you spend. To be in a better financial situation, one needs to set a ‘balance’ between earning and spending habits. And the same can be used as a benchmark to plan your finances. A positive or zero bank balance at the conclusion of most months corresponds to a weak financial trend, whereas a healthy bank balance at the end of the month typically indicates a tendency towards a strong financial position.

2) Assets and Liabilities: The amount of valuable assets you currently possess will determine your financial condition today and in the future. Assets, including investments in gold or silver, deposits, stocks, mutual funds, art or antiques, land, etc., will either increase your income (either now or in the future) or reduce expenses. The entire process help strengthen the financial position. Liabilities, on the other hand, deteriorate your financial situation. Like an old car that uses a lot of fuel and requires frequent repairs for the work it does, debt is a burden that also depletes your assets.

The four main components of your financial status are as follows:

  1. Income
  2. Expenses
  3. Assets, and
  4. Liabilities. 

Conclusion:  How can one manage his or her finances using these four essential areas for a brighter financial future?

  1. Keep a Record: Maintain an accurate record of every penny coming in and going out in your journal, excel, or other place of your choosing.
  2. Monthly Budget: Develop the habit of making budgets regularly to make the most of your money. It will help you reduce your debt, spend sensibly, save money, and invest wisely.
  3. Regular Savings: for future goals, to be able to face financial emergencies, and to build assets.

Hence, we can conclude that your financial strength, security, and stability will depend on how well you manage the four essential areas, not how much money you make or how little.

“A penny saved is a penny earned.” -Benjamin Franklin


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