Is the process of managing the financial resources, including accounting and financial reporting, budgeting, collecting accounts receivable, risk management.
Three areas of Financial Management:
Personal Financial Management is mandatory in today’s world. It provides the means of keeping track of personal expenses, personal debt and subsequently helps the calculation of a person's net worth financially.
The following are some of the tools used for personal financial management:
Preparation of expense sheet is the key to personal financial management. If one is left with no savings at the end of the month, then the best way to curb the situation is to prepare an expense sheet or make a budget plan. The expense sheet includes the following elements:
1. Calculation of income level:
This is the sum of the post tax income or disposable income, ...view middle of the document...
Household gadgets, white goods, festivals, family obligations and the like are included under the miscellaneous expenses.
Another vital aspect of personal financial management is personal debt management.
Personal Debt Management:
In order to keep track of pending payments and avoid falling into the debt trap, a number of aspects need to be considered.In case of auto loan, housing loan, personal loan and other loans one should keep account of the loan amount, the repayment period, monthly installment, interest reset frequency and the amount of loan already paid. If one wants to know whether one should prepay the loan or invest and keep servicing the loan, several aspects should be taken care of. They are the loan amount, repayment period, monthly installments, interest calculation, installments paid, advance installments paid, prepayment charges, tenure of investment, interest earned, compounding frequency. These aspects taken into consideration would help to calculate the total loan remaining.
Calculation of a person's financial net worth:
Net worth is calculated by the difference ofassets and liabilities. Assets include house, land, farm house, bullion, equity, bonds and debentures, insurance, fixed deposits, mutual funds, small savings, provident fund, amount in the savings account, amount in current account, cash in hand and other investments. Liabilities include housing loan, auto loan, personal loan, consumer loan, other borrowings, unpaid bills, credit card outstanding and other liabilities. A positive net worth would allow further future personal financial plans.
There are 4 ways to better personal finances.
1. Teaching children about money management to prevent them from doing any irrelevant spending.
2. Creating savings account for the rainy days to come.
3. Spending less on entertainment. By doing this one can lower bad debt as well as increase his credit rating.
4. For personal money management for the future, one should opt for insurance policies, which help the family during emergencies.
The business financial management
Financial management includes both how you are financing it as well as how you manage the money in the business.