Master The Art Of Money Management


Money is funny. Yes, it's very funny. You keep it in your locker for ten years and it will remain the same. I mean, if you put Rs. 100 in a locker, after ten years it will still be Rs. 100. But would its value be the same as it was ten years ago? Certainly not. The buying ability of Rs. 100 would reduce considerably in 10 years. But if you had bought 10 shares of some company at Rs. 10 apiece, and the same stock would have grown ten times in ten years, your Rs. 100 would have become Rs. 1000 in ten years. Now, it's that funny?

This is a simple example of what money management and well-informed investment can do to your money. It not only keeps the value of your money at par with the inflation rate but sometimes goes a step or two ahead too. Whether you are a salaried person or a business person you should always have a robust investment plan. Money management is a key tool for wealth creation.

What Is Money Management?

Money management is the process where budgeting, spending, investing, saving are monitored with certain financial objectives.

Though the term - money management - suggests that an investment professional making investment decisions on your behalf by allocating your funds to investment instruments. That is true, there are professional money managers and financial planners, but it can also be perceived as a theory which anyone can inculcate in his day-to-day life.

In general terms, it simply means that you can account for every penny that you have earned. From paying the utility bills to making provisions for retirement and saving for holidays everything comes under money management. The conscious efforts to spend money wisely and invest intelligently is called money management.

Why Is Money Management Important

People often complain that money just comes in and goes out, and all their plans stay firmly at the bay. People from all the pay grade face the same issue. The root cause is - lack of money management. Money management tightens the screws of your budget and prevents unnecessary spending. It also helps you to allocate funds to right investment instruments and reduce liabilities sooner than later.

  1. Setting Your Financial Goals - One of the key features of money management is that it provides absolute clarity about your financial goals. Right from setting up short-term goals like buying a car, family vacation to long-term goals like kid's education and retirement planning all your financial goals can get adequate funds and time via money management.
  1. Reducing Liabilities - Your total assets - total liabilities = your net worth. If your total assets are barely more than liabilities, it means you are just managing to keep your head above the water. Liabilities is the biggest roadblock on the road to wealth creation. With the aid of money management, you can chalk out a payment plan to speedily reduce your debts.

Investment -  A Critical Facet Of Money Management


One of the critical facets of money management is the investment. A certain portion of your income has to be invested in growth-oriented investment instruments. There are various investment mediums available i.e. mutual funds, public provident funds, equity, etc.

  1. Mutual Funds - Is one of the smartest investment tools and it should figure in your investment plan. A mutual fund can be a potent tool to meet your short-term as well as long-term goals. At moderate risk, investors get decent returns and also get to experience the power of compounding.
  1. Public Provident Fund (PPF) - Is the most reliable and trustworthy investment scheme as it is operated by the government. PPF investment comes with certain stern conditions like 7 years lock in period plus certain limitations on the quantum of investment. But due to tax benefits and compound interest, it has become very popular amongst investors.
  1. Equity investment - Many people try to avoid direct exposure to stock investment due to fear and ignorance. But there are means like stock advisory firms to help you reduce risk in stock investment. Over the years, stock investment has given uncapped growth to the investors.  Every smart investor should have a stake in equity.  As we discussed above, equity not only keeps the value of your money on the equal footing with inflation but a step or two ahead.

Source : Niveza India Pvt Ltd.