At SmartCapitalMind, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
Money management refers to the various methods which can be applied to the effective management of money. Money management activities include things like banking, saving, the use of debit and credit cards, loans management and the effective use of budgets. The first process towards effective money management is to make a record of all the sources of income. This can be done creating a balance sheet that shows the inflow and outflow of cash. This will serve as a basis for any money management activities. Having a thorough knowledge of how money is earned and spent allows for financial forecasting, which includes making plans based on the information in the balance sheets.
Knowing the state of finance will allow for the setting of financial goals. This includes setting up a savings account, which is a money management activity. Knowing what the cash flow looks like makes it easy to identify unnecessary expenditures. The unnecessary expenditures would have to be removed or curtailed as part of the money management activities. Examples of unnecessary expenditures include impulse buying and buying expensive brands when adequate generic options will do. Based on an analysis of the cash flow, a decision can be made about how much percentage of the cash inflow to save and how much of the cash outflow to cut.
Budgeting is a part of money management activities as well. This is also made possible by an analysis of the inflow and outflow of cash. It allows for the setting aside of a certain percentage of money for the purchase of a desired item by judicious financial management. It also allows a person to stay within a stated financial target while trying to save or trying to pay off a debt. Budgeting also allows for the judicious use of credit and debit cards. Investing in stocks, bonds and shares are types of money management activities that are done with a view of allowing the money yield returns in the form of dividends and other financial returns.
Knowing the credit score also allows an individual to make smart and targeted financial decisions geared toward the management of money. Depending on the amount of money, it may be wise to consult professional financial advisers to help the individual with the right money management decisions. Such professionals will help the individual draw up a financial plan that will take into consideration all of his or her financial circumstances with a view of reaching the best money management decisions.