‘The one who forgets the ultimate is a slave
to the immediate’
What is financial management? – money?
·
Finance is the
science of funds management
·
In essence,
finance is about money and the ‘knowledge’ of its profitable use.
·
Personal financial management entails planning
for the future to ensure a positive cash flow. It includes the
administration and maintenance of financial
assets, and also covers the process of identifying and managing risks.
Characteristics of money and facts
·
It is a neutral
servant
·
It assumes the
character of the owner.
·
It goes to where
it is wanted.
·
If you want it
enough and pay the price, it will follow you in abundance.
·
It multiplies if
deployed appropriately.
·
It has wings –
Many have found out with great pains that it quickly ebbs away if poorly
managed.
·
It is a defense
it provides stability, security and a shelter for the future.
1.
A store of value
– money must be able to be reliably saved, stored and retrieved and be
predictably used when it is retrieved.
2.
A medium of
exchange – money is used to intermediate the exchange of goods and services. It
avoids the inefficiencies of the coincidence of wants problem.
3.
Standard for
deferred payments – It is an acceptable way to pay debts.
Reasons for holding money.
Money (Cash) is usually referred to as
the “King” in finance, as it is the most liquid asset.
·
The transaction motive refers to the
money kept available to pay expenses.
·
The precautionary motive refers to
the money keep aside for unforeseen expenses.
·
The speculative motive refers to the
money kept aside to take advantage for suddenly arising opportunities (free
cash flow).
The proportion of your income that you
assign to each of the above will determine your financial state in the coming
years.
Why should I be concerned about financial
management?
Money
is always needed to make a living and it is also scarcity – so, I have to
manage the resource and get the best use of it.
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