What is Financial Management? Objectives, Functions & Importance

Financial management is concerned with planning, economising and spending money with wisdom. It assists individuals and firms in making wise choices to achieve their objectives.

Example: 

Akash is a 25-year-old who would like to purchase a bike within 2 years. His income is ₹25,000 per month, which he spends the largest portion it. He has to learn financial management to save enough, and that simple plan is the following:

Key Steps Akash Takes:
 

• Tracks his spending.
   
• Cuts unnecessary expenses (e.g., eating out less)
   
• Saves ₹5,000 every month.
   
• Invest savings to grow faster.

Akash was using money wisely so that he achieved his goal within the schedule. Financial management assists all people, including Akash, to gain financial control of their money.

Meaning of Financial Management

Financial management involves helping take care of money in order to achieve financial or business objectives. It is the right way of saving, spending, and investing money so that these things avoid financial problems.

Example:

Akash is a 28-year-old office employee who has never had it well with money. He made ₹30,000 a month, but he would spend before the month expired. One day, he heard about financial management and decided to manage his money.

Here’s how Akash managed his money before and after:
 

Key Lessons from Akash’s Experience:
 

• Tracking expenses helps understand where money goes.
   
• Cutting unnecessary costs (like eating out) saves money.
   
• Saving regularly builds financial security.
   
• Planning for emergencies prevents debt.

Just taking small steps in financial management, Akash stopped living paycheck to paycheck and began preparing his modern future. This is a demonstration of how wise money management can make the life of any person much better.

Objective of Financial Management

The end goal of financial management is to assist people and companies in utilising money properly in order to reach their objectives. It is primarily designed to guarantee stability, growth and a secure future.

Example:

Akash is a teacher whose aim is to purchase a house in 5 years, and he is 30 years old. His salary has been increased to ₹40,000 per month, and he doesn't know how to save sufficiently. He uses the principles of financial management, being goal-directed and acting.

Here’s how Akash plans his finances:
 

Key Takeaways from Akash’s Plan:
 

• Clear goals help focus savings and spending.
   
• Budgeting ensures money is used wisely.
   
• Debt reduction saves interest payments.
   
• Investing helps money grow over time.
   
• Emergency savings prevent financial stress.

Akash achieves his dream of acquiring a house by making intelligent financial goals. Financial management helps to provide direction to his money decisions and stability in future.

Function of Financial Management

Financial management involves the organisation, controlling and monitoring of money issues. It helps individuals to control their spending and invest money in bonds, stocks, etc to serve their needs and fulfil plans.

Example:

A shopkeeper, Akash, who earns ₹35,000 per month and his age is 32 years old, manages his money with the help of financial management. These are the main ways of functions in his everyday life:

Table:
 

How This Helps Akash:
 

• Knows exactly where his money goes each month.
   
• Builds savings while still paying bills.
   
• His investments grow over time.
   
• Avoids stress from unexpected expenses.
   
• Plans to expand his shop in 3 years.

Financial management gives Akash control over his money instead of his money controlling him. By following these simple functions, he secures his present needs and future dreams.

Importance of Financial Management
 

Financial management refers to the process of having control over your money rather than the money controlling you. It assists you in making smart choices to ensure your current requirements and long-term targets.

Akash's Story: 

Akash is a delivery boy of 28 years old who lives paycheck to paycheck. His life made a U-turn after an acquaintance with money management:

• Stopped money worries: By tracking his ₹22,000 monthly income, he knew where every rupee went
   
• Built savings: Started putting aside ₹3,000 monthly for emergencies
   
• Cleared debts: Paid off his ₹15,000 phone loan faster by cutting unnecessary expenses
   
• Planned for the future: Began saving ₹2,000 monthly for his sister's education
   
• Gained confidence: Now sleeps peacefully knowing he can handle unexpected expenses

Financial management meant that Akash had power over what he had earned. The constant pressure that revolved around paying bills turned out to be a roadmap towards happiness. These simple money management practices are beneficial to anyone like Akash.

Conclusion 

The story of Akash teaches an example of the strength of financial management. A year ago, he was suffering - his ₹22,000 salary went away with the bills, impulse purchases and loan returns. He could not get out of a loop of stress. However, as soon as he began to monitor his funds, create a basic budget and save before he spends, everything changed. 

Now Akash is saving ₹25,000, has no debt that costs him more and is even able to invest ₹1,500 per month. More to the point, he can sleep better instead of having to know that he is ready in case of an emergency and that he is on his way to achieving his dreams. 

His example demonstrates that you do not have to make much money to become a master - you just should know how to use what you possess. Financial management is not insurance that you will become a billionaire in the morning; they are just little things that make you a lot different. As Akash found out, once you take control of your money, you take control of your life.

FAQs

1. What is financial management?

It's simply planning how to use your money wisely. It helps you save, spend smartly, and grow your money for future needs.

2. Why is saving money important?

Saving creates a safety net for emergencies. It also helps you achieve big goals like buying a house or a car.

3. How much should I save each month?

Aim to save at least 20% of your income. Start with whatever you can, even if it's just ₹500 monthly.

4. What's the difference between saving and investing?

Saving keeps money safe for short-term needs. Investing helps money grow over time for long-term goals.

5. How can I control unnecessary spending?

Track every rupee you spend for a month. You'll quickly see where to cut back on wasteful expenses.

6. What should I do first - save or pay debts?

Pay high-interest debts first (like credit cards), while saving small amounts simultaneously.

7. Why do I need an emergency fund?

It covers unexpected expenses like medical bills. Without it, you might need loans during crises.

8. How do I start investing with small money?

Begin with SIPs (₹500/month) in mutual funds. It's safer than stocks and grows steadily.

9. What's a simple way to budget?

Follow the 50-30-20 rule: 50% needs, 30% wants, 20% savings/investments.

10. Can poor people also do financial management?

Absolutely! Managing money wisely matters more when you earn less. Small savings create big security over time.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?