Good and Easy Ways of Financial Management, Here's the Formula

Everyone would want to live financially independent while being able to enjoy their income in the long term. However, to realize this is not easy, considering the needs and desires of humans continue to grow. One way is to have good financial management skills.

Although everyone has a different way of managing finances, the true purpose of financial management is the same, namely reducing the possibility of financial problems in the future without having to sacrifice current interests.

Well, in this article Populix will explain about how to manage finances well so that you can achieve financial independence in the future. Let's see!

Understanding Financial Management

Financial management is a person's way of managing his finances, starting from planning, budgeting, how to save funds, controlling expenses, to risk protection. The goal is to achieve economic stability in the future.

The Importance of Managing Finances

Managing finances is important to avoid the risk of a deficit that will impact on economic problems, such as income running out prematurely, not being able to meet all the necessities of life, or not having an emergency fund when you are in an urgent situation.

In addition, financial management is the key to avoiding excessive debt and making your expenses more planned. Thus, future financial risks can be prevented.

Financial Management Function

After knowing the meaning and importance of managing finances for daily life, also know some of the functions of managing finances as follows.

1. Planning Function

The planning function in managing finances is usually related to budget planning, expense management, as well as cash flow and profit and loss schemes if you use the money for business.

2. Budgeting Function

Budgeting is a budgeting technique for daily needs and the procurement of goods or services with the aim of getting the maximum profit if you use these funds for business.

3. Controlling Function

It is an act of supervision or monitoring of expenditure as an evaluation material in order to create a better financial plan.

4. Auditing Function

The auditing function is usually carried out by a business in managing company finances, namely by conducting audits based on accounting principles to avoid potential misappropriation of funds.

5. Reporting Function

The reporting function is an important aspect of managing a business. Usually manifested in the form of reporting the company's performance during a certain period.

Purpose of Managing Finance

Usually, someone manages their finances because they want to achieve certain goals. The objectives include the following.

1. Get used to living frugally and regularly

By managing finances, you can practice frugal living habits because you know which needs are the most important and must come first. In addition, detailed planning related to budgets, needs, and expenditure plans will make economic conditions more orderly.

2. Minimize Stress

One of the causes of stress is poor financial condition. Therefore, expenditure management, debt control, and so on have a positive impact in minimizing stress.

3. Overcoming Unexpected Needs

Managing finances by setting up a number of emergency funds can help you to overcome problems due to unexpected needs.

What is Good Financial Management?

Some of the ways you can do to manage personal finances are as follows.

1. Create Financial Records

The first step to managing finances is to record every income and expense each month. That way, you will know which expenses are less needed so that they can be eliminated to save income.

2. Avoid Debt

As much as possible, don't borrow money unless it's really urgent. In addition, owe a reasonable amount and make sure you can pay it in installments every month so that it doesn't interfere with your financial condition too much.

3. Budget according to your priorities

The next way to manage finances is to set spending priorities. Separate first between wants and needs, then prioritize the most urgent and important needs, and then allocate income for long-term interests such as housing or retirement savings.

4. Saving

Saving is one of the most effective ways to manage finances well. Even though it is difficult, you can do it slowly, for example, getting used to a frugal lifestyle, setting aside a certain amount of income, and making sure you are disciplined in doing it.

5. Invest

The next step in financial management is: make investments as savings for the future. To be more secure, you can choose investment instruments with low risk such as mutual funds, time savings, gold, and so on.

6. Controlling Credit Card Usage

Although credit cards greatly facilitate buying and selling transactions, people often go crazy and shop for things they don't need. This of course can lead to waste. Therefore, to keep your finances healthy, you need to control the use of this card.

Financial Management Formula

Did you know that in order to manage income well, a formula for the percentage of fund allocation is needed. The formula or formula is as follows.

1. Formula 4-3-2-1

Based on this formula, the percentage distribution in managing finances is as follows.

• 40% is allocated for daily needs, including food, taxes, electricity, and water.

• 30% of income is for installment payments, credit and bills.

• 20% as emergency fund, savings and investment.

2. 5-3-2 . formula

The allocation of financial management according to this formula is as follows.

• 50% of income is used to meet daily and essential needs such as food, housing rent, insurance or health care.

• 30% of income is allocated to meet secondary needs or do the things you want, such as vacations, watching movies, and buying wishlist items.

• 20% of total income is budgeted for savings, investments, or emergency funds.

Those were the explanations and tips from Populix so you can do good financial management. If you are a businessman, managing your finances is certainly an important thing, right?