Most people do not work in Finance and are not interested in the dynamics of money.
However money does affect every life, so no matter what field one works in, there is money involved. After all, who works for free? Food has to be put on the table, the car needs to be filled with gas to go to work, and children need to be educated in schools and universities.
So whether one wants or not, money management is intrinsic in almost everyone’s lives. Now there are several people who earn well (and spend well) will say “As long as I am earning enough, there is nothing to worry.” But the music will stop one day, either in a recession or retirement or death or accident, whatever.
Not only the doom and gloom, money management is also essential for planning bigger goals than day to day existence. Funding higher education, buying a house, buying that dream car, giving to the underprivileged and many other personal and professional goals.
So if both the upside and downside in one’s life need prudent money management, what are the benefits of actively spending time (even if an hour once a month or week) managing one’s money?
Peace of mind
When one knows a number of parameters about his/her financial life, it gives a peace of mind. These parameters could be:
- Income – how much do I make?
- Expense – how much do I spend?
- Debt – what are my debts? How are they dragging my life behind?
- Housing – what is my overall ownership/ rent costs?
- Assets – What assets do I have? Are they more than my debt?
- Liquidity – how much cash do I have to tide over tough times?
Once these numbers are worked on, I cannot imagine the blissful picture one gets about his/her life in general. Suddenly options open up, action items are defined, the desire to achieve more and more importantly, the person sleeps in peace.
The possibilities and dreams really open up once the money awareness is in place. There is no more the question of “where is my money going” or “can we afford it”, rather :
- How do I have the most optimal cash flow?
- How do I plan to afford it?
- What do I have to do to achieve a financial goal?
In short, the money management habit puts the person into a Goal setting mode. Now these goals, being financial, are also very well defined (at least have a number associated with it), not like “I will lose weight in next two years” or “I will go to the gym every day”.
Managing several priorities
Money management has several aspects – Income, Expense, Savings, Investment, Taxation, Legal, Estate Plan, Documentation and many more under each category.
There is a lot to learn and juggle several balls in the air, even if one is managing own finances. No one becomes an expert in all, so either this gives a chance to explore one or more areas with self-study or hire a professional (or more than one) to handle.
Either way, it is a lot of decisions and constant learning to keep one’s financial house in order.
Skill set development
Sometimes, non finance professionals can get hooked to one or more of the disciplines of personal finance and may consider one of the areas (Investment, Tax or Budgeting) as a second career.
This requires developing extensive knowledge and skills in that area, some of them have very strict educational and licensing requirements by the law. However once done and achieved, it a vital skill set added to the repertoire of the person’s professional skills.
And what’s easier than practicing the skill set immediately on own finances?
In this post, we have touched upon few benefits to be financially educated and why everyone should take a keen interest in their own financial management.
Even if one hires a professional advisor or mentor, it is worth the learning by oneself since a good Financial Advisor and similar professional likes to work with people who take interest and have the basic knowledge of the workings of money. Moreover, parents who have children going into adulthood, can teach them the good practices of money management.
Blindly handing over the money affairs to an outsider can be a dangerous proposition for one’s future . There are enough frauds and scams (Bernie Madoff was trusted by extremely rich and smart people) in history to prove the point.