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Everyone wants to live financially independently and at the same time be able to enjoy their income in the long term. However, realizing this is not easy considering that people’s needs and desires 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, which is to reduce the possibility of financial problems in the future without sacrificing current interests.

Well, in this article, Our explains how to manage your finances well so that you can achieve financial independence in the future. Just take a look!

understand financial management

Financial management is the way a person manages their finances, starting with planning, budgeting, saving funds, controlling expenses, and risk protection. The aim is to achieve economic stability in the future.

 

The importance of managing finances

Managing finances is important to avoid the risk of running a deficit affecting economic problems such as B. premature loss of income, not being able to meet all of your necessities of life, or not having an emergency fund when you are in an urgent situation. Additionally, financial management is key to avoiding excessive debt and making your spending more predictable. In this way, future financial risks can be prevented.

 

financial management function

After knowing the meaning and importance of managing finances in daily life, you 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, cash flow, and profit and loss planning when using the money for a business.

 

  1. Budgeting function

Budgeting is a budgeting technique for daily necessities and the procurement of goods or services with the aim of obtaining the maximum profit when using these funds in the business.

 

  1. control function

It is an act of monitoring or monitoring spending as assessment material to create a better financial plan.

 

  1. Auditing Function

The auditing function is typically performed by a company in the management of corporate finances by conducting audits based on accounting principles to avoid possible misappropriation of funds.

 

  1. Reporting Function

Reporting is an important aspect of running a business. Typically, this takes the form of reporting on the company’s performance over a period of time.

 

purpose of financial management

Usually, someone manages their finances because they want to achieve specific goals. Objectives include the following.

 

  1. Get used to living frugally and regularly

Managing finances allows you to practice frugal living habits because you know what needs are most important and need to come first. In addition, detailed planning in terms of budgets, needs, and spending plans will make the economic situation more orderly.

 

  1. Minimize stress

One of the causes of stress is a bad financial situation. Therefore, spending management, debt control, etc. are beneficial in minimizing stress.

 

  1. Overcoming unexpected needs

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

 

What is good financial management?

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

 

  1. Prepare financial records

The first step in managing finances is to record all income and expenses each month. That way, you’ll know which expenses are less needed so they can be eliminated to save revenue.

 

  1. Avoid debt

Avoid borrowing money unless it is really urgent. Also, owe a reasonable amount and make sure you can pay it off in installments each month so it doesn’t affect your financial situation too much.

 

  1. Budget according to your priorities

The next way to manage finances is to prioritize spending. Distinguish between wants and needs first, then prioritize the most pressing and important needs, then allocate income for long-term interests like housing or retirement.

 

  1. Save

Saving is one of the most effective ways to manage finances well. Although it’s difficult, you can do it slowly, for example by adopting a frugal lifestyle, putting away some income, and making sure you’re disciplined about it.

 

  1. Invest

The next step in financial management is to make investments as savings for the future. To be safer, you can choose low-risk investment tools such as mutual funds, time savers, gold, etc.

 

  1. Control of credit card usage

Although credit cards make buying and selling transactions much easier, people often go crazy and buy things they don’t need. Of course, this can lead to waste. Therefore, to keep your finances healthy, you must control the use of this card.

 

Financial management formula

Did you know that a percentage fund allocation formula is required to manage income well? The formula or formula is as follows.

 

  1. Formula 4-3-2-1

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

 

40% is provided for daily needs including groceries, taxes, electricity, and water.

30% of the income is earmarked for installment payments, loans, and bills.

20% as an emergency fund, savings, and investments.

 

  1. 5-3-2. formula

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

 

50% of income is used to meet daily and basic needs such as groceries, rent, insurance, or health care.

30% of income is used to meet secondary needs or to do things you want such as B. Holidays, watching movies, and buying items on the wish list.

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

These were Our’s explanations and tips for good financial management. If you are a businessman, managing your finances is surely an important thing, right?

But not only that, but it turns out that being aware of current market trends is also one of the leading strategies you should try. To do this, let’s examine the target audience and find ways to keep your company relevant to the opinions of our respondents.

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