Finance is the study of all the funds or money that is there in the country or in a business. It manages the flow of the funds coming into or going out of place such as a country or a bank or an institution or an organization. Finance works three ways: borrowing money or saving money or lending money. Finance has an important factor to keep in mind. It keeps a track of money, time and risk and it is related to each other.
Time: It means that the money taken or given as loan must be returned to their respective lenders on time otherwise it leads to delayed payment.
Money: It is the cornerstone for the world to function. It is the beginning factor of the world economy to make relation with each other. And if not handled with proper care ad awareness, it will become the reason for a world war. Money is the starting for the invention of buying and selling and the construction of banks and borrowing and lending started.
Risk: Even though money is a piece of paper but it has the maximum risk. People become rich and poor at the same time if not handled properly. No one likes a loss to happen and in money matters, everyone invests in shares and other properties or any other investable industry just to earn profit. But money is a game of risk and unpredictability. It can’t be controlled but only maintained and kept track of. Which, is the duty of the finance management.
Financial planning refers to the estimated amount of money a being whether a human or institution or organization or a country has and then predicting the way to utilizing the money and if need be then borrowing money or lending money with one thing kept in mind, that is to keep enough with themselves so that they are able to use it when they are in need.
A very good example for financial planning is the working of a bank. We go there to deposit or borrow money and while the bank provides us with the interest on the amount we have kept in their bank, we provide the bank by returning the main amount of money that we have borrowed and also with an added amount of interest. Have you ever thought of how the bank provides so any people with loans?
Well the answer is that when we deposit money in the bank, it keeps only 15% of the money with itself and sends the rest of our money for providing with loan. The bank then gives the amount as loan and gives the borrower a certain amount of time within which he/she has to return the money. The borrower then after sometime gives back the money and then the bank again keeps 15% of the returned money and uses the 85% of the money for providing with loan. Now if you ask that if the one who deposited the money in the bank on the first place demands to take out all the money from the bank? Then what will the bank do? The solution to this problem is that it was not that just this man deposited the money in the bank. Many other people deposited the money and the bank did the same percentage cut with every one of its depositors. Keeping 15% of the deposited money and sending the rest of the 85% of the money for usage of loan. So, when a person demands a full take out of money from the bank, the bank takes the money from the reserve of 85% it has taken out from every depositor’s share of money. Then the total amount of the money is given back to the depositor who decided to take out all the money from the bank.
Now this is not the only way how financial planning is done, but it is one way out of many ways how management in finance is done. Financial planning helps in maintaining the flow of the money and makes sure that the money is not misused or under-utilized.
Financial planning is very important, not just for the business world but for families and everything that runs on with the help of money. We give you some reasons why financial planning is important.
1. Income: Income is the only source for the common man to provide for self and for family. Income provides with all the luxury they can afford. Planning well for income and spending according to the plan benefits the income generator. Financial planning helps the person to think about the future and make decisions. So, financial planning helps in making the decision as to how much money will be required for tax payments, other monthly expenditure that a common man has to go through every month and how much saving can be done with that amount of income after all the expenses done in the month.
2. Cash flow: Who does not want some more money in their pockets? But not everyone is able to. Maintaining a well-defined expense with all the expenditures done in a proper way and controlling your miscellaneous expenses will lead to more savings and at the end of the month you will have more money than before.
3. Capital: Capital is the amount of wealth you have in terms of money or assets you have which have a financial importance in the market is known as capital. It can also be defined as the amount put in the business. It is related to the financial planning in a way that when you save more and more and the amount of money you have increases over a certain level, then the money can be used to invest in some financial or investment schemes so that you are able to get some return out of it and it becomes your secondary income.
4. Family security: Being financially planned with some extra money with extra income in terms of investment returns makes you and your family secured financially. Being financially strong these days is a must for everyone as if anything unfortunate happens with a member of the family then you must have enough money to bring out your family out of the situation.
5. Investment: Investing in a scheme with checking all the terms and conditions and analyzing the risk present will provide you with the extra income. It makes you learn about the market, tells you about the risks and makes you choose the right investment that is correct and matches your needs, personality and target area.
6. Standard of living: With higher income, extra investment return and some extra savings done by proper and maintained expenses will come in use in unfortunate situations. For example, a family member gets admitted in the hospital and if you have enough money with you from your investments or savings then you might be able to help in paying the fees and still be able to live in your present standards.
7. Financial understanding: Better financial understanding means having a set of financial goals and achieving them, the effects it has on you while you are trying to achieve the financial objective. It helps in understanding the financial responsibilities and gives you more control over your finance.
8. Assets: Some assets stay with you as assets. But some become a liability. You need to understand which asset provides you with benefits and which one is a liability. This understanding comes through the knowledge of finance. This awareness of money helps in making purchase of assets that do not turn into liability in the future.
9. Savings: Savings are good. But depending entirely on your savings and not keeping a track of your investments will also not benefit you. In todays’ dynamic world where everything is changing by seconds, it is important to keep a secondary or emergency amount of savings or investments. Therefore, it is suggested to keep some of your investments in liquid so that whenever you need money for any use such as an emergency or for school admission or giving someone some money to help in their emergency.
Thus, financial planning helps you in maintaining a balance between your cash inflow and cash outflow so that you are constantly in financial stability. It provides you with adequate funds so that you have money always when in need.
It provides with all the information required to make sure that your investment in any scheme doesn’t land you in loss.
It helps you grow financially which is good as you will be able to develop your standard of living and will have a better luxurious lifestyle.
Financial planning reduces the risk of losing out or being without money. It constantly makes you aware of the amount you have in place of investments done here and there.
Financial planning is very important as it has the power to bring an individual or business or institution to rise or to fall. It has to be done properly with total knowledge of the market.
We hope we have been able to make you understand the concept of financial planning. You can further visit our site urgenthomework.com to know more about financial planning. You can ask us for any doubt or for help in any type of home assignments that you require and our trained online tutors will be very happy to serve and make you clear of your problems.
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