Suresh has taken a personal loan in Pune for ₹ 1,00,000 to revamp his small textile shop. He has one MSME loan and two other personal loans in different banks. Nonetheless, he confidently took another personal loan to boost his business.
| Loans | Monthly EMIs | Interest Rates | Tenure | EMIs |
| MSME Loan | ₹ 80,000 | 9% | 1 year | ₹7071 |
| Personal Loan 1 | ₹ 200,000 | 11% | 3 years | ₹6548 |
| Personal Loan 2 | ₹300,000 | 14.5% | 5 years | ₹7058 |
| Personal Loan 3 | ₹100,000 | 13% | 1 year | ₹ 8932 |
Out of his monthly revenue of ₹ 60,000, he is paying off his total monthly EMI of ₹ 29,609. Still, he can save ₹ 30,391 and sustain himself. This is because he is good at financial management. In the upcoming February 2025, he will repay all his loans.
People always fear to take a debt for initiation of business. Those who are good at financial management can handle all the financial transactions. Financial management is essential in today’s period of time. Many people learn its importance only later in their life. A survey by Finnovate cites that in India, only 38% of Indians are debt-free.
Do you know about financial management? Are you aware of its role in your financial life? This blog teaches you financial management along with its roles and objectives.
Financial Management – An Introduction
Financial management is a part of life. It plays an important role in influencing one’s lifestyle. Financial management is how one controls and manages all financial matters. It can be related to money, real estate, gold, stocks, and many others. The objective of financial management is to secure the financial future.
For example, when you invest ₹ 1,00,000 in a fixed deposit for 5 years with 7% interest, the amount accumulates to ₹135,000.
| Total Amount | With Fixed Deposit | Without Fixed Deposit | |
| ₹ 1,00,000 | 5 years with 7% interest | ₹135,000 | ₹ 100,000 |
The Role of Financial Management
- Planning
A well-planned financial management always enhances profit and secures the financial future. During the process of planning, one can figure out the sources of expenditure and income. This helps to make investments in stocks, mutual funds, FD, and many others.
For example, if the monthly grocery needs ₹ 2000, then that amount should not be spent for other purposes. In such a way, the budget should be planned.
- Allocation of Funds
In good financial management, one should ensure that all the funds are equally allocated to various needs. Lack of funds can impact economic growth.
For example, entrepreneurs have a minimum of ₹1,00,000 as a financial backup for various needs.
- Risk Assessment
In contemporary times, inflation impacts all goods and services. Hence, the assessment of the financial risks of inflation is quite essential. This helps a business firm take preventive measures against financial instability.
For example, a company should have an insurance policy of at least ₹ 1,00,000 for accidental coverage for machinery.
- Investment Strategies
Good financial management teaches you investment strategies. The right investment should bring more returns and profit. In order to multiply the sources of income, a company or an individual can invest in many platforms, such as the stock market.
For example, Elon Musk purchased 9.2% of Twitter’s stake in 2022.
- Financial Analysis
Financial management helps to analyse the yearly spending and income. This analysis will also help to trace the source of income and expenditure.
For example, the RBI’s current repo rate is 6.5% despite having 5.4% of GDP.
Objectives of Financial Management
- Growth of Profit
Financial management focuses on profit. It is not only a key indicator of healthy business but also to establish the brand in the competitive market. It should create a profit even with limited resources.
For example, TCS had a net profit of ₹12, 434 crores on April 12, 2024.
- Wealth Accumulation
Financial management focuses on wealth accumulation. It is a long-term goal that requires perseverance and consistency.
For example, in 2018, the price of Axis Bank’s share was ₹ 565.50. In December 2024, the price is ₹1134.80
- Monitoring expenditures
Through financial management, one can trace the source of expenditures. This helps to prepare an efficient budget for personal finance and a budget for business operations.
For example, the price of tomato was ₹80 per kg last month. Now it is ₹25.
- Cash Flow and Liquidity
Financial management helps to identify the requirement of cash for short-term investments and goals. It covers salaries, minor renovations, machinery purchases, and many others.
For example, a financial backup of ₹ 50,00,000 is always essential.
Conclusion
Financial management is useful for the successful operations of a business. It helps to identify the strong and weak areas of income and expenses. It also plays a crucial role in the preparation of the financial budget. To combat the inflation, one must have financial management.
