ASSIGMENT

“Money Management”

SUBMITTED TO:
Palwasha Shaheen

SUBMITTED BY:
Sameer Ali Mirza
What is Money Management?
Money management refers to the process of tracking and
planning an individual or group’s use of capital. In personal and
corporate finance, money management usually includes
budgeting, spending, saving, and investing.
Private banking financial advisors provide money management
services to individual customers. Commercial banking provides
money management to corporate clients. In financial markets,
money management also refers to portfolio management and
investment management. Financial professionals manage
investments and make investment decisions for pools of funds.

Summary
 Money management refers to the process of tracking and
planning an individual or group’s use of capital. In personal
finance, money management includes budgeting, spending,
saving, and investing.
 In corporate finance, money management covers the raising
and use of capital. A firm’s budgeting is mainly influenced
by its business strategies.
 In financial markets, money management refers to portfolio
management and investment management.
Money Management in Personal Finance
Money management is a broad concept. It refers to the
strategies and techniques to determine the use of an
individual, company, or institution’s capital. In personal
finance, money management covers budgeting, spending,
and saving (investing). Money management can be
proactive with periodic or regular financial planning. It can
also be reactive to specific events without intuitive
planning in advance.

As a result of different ages, lifestyles, family structures,

and many other factors, financial plans for individuals are
different. However, the fundamental principles of
budgeting can be commonly shared. For example, one
simple method of personal budgeting is the “50-20-30
Budget Rule.”

The 50-20-30 Budget Rule suggests an individual spends

50% of their after-tax income on essential expenditures.
The essentials include house mortgages or rents,
transportation, groceries, utilities, and so on. 30% of their
income should be spent on the things that the person wants.
It can include expenses on partying with friends, movie
tickets, and vacations. The remaining 20% should be saved
or invested for future financial goals.
 Money management with intuitive planning and budgeting
helps to reduce inessential expenditures. Such expenditures
do not add value to an individual’s living standards. They
can be saved or invested for better use in the future. Money
management also lowers the risk of running out of money.
It helps individuals to achieve their financial goals in the
long term.

Financial advisors in private banks, insurance firms, and

other financial institutes provide personal money
management services. Individuals can also process their
money management needs through personal finance
applications.

Money Management in Corporate

Finance
Similar to personal finance, money management for
corporate finance also includes planning and budgeting.
However, the process of budgeting is quite different. A
company’s budgeting is mainly shaped by its business
strategies. It is built upon the company’s historical financial
statements and adjusted with forecasting estimates.
 In addition to the use of capital, corporate money
management also considers the raising of capital – how
much to finance and how to finance should be determined.
Money management for corporate finance is more complex
than for individuals. Companies need professional teams to
provide financial analysis and planning.

Money Management in Financial Markets

In financial markets, money management also refers to
investment management or portfolio management.
Investment companies manage a pool of capital from their
individual and institutional clients.

Money managers invest the capital in different asset classes

to generate returns. The assets include stocks, bonds,
private equities, real estate, commodities, and so on. The
firms also offer brokerage, mutual funds, ETFs, investment
advice, retirement services, financial planning, and many
other money management services.

Some of the world’s top money management firms include

The Vanguard Group, Blackrock Inc., and Fidelity
Investments. Vanguard is the world’s largest mutual fund
provider and second-largest ETF provider. Blackrock’s
ETF division is the biggest ETF provider in the world. It is
hares unit lists $1.9 trillion assets under management.

Different investment strategies are applied depending on

many factors. The factors include investment philosophy,
client risk preferences, the size of the fund, and many
others. For example, Bridgewater Associates, as a hedge
fund firm, applies a global macro investing strategy. It
seeks investment opportunities from economic trends. On
the other hand, The Blackstone Group, the world’s largest
alternative investment firm, invests a lot in private equity
and commercial real estate.

Stock portfolio management can either be passive or active.

Passive portfolios invest in ETFs and mutual funds to
follow certain indices. Active portfolios are managed by
management teams with particular strategies. The
management of a debt portfolio usually considers credit
risk, interest rate risk, and reinvestment risk. Alternative
investments can further diversify a portfolio and lower the
systematic risk.
Examples of alternative investments include private
equities, venture capitals, commodities, and real estate.
Portfolio and investment management can be very complex
and requires expertise. Professional money managers apply
different strategies effectively to reach a higher expected
return at the given level of risk.
 Investment risk is proportional to the return in an efficient
portfolio. The main idea of money management is to
balance the risk and return to maximize investors’ utility.

Money Management
Money management is the process of handling your business’s
finances through budgeting, setting goals, tracking expenses and
income, and investing.
With a sound money management plan, you can avoid periods
of negative cash flow and ensure your business is on track to
turn a profit.

Money management tips

To keep business operations running smoothly, you need enough
money to cover expenses. Put these nine tips to use to learn how
to manage money in a small business effectively.

1. Stay on top of deadlines

If you don’t know when your bills are due, such as accounts
payable, business loan payments, or credit card payments, you
might not have enough cash on hand. Not to mention, failing to
know when bills are due can set you back with late fees or added
interest, lower your business credit, and sour lender and vendor
relationships.
To avoid missed bill payments, stay on top of your deadlines.
Record when payments are due and set reminders so you don’t
fall behind. Pencil in due dates on a paper, phone, or computer
calendar and get on a consistent payment schedule.

2. Monitor spending
Do you know how much money you spend per day, week, or
month? If you don’t monitor spending, you could be racking up
bills that you don’t need. And, failing to monitor spending can
lead to overspending and misuse of funds.
Many business owners have multiple accounts, such as a
checking account, savings account, and credit card account.
Make sure you know how much you withdraw or spend from
each account to stay on top of account balances.
It’s easy to use your business credit card, debit card, or checks to
cover small expenses. A little lunch for the staff here, a new
coffee machine for the break room there… But small expenses
add up. If you don’t keep an eye on your spending, you could be
fitted with a sizeable bill that you aren’t prepared for.
When monitoring spending, you should also factor in uncased
checks. When you write a check, the recipient doesn’t need to
cash it right away. If you forget to monitor spending, you could
end up with an overdrawn account and overdraft fees.
Track your expenses by managing your accounting books. You
can use simple software to record accounting transactions. When
you have a log of your expenses, you can easily monitor
spending.

3. Don’t forget about accounts receivable

If you offer credit to customers, you’re well aware that you
might not receive money for goods sold or services provided
until the due date or beyond. After a week or month, it can be
easy to forget about accounts receivable. But if you want to
better manage money, you must remember the funds owed to
your business and pursue payments.
To help you remember accounts receivable, record them in your
books. Create an accounts receivable summary to track
receivable totals. An accounts receivable summary shows you
which customers owe your business money, the amount due,
which customers are past their due dates, and your total
receivables.
Although tracking your receivables is essential for smart money
management, receiving payments is even more important. You
can pursue payments by sending out invoices and late notices to
customers. And if your business needs money earlier than the
due date, you can offer an early payment discount.

4. Separate business and personal funds

Do you have a separate bank account for business? Even if you
aren’t required to separate business and personal funds, doing so
is critical to money management. Plus, business bank statements
are useful for tracking profitability, reconciling your books, and
monitoring spending.
Mixing your personal and business funds can result in
disorganized records, leading to overspending and missed
growth opportunities.
When you combine funds, tracking withdrawn and deposited
business funds becomes difficult, making it challenging to
monitor incoming and outgoing money.
If your business and personal funds are in one account, you
might be prone to dip into your business funds for personal
expenses or vice versa.

5. Time your purchases

To avoid instances of low cash flow, time your purchases. Do
not make unnecessary purchases until you have paid your bills.
And, wait until you have enough cash on hand to cover new
expenses.
You can also time your purchases to decrease your tax liability.
Before the end of the year, you might consider purchasing tax-
deductible items (e.g., supplies) so you can claim them on your
tax return.

6. Create a budget
Putting in the time to create and keep up with a small business
budget can simplify the way you manage money. Budgets help
you set expense and revenue goals.
Your budget lays out the expenses needed to operate your
business. When you know how much you can spend, you can
more easily manage your spending money.
A budget also forecasts the amount of revenue your business
will receive. If you find that your revenue is lower than
budgeted, find ways to cut expenses and increase income.

7. Manage inventory
Do you order too much inventory, only to have it collect dust in
your storage room? Or, are you constantly running out of goods
that are in demand, causing you to turn away customers?
Improving the way you manage inventory can help you manage
money in your small business.
Track how much inventory you have in your business to avoid
crossing the fine line between having too much inventory and
not having enough. Record inventory purchases and sales in
your books and spend time monitoring how much you have on
hand before ordering more.

8. Cut costs and increase revenue

Two money management tips are straightforward but can be
hard to accomplish: decrease expenses and increase income. If
you’re having a difficult time managing business funds, look for
ways to cut costs and increase revenue.
Do you know how to control expenses in a company? To cut
costs, first analyze your expenses. By looking at current expense
areas and amounts, you can scale back and eliminate frills. You
can also decrease expenses by shopping around for new vendors.
You can increase revenue by offering discounts, promoting
products through email marketing or social media
advertisements, adding new products to sell, and establishing
refer-a-friend and loyalty programs for small businesses.

9. Have a cash reserve

Putting money management tips into practice can significantly
improve cash flow management. But sometimes, the unexpected
happens, and you’re left needing to cover an emergency
expense.
Keep a small business cash reserve to help you manage money
when you’re in a pinch. You can start a cash reserve by opening
a business savings account. Be sure to regularly deposit into
your cash reserve.