Money management aims at ensuring that a sufficient amount of money is raised from appropriate sources at the right time, and is invested in suitable projects which would increases the net returns of the firm and thereby the value of the firm. Thus, money management consists of raising required funds,
investing the funds and managing the working capital.
For the long and short-term requirements of the firm, a sufficient amount of funding is to be raised from different sources. While selecting the resources, they should match the purpose for which the fund is required. For example, the need for long-term funds like construction of building, acquisition of machinery, etc., should be sought from long-term sources like share capital, debentures or term loans.
Once the funds are raised, their investment may pose a serious problem. The basic criterion for investing in a particular asset is that it should realize a positive net return, i.e., the benefits should be more than the cost. Moreover, if there are mutually exclusive projects with positive net returns, the project with the highest net return should be selected. For this purpose, various techniques of capital budgeting are employed.
In addition to long-term capital, a concern wants short-term capital to manage the day-to-day running of the business. For efficient performance, the firm has to maintain a sufficient level of inventory to ensure uninterrupted production and distribution. Enough cash is required to meet the expenses and obligation of suppliers and creditors. There should be provisions for meeting any contingency, and a desired level of accounts receivable to retain the customers and to improve sales.
The money required for these purposes can be called working capital; the money locked up here does not generate income. But, for maintaining liquidity, the firm has to make sufficient investments here. Proper management of working capital is necessary to reach a trade-off between liquidity and profitability.
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Do you really need to learn money management or do you need to learn a new attitude about your money? Where did you learn your ideas about money? Probably if you’re like most, you learned what your parents taught you. Maybe your spouses’ money habits and concerns have rubbed off on you. Most importantly, how will yours rub off on your children? Before you can teach money management to your teen, what do your words and actions say? If your children use the same techniques for money management in 20 years, will they be headed toward success or disaster? Maybe it’s time you rethought this love/hate relationship with your old friend, money. Maybe it’s time you adopted some successful attitudes; such as:
1: An Attitude of Gratitude
So often, as parents we give our children this line when there are complaints about what’s for dinner, who got what toy or got to sit in which seat. We say, “Stop complaining and be grateful for what you have,” or something to that affect. If it’s become rote, more than likely what you’re really saying (which is what your child is hearing) is “Shut-up and stop complaining,” which amazingly enough, doesn’t sound grateful at all, does it? The way we teach our children to be grateful is by being thankful for what we have and expressing it regularly; and no other topic comes to mind so regularly as money. Are we thankful for our good health and yet whining about our paycheck or our taxes? The more grateful we are for what we have, the more we’ll have to be grateful for.
2: An Attitude of Respect
We’ll spend time teaching our kids to respect their elders, respect our rules and have respect for themselves, but too often respect for money gets pushed aside. There seem to be 2 schools of thought, neither of which are respect; fear or disregard. If the budget rules your house with an iron fist and every penny is squeezed, you are passing down a fear of money to your child. If money is so scary that it controls even Mom and Dad, the most powerful people in the universe, it must be bad. Total disregard of the finances is just as bad. A lazy attitude of, “Oh the mortgage will just be late and I have no idea how we’ll pay for the credit card, but we’ll stop thinking about that once we go shopping,” teaches disrespect for money, which will translate into lack of money later in life.
3. An Attitude of Joy
Money is fun and if you’ve forgotten that, let me remind you. There was a time; maybe a long time ago, maybe you were still a child that you suddenly “came into” some money that you weren’t expecting. There it was, a whole $20 and you couldn’t believe how great it was and started right away imagining all the cool stuff you could buy with it! Why should you give up that joy as an adult? Spending money is fun and when you give with love and an open heart, not only is it fun but you are making abundance possible in your life. Spending money begrudgingly and reminding your children and spouse about how much they “cost you” every time you leave the house not only stops the abundance coming into your life, but makes you a killjoy.
4. An Attitude of Interest
How much do you really know about money? We all know that in order to have a good relationship with our spouse, we have to communicate. We have to find out what makes them tick. We have to get to know them. We know as parents that we need to know our child’s interests and spend time growing those talents. We are successful at what interests us because we automatically take the time to find out more. So wouldn’t that apply to our money as well? How can expect to have a great relationship with your money if you don’t know the first thing about it? When the only time you spend with money is that dreaded day of the month where you grip the checkbook, hope for the best and pay the bills, how can you really know what makes your money tick? Get involved with your money and invest the time in finding out more. Get your family equally involved with the finances. If one spouse handles all the money, the other one should still know the essentials of what this family is doing with finances. Your family budget, the one your kids know exists but never find out why or how it works, is a “family” budget. Take the mystery out of your money and spend time with it.
5. An Attitude of Value
Understanding the value of money goes beyond, this is $10, it’s worth $10. How you value yourself and your personal values in life are expressed through your value of money. Are you spending every waking moment in a desperate attempt to keep up with the Jones’s? Are your kids always dressed to impress even though they’d rather be just comfortable? Is it not good unless it’s the most expensive? These are all ideas that scream, “I am not enough, not valuable without money.” Is that what you want your children believing later in life? On the other end of the spectrum we have those that never buy anything new, their house is in desperate need of repair, their children live in hand-me-downs and they’re not satisfied unless they got “it” the cheapest that they could get. They even love to brag about how little everything they own cost. Are you really being frugal or have you taken the “we don’t deserve nice things” and made it a lifestyle? Are your feelings of self-worth controlling your money habits? And if so, what kind of value are your children seeing?
6. An Attitude of Confidence
Obviously if you are married with children, fear of the unknown doesn’t really faze you. You walked down the aisle despite what the statistics told you that the odds were. You had children and are raising them in the face of awesome odds. Look at you - you’re doing it! So why, when we’re brave enough to face the challenges of marriage and parenthood, do so many of us figure that money is totally out of our control. We can trust God with our kids, but money is up to fate, luck and maybe the lottery. We can count on our spouse to be with us through sickness and through health but we can’t count on ourselves to be “good” with money. We’d start that business if we had the money. We’d buy that stock if we had the money. Confidence with money comes from the knowledge that you come from abundance. There is plenty more where that came from. Being bold is the only thing that’s going to take you from struggling to success. Are you passing down an entrepreneurial spirit? Or are you going to whine about all the missed opportunities? Will your kids?
7. An Attitude of Honesty
Are you honest with your family about the finances? Isn’t it amazing that as a parent, you can expect your child to be truthful about why they got in trouble, and yet cheat on your taxes, feeling somehow that you’re entitled? Why is it that we expect our spouse to tell us every little thing that happened at work that day but what’s going on with the checking account is a big mystery? Do you talk about your salary like you talk about that 6-foot fish you almost caught? What’s your money story? And if it’s not a good one, or it doesn’t have a happy ending, what’s the moral of the story for your kids? If the truth shall set you free, how free are you financially?
When you think about the relationship you have with one of your old friends, or the relationship you have with your spouse when things are going really well, what are you doing to make that relationship a success? Of course you’re grateful for the time the two of you spend together. You have a deep respect for that person and you feel a joy when you are with them that always brings you back for more. You are extremely interested in what they’re doing and find their ideas and feelings to be fascinating. You value their ideas and opinions and love knowing they value yours. You are confident that the future of your relationship is going to be even better than the past. And you would never dream of dishonoring that relationship by being anything less than truthful.
If you became friends with your money, would you need to manage it? Growing a relationship with your money is not only key to your own success, but a vital part of teaching your child to reach for their own financial freedom.
Cheryl Hall(http://www.MillionaireKids101.com)has the keys for parents to help their children become financially successful. She has created 3 courses to help children learn how to think about money and start on the road to wealth and independence; Millionaire Kids 101, 201 and Millionaire Masters. Cheryl is a successful real estate investor and has been helping new investors start on their way to financial freedom.
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