So, I decided to combine these three skills since they kind of go hand in hand with each. Each of these skills is important for you to know, even if it’s just a basic concept, so you can be financially successful. Now, I’ll let me break down:
Debt management: The planning and organizing of how one pays off debt
Cash flow management: Involves planning and balancing your income/expenses to meet financial obligations and goals.
Risk management: Process of identifying, assessing, and controlling potential risks that could potentially negatively impact one’s finances
So, how would one effectively manage these?
Well, that answer is simple, try to avoid accumulating debt at a young age, and mainly just watch your finances. In reality this seems simple, but for some it is kind of difficult depending on one’s financial situation. The easiest way to manage these is by creating a plan. (Like you do with anything)
Debt Management
Right now I’ll focus specifically on debt. Some common forms of debt a person can acquire are credit cards, student loans and car payments, etc. Most people can figure out that this debt is just repayment of money, often with an interest rate. This interest rate can range depending on the loan. For example, federal student loans can range from 2.75%-5.30%.
If you’re already stuck in debt here are some ways to help you manage it. But keep in mind this only really applies to individuals stuck in severe debt or people looking for alternatives to big debts from loans.
- Purchase a debt management plan, this being a credit counselor or DMP that basically combines all your debt and have you pay monthly.
- Debt consolidation loans
- Debt settlement
- Creating your own budget (Mainly for people with not a bunch of debt, but the budgets previously mentioned are applicable for this)
The best advice regarding debts I’ve found is to pay the highest interest first. If unable to, make sure you try to make small payments as often as possible.
Cash Flow Management
Now let’s switch over to cash flow management. This one seems simple enough, gathering all your finances and sorting them, then figuring out where all of your money is and what it could be. To be honest, this seems to go hand in hand with budgeting, effectively managing cash flow does not happen overnight. So, it involves thinking of your long term/short term goals and being able to save efficiently.
Risk Management
Risk management is the last topic for this section. It’s similar to cash flow with how you evaluate your finances. It involves evaluating, controlling, budgeting, monitoring and revising your financial plans or goals. The concept itself basically requires you to stay on top of your money all the time. So this includes: knowing what you’re investing in, purchasing insurance, emergency funding and knowing liabilities related to any accumulated debt. Overall, it’s really simple, you could even hire someone to do it for you, but lets be real, that’s to expensive and you could definitely set up your own personal goals money wise.
In the end all three of these financial management strategies are very similar. The concepts themselves are not difficult to grasp but the only confusing thing now is for people making their own financial plans. It comes down to knowing your income, expenses and goals, asking yourself directly what you want to save for short term/long term with help you better outline your own plans.