Money management and financial planning may sound like a ‘tomato-
tomahto, potato-potahto’ situation to most people. They are different words
that many use interchangeably. However, these are two complete
opposites. Together, they help to build the foundation of a successful
Before we get into details, let’s talk about what money management and
financial planning are.
What is Money Management?
Money management includes many aspects such as spending, budgeting,
and saving money. It is focused on the functions that are crucial on a day-
to-day basis. In other words, it's a way of tracking your daily purchases and
keeping an eye on the money you spend on everyday expenses. The good
financial sense is important, but it isn't enough. Without proper study and
effort to understand the basics of money management, handling your
everyday expenses can get quite challenging.
What is Financial Planning?
On the other hand, financial planning is about aligning your current
spending and saving with your future objectives. It is a step-by-step
process to meet your financial goals through investing and saving. And, if
properly executed, it sets a clear path to financial success for you.
The Importance and Impact of Money Management
To most people, money management can be summarized into a single
statement we have all heard one too many times -- “save 30% of your
paycheck for the taxes.” But is that it? Well, not exactly.
Money management is the steppingstone of long-term financial planning.
Keeping track of what we own now can make large scale investment
decisions seem a lot more realistic. At the end of the day, money
management comes down to making the right decision at the right time.
Let’s take a look at credit scores as an example. Timely paying your credit
bills not only saves that late fee you would have to pay, but it also
increases your credit score. A high credit score has many benefits such as
a lower interest rate on mortgages and loans. As you can see, just paying
your credit card bill on time can save you thousands of dollars that would
have gone into mortgage interests. When it comes to money management,
time is money and money is the time!
Financial Planning: The Key to A Successful Financial Portfolio
Think of financial planning as a game of basketball. Before the game, you
start with objectives and a plan to achieve them, while considering the
possible contingencies that might affect the outcome. Financial planning is
the same but with a whole lot of money!
Financial planning helps you have a little peek into your future - where do
you see yourself 10 years from now? what safety nets do you have if you
are no longer employed? do you have a retirement plan? A financial plan
prepares you for all these questions and many more concerning your
Money Management vs Financial Planning: Which Is The Right One for Me?
If you are in the early parts of your career, straight out of college, money
management will help you make smart financial decisions. It will facilitate
your transition into the practical world by giving you the skill of useful
Close your eyes and imagine yourself at 65, bathing in the sun in the
Bahama with no worry in the world. As your career and success grow, you
will need to start planning for this beachy life. And, that's where financial
planning comes into play! Start your financial plan early and retirement will
be a breeze for you! Good luck!