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Money management essay examples

Money Management

Money management is the process of budgeting, saving, investing, spending or otherwise in overseeing the cash usage of an individual or group. The predominant use of the phrase in financial markets is that of an investment professional making investment decisions for large pools of funds, such as mutual funds or pension plans. It is also referred to as “investment management” and/or “portfolio management”. While the term is usually used in reference to professional money managers, everyone practices some form of investment management with their personal finances. There are a wide range of money management services, from the operationof passively-managed mutual funds with low fees to in-depth estate planning and consulting. (Investopedia.com, 2012).

Importance of money management

It is as important as earning money itself, and would help you make the best use of money. Identify your money and track its pathways. Increase your savings and your money would be managed. Saved money doesn’t only help you in bad situations. You can also use your savings when the right opportunity comes and then double, triple or multiply the money. So saving is managing for future.  Money management lessons say that you should increase both your profits and savings for a better future. Money management doesn’t end every month, and begin anew the next month. So to keep a better picture of your money, you can also take the help of Online Money Management Software that allow smooth entry of all your money transactions (thefreelibrary.com, 2012).

How personality traits are linked to money?

Successful saving and investing often comes down to having the right approach. But the right moves to make, on paper, often don’t translate into the actual steps we take. Emotions and personality traits can help or hinder investing and financial planning.

The following are five personality traits that can hurt your investments and financial planning.

1. The overwhelmed
In the Allianz study, the “overwhelmed” personality made up the largest segment of its respondents (32%) and, demographically, tended to have the lowest income and education level. “This group tends to have high credit card debt and meager assets,” the study says. “As a group, they tend to be somewhat pessimistic feel unprepared for retirement” and are “unsure of when, or if, they will be able to retire.” Allianz also describes this population as, financially speaking, “in survival mode” (Forbes.com, 2012)
2. The distracted
They tended to have the highest income level of those who took part in the survey, the second-largest level of investible assets and live in more expensive homes in metropolitan areas. Although many saw their net worth drop significantly as a result of the economic downturn and cut back on spending, most have not changed their financial plans or reevaluated their overall financial strategy. Allianz found that respondents displaying this personality trait expect to retire in their early 60s but would prefer to do so in their early 50s. Most are counting on getting full Social Security benefits and they rely on 401(k) plans more than any other group. They really don’t have an overarching strategy, because they are too distracted with day-to-day things to get around to getting their financial house in order. (Forbes.com, 2012)
3. Risk-takers
The 2004 Merrill Lynch study delved into what it called “competitive investors,” those who “enjoy investing and try to beat the stock market.” Even when knowledgeable and experienced, their sporting approach to risk set them up for failure. They can have a hard time letting go of losing investments and often put too much of their portfolio into one stock or investment. (Forbes.com, 2012)
“Not surprisingly, competitive investors also tend to chase hot stocks,” the study says, adding that they “are most likely to be overconfident and greedy.” “All that enthusiasm for investing can be a detriment if left unchecked,” it says. In a worst-case scenario, investing becomes akin to gambling, filled with risky day trades, penny stocks and other adrenaline-pumping pursuits of maximum profits (Forbes.com, 2012).
4. Wood-knockers
“They choose optimism and sound something like this: ‘Today we don’t have any such plans, knock on wood,’” the study says. “They allow themselves to think about possible unexpected scenarios, but they are good at turning these around, creating hope-filled scenarios that don’t require planning: ‘I’d like to think things will stay peaceful, calm and sane for a few years that we will have no crisis health-wise, that the economy will get better so things will seem more secure for everyone.’” It refers to this as living in a “fantasy land” that can preclude necessary planning for an unknown future (Forbes.com, 2012).
5. The overconfident
Hubris has brought many high-flying dreams crashing to the ground. When it comes to financial planning, overconfidence can be disastrous. “They are realistic about the possibility of an unexpected scenario, but they are prone to inflated ideas about their capacity to handle them,” it says. “When their resources are not enough, Plan B-ers expect to cope, to adapt, to ‘pull back,’ to be ‘OK.’ In these cases, ‘plans’ are not necessarily carefully calculated strategies; instead they are often vaguely characterized adaptive scenarios. ‘We’re flexible. We’ll go with the flow. We’re willing to downsize if we need to.’” These fall-back plans could ultimately be characterized as life-changing desperation scenarios: “I’d have to liquidate my house; I would have to go back into the workforce, if they’d have me.” These personalities are not written in stone, however. People can always change and learn from their mistakes (Forbes.com, 2012).


Money management is the basic act of managing an individual’s or institutions money to make it grow or save it for later use. Everyone manages money in one way or the other. Some simple knowledge of money management can go a long way is, making our future secure and help us rely on money when we need it. The importance of money management cannot be emphasized enough. Technology has made it easier for institutions and individuals to manager their money in an easier and more efficient way. Assessing one’s financial situation and choosing the best ways to manage money are the fundamental steps for efficient finance management.
Money management is affected by many things such as the financial state of a person or an entity and willingness to invest among other influential factors. According to several studies undertaken by financial institutions such as Meryl Lynch and Allianz, the personality traits of individuals greatly influence their money management habits. The study has divided individuals in five categories based on its findings; the overwhelmed, the distracted, risk takers, wood knockers and the confidents. The study identifies the lower income group as the overwhelmed and the well to do group as the distracted. The prior group is identified to be less educated and pessimistic and the latter group is specified as the highest income group who do not plan their finances because they keep procrastinating. The risk takers manage their finances like gamble and invest in stocks very often. Wood knockers rely on luck and they are skeptical about financial investments. The over confidents believe strongly in their plans and are always sure that they can handle it if something goes wrong in their life financially (Forbes.com, 2012).
In conclusion I would like to say that money management is definitely very important for us to help us prepare for our future and help us put our money to better use. Financial planning is the key to leading towards a secure future and we must plan carefully for it.

5 personality traits that lose you money. (2012, January 12). Retrieved from http://www.forbes.com/sites/thestreet/2012/01/26/5-personality-traits-that-lose-you-money/

Definition of money management. (n.d.). Retrieved from http://www.investopedia.com/terms/m/moneymanagement.asp

Money management basics. (n.d.). Retrieved from http://www.smartaboutmoney.org/LinkClick.aspx?fileticket=kG–bHJsqtc=&tabid=442&mid=832
Anderson, N. (2011, October 27). 3 common financial blind spots. Retrieved from http://www.forbes.com/sites/financialfinesse/2011/10/27/3-common-financial-blind-spots/

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