The Importance of Economics and Financial Management in Daily Lives

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Table of Contents

  • What Is Economics?
  • What is finance management?
  • Financial Management functions
  • Determination of capital composition
    Fund investment
    Maintain suitable liquidity
    Clearance of surplus
    Financial controls
  • The Objectives of Financial Management
  • Profit maximization
    Suitable mobilization of finance
    The company’s survival
    Appropriate coordination
    Drops cost of capital
  • What is the Importance of Learning Economics For Us?
  • Get knowledge of economic systems
    Helps in proper budgeting
    Many kinds of applications
    Helps to increase national wealth
    Teaches modern methods of production

What Is Economics?

Economic is about making decisions. The economics is derived from the word ‘Oikonomia’ it means ‘house hold management’. It is the study of how people organize the use of resources to satisfy their wants. In other words, economics is a study of economic organization. It is a study of how each type of economic organization is supposed to work. It is also a study of how each system has worked in practice, where and when it has been used. It is a study of the problems that arise under each system, and of possible solutions to those problems. It is also a comparative study of economic organization. It examines the relationship of a system to various possible goals of economic life. It questions,

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What is finance management?

Financial management is an vital process to companies, businesses and even individual persons. Financial management is consisting of planning, organizing, monitoring and controlling. The purpose of doing those processes is to reach goals and targets of a person or a company.

Financial management is regular process of businesses and companies. It controls financial resources to minimize their wastage and it controls financial activities including different kinds of funds, payments, accounting and risk assessment.

As a student learning finance management can help in the future in personal life and also when starting a business. Most of the businesses experience losses and negative cash flows in starting period. Financial management is crucial in this period. Business management must manage their money to pay employees and suppliers though more money is going out than coming in early periods of the business. So owners should make financial projections for the future to deal with negative cash flow and determine the capital will needed to fund the business until it becomes profitable.

When business grows it will need more finance and planning is needed to sustain the growth. So there are some functions that financial management does to keep business working.

Financial Management functions

It’s the financial manager’s responsibility to plan the business’s financial needs. Manager needs to provide details concerning the amount of money that would be needed to purchase different assets for the company.

Management through the financial manager wants to know what they need to spend on working capital and fixed assets for the business too. Another major duty of the financial manager is to make forecast plans for funds that the company would need. And the manner in which the funds will be realized and used is also of most importance to the financial manager.

Determination of capital composition

Once the planning and forecasting is done, the capital structure has to be decided. The debt and equity used to finance the company’s future profitable investment opportunities is mentioned as capital structure.

Fund investment

The financial manager has to ensure funds that made available to the business are used sufficiently to grow the business. The cost of obtaining the said fund and value of the returns need to be compared and balanced. The financial manager also should look into the channels of the business that is giving higher returns and improve them.

Maintain suitable liquidity

Money is the best source for maintaining liquidity. The business requires it to buy raw materials, pay salaries and tackle other financial requirements of the company. However, the financial manager has to decide if there is a demand for liquid assets. He also has to arrange these assets in a way that the business will not experience shortage of funds.

Clearance of surplus

Selling excess assets and investing in more productive ways will increase profitability and therefore increase the Return on capital employed.

Financial controls

Financial control may be taken as the analysis of a company’s actual results, approached from different viewpoints at different times, compared to its short-term, medium-term and long-term objectives and business plans.

The Objectives of Financial Management

There are objectives and reasons companies use these management strategies to grow their business.

Profit maximization

One of the reasons that a company employs a financial manager is to maximize profit while managing the finance of the company. The gain can be in the short-term or long-term. But the main focus is that the individual or department controlling the financial issues of the company should ensure that the company in question is making enough profit.

Suitable mobilization of finance

The collection of funds to run the business is also an important part of financial management that the manager needs to handle properly. Once the manager concludes the approximation of the amount required for a business process, the required amount can be requested from any legal sources like debenture, shares or even request for a bank loan. But the point is that there should be a right balance between the money the company has and the amount borrowed.

The company’s survival

The survival of the company is vital. That is one of the reasons the management considers employing financial managers in the first place. The manager has to make suitable financial decisions to guarantee the company is successful.

Appropriate coordination

There must be a proper understanding and corporation between the various departments. The finance department must understand and settle with other departments within the firm for the business to function smoothly.

Drops cost of capital

Financial manager also tries their best to decrease the cost of capital, which is something that is important to the company. They confirm money borrowed attracts small interest rates so the firm can maximize profit.

What is the Importance of Learning Economics For Us?

Economics is one of important subject in present day. Economics knowledge we can apply to our business, job and also personal life. We can learn about interest rates, exchange rates, economic indications and fairness markets. It assists us to make higher choices about investing and acquiring mortgages. The economics can be also provided valuable knowledge for making decisions in everyday life.

Many activities are happened around us in our day to day life. We have seen offices, shops, mines, factories, railways, etc. All they may be collectively called an economy. People earning income and some are helping to produce goods and services. Economy system provided people mean to work and earn a living.

Get knowledge of economic systems

The economics subject tells us how the complex forces work in the economic systems. That explains the relationship between the producer and consumer, the labor and the management etc. It explains how the action in one sector affects the other sector. Without that knowledge, administration will not be effective and it may even be impossible. So that get a knowledge about economics systems is very important to us

Helps in proper budgeting

Economics is useful to householders. With that knowledge, the householder is able to utilize his small income to get the maximum satisfaction for his family by proper budgeting and careful spending. This increases the happiness of his family. Proper budgeting is helped for a successful family life.

Many kinds of applications

Knowledge of economics important us in many kind of fields, such as business, law, politics, records and accounting. Knowing how shortage affects buying selections helps in a politician’s office, for instance, the place people think about modifications in taxation. It also helps in a branch shop the place executives decide how plenty earnings they might make from a sure product.

Helps to increase national wealth

Considering the economics knowledge, we can discover new factors that may lead to increase the national wealth. Modern governments are actively engaged in economic Plannings. The purpose of planning is to remove economic poverty by increasing the national income and wealth and also by effectively distributing the wealth. Without the knowledge of economics, this is absolutely impossible to us

Teaches modern methods of production

In the practical life, that subject helps the businessmen, the industrialist and the banker as well as the labor leaders. It gives the businessmen and industrialists the knowledge of modern methods of production and low the production cost. In future when we are in industries that helps to us.


Economic forecasts are difficult than understanding the current situation. However, although forecasts are not always reliable, It can help give decision makers an idea of possible outcomes. Many companies are did forecast through the past data. Its help to get idea about future market demand.. Sri Lanka needs more citizens who educated about the basic principles of economics because they can understand how the forces those materially change and determine the prices and market around us.

After thinking all above points, Finance management and economics is very important subject to study as technology students. We will have to work in industries or our own business.

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