Human life is divinely designed phenomenon of interdependent, interconnected, and interlinked individuals. Individuals have multiple needs and desires. The satisfaction of needs and desires of a person are linked with proactive attitude of self and reactive behaviour of others. For example, the more ease you provide to others the more ease you attain for self, the more respect you give to others the more respect you get for self, the more strength you supply to others the more strength you find for self, and so on and so forth. The autonomous satisfaction of needs and desires is not feasible. People support each others’ needs/desires generally willy-nilly to attain maximum level of satisfaction for self. The support system or sharing structure among persons works on every aspect of life. The sharing during economic interactions provides basis to money creation.
The sharing phenomena of human beings during earning-spending part of human life shape economic aspect of society. Economic aspect is outcome of countless interdependent economic agents. The sharing activities during some economic struggle need a medium of exchange. Historically, economic agents adopted various exchange approaches to attain just economic dealings for needs satisfaction such as barter approach, silver coinage, gold coins, paper money, and plastic cards. Presently, man use paper money and credit cards. The new techniques were opted because the old systems were creating some practical problems due to exploitative human tendencies; the aim was to avoid injustice from economic life. The system has been accepted at all levels of life and at all regions of globe. But, the evolved system is not ideal or exploitation free due to interest-based transactions or inappropriate exchange rates. Maneuvered interest rates or manipulated exchange rates are generally used by industrialists/capitalists persons/nations to design inappropriate purchasing power parities. The tilted parity hits hard the general public ultimately the purchasing power of consumer is reduced due to financial maneuvering of banking system, both national as well as international.
Significance of Money – Individual & Institutional At individual level money is spent on some needs such as food, clothing, shelter, transportation, health, security, and education. The basic needs are limited but luxurious/aesthetic human nature is inclined towards countless paraphernalia of life such as diverse tasteful food, attractive clothing, magnificent housing, influential/VIP security, better education, superior medical facilities, and so on and so forth. The genuine needs and necessary aspirations can be met amicably through sensible consumption patterns; enormous amount of money units is not essential. But, practically, individuals adopt irrational consumption patterns such as conspicuous consumption, impulse buying, and careless shopping. Capitalist manipulates extreme consumption patterns and reaps benefits of conspicuous consumption. The interest-oriented approach of capitalist towards money usage ignites extreme consumption patterns of individuals. On the other hand, the contentment-driven approach of consumers develops moderate consumption pattern. A moderate approach towards money management is time-honored tool against financial maneuvering by interest-oriented banking system / lenders.
At institutional level money is required to produce goods and services for sale. Money units are used to calculate worth of goods and services. Liquidity is needed to initiate, operate and develop the business institution. Liquidity is just like fuel in a vehicle or electricity in a bulb or blood in a body. There are two major dimensions of liquidity management. One is the source of finance and the second is its effective utilization. Lack of money creates frustration at multiple occasions of business transactions. Again, an interest-oriented approach of some institutions, esp. the financial institutions, diverts the money towards wrong channels. The solution of the problem is to convert interest-oriented approach into profit-driven approach. The interest-driven approach calculates the money-units and takes them as decisive factor during some decision-making process, while the profit-driven approach considers the productivity of input units and value of output as final factor. A profit-driven effort is dominantly entrepreneur-driven or knowledge-driven economic struggle. The ultimate outcome of entrepreneur-driven or knowledge-driven economic effort is better return to all stakeholders, rapid economic growth rate, sustainability, and higher level of employment. A knowledge-driven/entrepreneur-driven institutional setup is now a global economic reality.
Continual Cash Flow
The continuous flow of money or cash-flow is vital for smooth economic life. The continuous flow of money is achieved on account of certain beliefs and specific actions. The belief system develops mindset of an individual. A mindset has power to attract or repel supportive environment. A positive mindset attracts fruitful opportunities and repels harmful threats; consequently, a supportive working environ is available to a person. A supportive environment can be used for sensible earning; moreover, a rational earner is either firm or flexible and spends life with reasonable belongings. On the other hand, a negative mindset repels fruitful opportunities and attracts harmful threats so that meager or volatile earning is materialized. An irrational personality is inevitable consequence of meager or volatile earning; an irrational earner is either rigid or volatile and spends life with meager or volatile resources. The prominent damaging beliefs that hinder continual money flow are – money is panacea for all problems, money is evil, availability of money makes miser or lavish, money promotes inhumane emotions, money disrupts inner satisfaction, availability of money attracts greedy peoples, and conspiracies are designed against wealthy peoples. It is inevitable to replace negative beliefs with positive beliefs for promising financial opportunities. The second element that disturbs the continuous money-flow is wrong behaviour-pattern. The prominent wrong actions or behaviour-patterns against cash flow are – time wasting, arrogance during dealings, impulse buying, and conspicuous consumption.
Damaging Of Cash-Flow
The continuous flow of money is disturbed due to multiple reasons such as personal weaknesses, social injustice, economic exploitation, and political turmoil. People have great desire for wealth accumulation due to manifold reasons. The ingrained desire provides a continuous motivation to individuals for wealth accumulation. Some people have hasty/greedy approach towards wealth accumulation; they want to increase wealth by hook or by crook. A weak or non-resilient approach towards avarice people is the paramount reason of disturbed cash flow.
A social interaction is essential aspect of human life; none can escape from it except frenzy. Personal life patterns are extremely influenced by society. The lavish/miser spending is dominantly determined by multiple unjust social pressures. A balance family life is best fence against unfair social pressures on consumption patterns. Moreover, a joint saving or spending plan by family members gives social regard to family members and enhance their social effectiveness.
Structure of an economy is designed, voluntarily or involuntarily, by countless economic agents such as importers, exporters, sellers, distributors, investors, and consumers. Generally, saving or spending patterns of economic agents plays a decisive role in shaping up a specific economy; it is either production-oriented or consumption-oriented. A saving-oriented approach of individuals shapes production economy, while a spending-driven approach of individuals shapes consumption economy. Consumption economies are lavish or generous towards spending, while the production economies are scanty or moderate towards spending. A saving or spending approach of individuals towards money management is determined by propensities. A propensity is inner inclination of an individual towards saving/spending. The saving pattern of individuals is determined by propensity to save. A high level of propensity to save prevails in production economies of the globe such as China, Japan, and Malaysia. The consumption pattern is determined by propensity to consume. The higher level of propensity to consume indicates the consumption economy. The prominent consumption economies are USA, GCC, and Pakistan. Economies with irrational propensities face recursive liquidity crises due to economic miscreants; they exploit over-spending or over-saving patterns of individuals. Islam provides a feasible solution to high consumption economies through motivation for generosity; a generous spending is compatible with rational production-patterns. A miser economy can be improved through moderate spending modal. Again, Islam provides a feasible solution to high saving economies and motivates them towards moderate spending; a moderate spending is compatible with rational consumption-patterns. Rational propensities are inevitable for stable economies. It is noteworthy that human propensities are shaped or refined by intellectuals, leaders, and opinion-makers.
Persons are inevitably inhabitants of some state. States are governed by politicians. A short-sighted political class or volatile political structure creates mess and confusion at all levels of life, obviously, consumption patterns or production patterns of peoples are disturbed. A buying or spending behaviour becomes volatile due to persistent political uncertainty. Volatile consumption/production patterns damage the money flow/value of money so that inflationary or deflationary situation is mushroomed. State is unable to maintain stable price level due to economic miscreants consequentially, people face liquidity crunch. Economic miscreants are either lavish or hoarder. They challenge the writ of state through maneuvered spending or hoarding, now and then.
Prominent Consumption Habits
People adopt or depict multiple attitudes towards money management. We may categorize them into four styles – Miser, Moderate, Lavish, and Generous. Moderate and generous life styles are positive or constructive while miser and lavish life styles are negative or destructive. Moderation and generosity promotes stability and growth, while misery or lavishness promotes volatility and decline. A moderate person spends according to available means and maintains cash reserves, generous person spends on others and maintains moral courage, miser spends only on inevitable needs, and lavish spends according to lust/brain impulse. A better Money Management gives stability to individuals during some money crises and growth during normal time.
Some Practical Mistakes during Saving/Spending
An effective money manger defines her spending demands as needs or important, facility or less important, aesthetics or least important, luxury or unimportant. In addition, an effective money manager adopts some prudential financial techniques to attain maximum benefits such as precise income-expenditure assessment, priority setting of life goals, financial planning, rational execution of plan, and finally evaluation & adjustments. Practically, the saving or spending decisions may be incorrect due to some false assumptions or wrong expectations or crude guesstimates or momentary mistakes. The prominent mistakes are:
No Cash Reserves.
Inappropriate Use of Credit.
Non-Constructive Use of Windfalls/Bonuses.
No Provisions for Large Yearly Expenses (e.g., Tax Payments).
Underestimating the Cost of Ownership (e.g., Car & House)
Spending Leakages (e.g., Impulse Buying).
Non-Economical Shopping. (e.g., Small Shopping)
Careless attitude on Small Savings
Casual behaviour on Small Spending.
Money Management and Entrepreneurship
Maximization Principle is inevitable for life struggle; both individual as well as collective. An individual effort is, normally, towards maximization of personal ambitions. For example, an entrepreneur wants to maximize profit, a consumer wants to maximize satisfaction, a philanthropist wants to maximize public welfare, a politician wants to maximize statutory powers, a worker wants to maximize productivity, and so on and so forth. The institutional efforts are, too, towards maximization of something. Institutions have certain goals & objectives and pursue its maximum actualization. The individual efforts towards maximization is sometime self-contradictory or inconsistent with working environ, consequently a failure is realized. Leadership/Entrepreneurship is needed to avoid inconsistencies for better performance. A productive use of resources is essential for better institutional performance. Wrong usage of resources creates leakages; a leakage produces less than optimal results on entrepreneurial efforts.
Crises Management is essential aspect of any entrepreneurial struggle. It is required to prevent crises or to manage crises amicably. Crises Management guides how threats are converted into opportunities, how weaknesses can be made irrelevant, and how strengths are used optimally. Liquidity Crunch is expected phenomena of business life. Liquidity or cash-in-hand fulfils countless requirements of entrepreneur. Liquidity crunch creates conditions of urgency at institutional level, it demands courageous and non-egoist position by entrepreneur. Courage means pragmatic approach towards threats and weakness, while the non-egoist stand means realistic approach towards opportunities and strengths. Moreover, liquidity crunches leads towards urgent sale of marketable item for ready cash. An urgent sale is generally a wrong sale. It is noteworthy that urgent efforts normally rectify the mistakes of others.
Income from profits, windfalls, and gifts is personal income of entrepreneur that can be consumed or saved. A volatile earning disturbs one’s life pattern. A volatile earning of entrepreneur is outcome of multiple reasons such as non-optimal spending pattern, wrong time management, miscommunication or wrong dealing, and low morale during socio-economic interactions.