What Is Finance – A Complete Guide In 2021

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Finance

We need money literally for everything, and it’s hard to live a stable life without proper money management. No matter what you do, it’s important to know how money works and what financial tools, processes, options available at your disposal to become financially secure. 

With that in mind, I have explained the basics of financial management that will help you grasp different aspects of finance. Here you will learn about different types of finance, financial services, and financial activities. 

Finance Definition

Finance is a broad term and involves different financial activities, including banking, investing, taxation, and more. Typically, it includes the process of wealth creation and management of money.  Many basic concepts of finance come from the theories of economics.

Some people also ask whether finance is arts or science. The simple answer is it’s both. It’s a science because it involves various scientific areas such as mathematics and statics. Moreover, some financial theories also include some scientific formulas. 

On the other hand, finance also involves many non-scientific elements. Since human emotions play an important role in making financial decisions, it’s also an art. While many financial theories heavily rely on various statistical models and mathematical formulas, many successful investors have shown that finance is not entirely scientific. 

Types Of Finance 

Now that you have got some idea about finance let’s dive deep into its categories. There are broadly three categories of finance, but it’s not just limited to these following: 

  • Personal Finance
  • Corporate Finance
  • Public Finance

As an individual, everyone should learn about personal finance. Additionally, if you run a business or a part of the government, you should also understand corporate and public finance. Apart from that, there are some other categories such as social finance, behavioral finance, etc. However, we will only discuss the three main categories. 

  • Personal Finance

Personal Finance

Personal finance helps individuals to plan for their future needs and desires. It helps them to manage their money properly and save for their financial needs. So, individuals use different strategies to ensure that they have enough money to fulfill their short-term and long-term goals. 

An individual should be aware of his/her financial situation and plan accordingly to live a secure and stable life. While planning for personal finance, individuals need to consider different factors such as total earnings from various income sources, expenses, and financial liabilities. It will help them to choose the right financial tools, investment assets and manage their money properly. 

So, if you are struggling to pay your bills on time and don’t have much savings for your future, you should learn about personal finance. Also, consider consulting a financial advisor who can help you understand your financial situation and advise you accordingly. 

  • Corporate Finance

Corporate Finance

Corporate finance is a broader concept than personal finance. It refers to the financial activities of a business or corporation. Almost every organization has a separate department to oversee various financial activities of their company. 

Companies have financial specialists who advise them in different aspects of the business. Some businesses also take advice from financial institutions or firms to help them in crucial financial decisions. Let’s understand it through a simple example. 

Assume that a large company wants to raise funds for a project. So, the financial head of the company may decide to consult an investment bank whether to raise capital by offering their share through a stock exchange. Startups may also take money from venture capitalists or angel investors by exchanging some percentage of ownership. 

In a nutshell, corporate finance is a term related to the management of the financial activities of a business. If you want to start a business, you should learn about it. Next, we will understand public finance.

  • Public Finance

Public Finance

Public finance refers to various activities such as tax, budget, debt issuance of an economy. The government handles all the aspects of finance of the country for offering services to the public. 

Governments oversee the economy of a country by allocating funds for different activities to ensure economic stability. The federal government collects tax from the public as the primary funding to manage the financial activities of a country. 

Apart from day-to-day financial activities, the government is also responsible for society. A government should conduct different social programs to ensure that the citizens are financially stable and secure. 

Financial Services

Financial services refer to the activities of the transfer of money between consumers and businesses. It’s useful for the exchange of goods and services. In order to ensure that all financial transactions are secure and safe, payment systems offer different secure methods such as credit cards, debit cards, online payment gateways, check deposits, etc. 

Banks are the main organizations that provide various financial services to the public. Apart from banks, financial institutions, firms, insurance companies also provide different financial services. 

When the financial services of an economy are strong, it improves the purchasing power and confidence of the consumers. It also helps the countries to grow and maintain economic stability. 

Financial Activities

Before wrapping up this article, let’s understand financial activities. These are the transactions and initiatives that individuals, businesses, and governments conduct for their economic needs and goals. The activities include buying, selling, lending, issuing stocks, collecting taxes, etc. 

Individuals involved in different financial activities such as making payments for their regular expenses, purchasing investment assets, paying taxes, etc. While businesses receive payments from consumers, issuing shares of their company, etc. Governments are involved in different financial activities such as collecting taxes, taking loans from other nations, etc. 

In Summary

I hope the article has helped you to get some insights into finance. No doubt, you need to learn about personal finance as an individual to manage your money. Additionally, you should also understand about different financial activities of a business and the government. You can also learn more about other types of finance if you belong to the financial field. Lastly, don’t forget to share your views and queries in the comment section.

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