Finance is the management process of money and includes activities like investing, borrowing, lending, budgeting, saving, and forecasting. Three main types of finance are personal, corporate, and public/government.
According to E.W. Walker, “Activities of a business concern relevant to financial planning, coordinating, control and their application is called finance.”
What is Finance?
Finance studies how people use money, how money is used in the economy, and how money is invested. It covers various topics, from personal finance to corporate finance and banking to investing. It is a broad field that includes everything from economics to accounting.
Finance is mainly divided into three categories:
- Public Finance
- Corporate Finance
- Personal Finance
Several more specific classifications, such as behavioral finance, aim to pinpoint financial decisions’ cognitive (e.g., emotional, social, and psychological) drivers.
Let discuss in brief what are three types of finance-
Personal finance is for managing your money and how you spend it or hold on to it. It’s about what you earn and how you manage your money, from budgeting to saving, borrowing, and investing.
The term “Corporate Finance” is the financing of a corporation’s activities through borrowing and investment. Primarily companies have two types of financing options equity financing and debt financing. Corporate finance is also concerned with maximizing shareholder value for short-term and long-term financial planning. Through this, you can implement various strategies.
The third type of finance is Public finance, the study of the role of the government in the economy. The branch of economics assesses the government revenue and expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones.
Why Use Finance?
Finance study is of utmost importance to the stability of economies, banking systems, financial markets, businesses, and individuals. The purpose of finance is to sustain, manage, invest, and grow money.
Without proper financial planning, businesses will become dormant as they may face a lack of capital for essential business operations. Without knowledge of finance, investment would be non-existent, and money would no longer be able to generate wealth. Overall barter system will make our life very original.
Where Do We Use Finance?
- For Individuals: Personal finance is an area that helps in financial management for individuals. These include budgeting, investment decisions, tax savings, and the creation of a financial corpus.
- For the public: Public finance covers the area where the government administers, manages, and implements monetary policy for the country’s citizens. The inflation rate, income tax, GST, bank rates, etc., are some examples of public finance.
- For Business: This area includes business finance. All financial decisions that affect and enhance an organization’s finances form a part of corporate finance. Most organizations have a dedicated finance department and a finance manager responsible for looking after the company’s financial affairs.
What is the Purpose of Finance?
In simple words: The purpose of finance is to help people save, manage, and raise money.
In the finance industry, the purpose of finance is not so straightforward. The purpose of many industries we know the auto industry manufactures cars is to bring us design choice, speed, and comfort. As well as we measure the success of these industries by how well they perform their functions.
Finance is the science of money management. The four primary goals of finance are:
- To manage an organization’s financial resources to ensure solvency and profitability.
- To raise capital for the organization’s operations and expansion.
- To fund the organization’s funds. Invests in a way that maximizes shareholder value.
- Manage the organization’s financial risks.
To achieve these goals, finance must perform four basic functions: (1) planning, (2) coordination, (3) control, and (4) decision-making. Finance should also ensure that the organization’s financial resources are used in a manner that is consistent with the organization’s overall objectives.
Professionals, as many seek purpose in life, in the broad sense, seek purpose in their work. The profession’s purpose is:
- A Goal
- A Reason for the work we do
- A Guide to decision and action
Learn more about “Finance”:
- What is Finance in Business
- Types of Finance
- What is Finance Management