What is Finance – Definition & Types

What is Finance:- In general loan comes to your mind whenever you hear about Finance if you are not aware of finance. Like there would have been situations when you would have told your friends or siblings that you want to buy something. But, you are falling short of money, so you ask them to finance your purchase.

Finance is not just limited to credit, rather it is a broad and diversified concept. Let’s dive into our topic straight.

What is Finance:

Finance is a broad concept which includes various activities such as investing, borrowing, lending, leverage, saving, budgeting and forecasting. It is defined as management of money. In other words it encompasses the creation, oversight and study of money.

Accountancy Vs Finance:

Many a times, people use both terms interchangeably but, there is huge difference between both. Let us understand with comparison table.

After understanding difference between accounts and Finance let us continue with our topic.

Types of Finance:

1. Personal Finance: It refers to management of individual’s monetary resources and needs. It comprises of 5 key components i.e, income, savings, investments, spending decisions and assets production.

It also involve taking advantage of tax planning opportunities, generational wealth transfer and it’s goal is to make intelligent investment decisions so that one can build a safety net and meet their goals without taking on too many debs obligation. 

(all these components are managed by the person himself or he may consult to an financial advisor)

2. Corporate Finance: Each corporate/company has to manage their financial activities which includes budgeting of current capital, capital for future, funding and refinancing projects, and to ensure that assets of company have the best value possible in current market.

It also includes identifying the source of funding in the form of equity, shareholders fund, debenture etc. Risk management, tax consideration, acquisition and investment in stock or assets falls under it.

3. Public Finance: Like individual and corporate a government body must need to manage their finances to allocate their resources to different sectors in economy. Public finance is how federal, state and local institutions track revenue and manage expenses for all the services they provide to public.

Public finance mainly includes:

• Tax management

• Issuing debt for public projects

• The sources of revenue for the public entities.

• Determining the budget, budgeting process     and sources of funds.

• Identifying the expenditure required to be       done for public entity.

• Budgeting and budget allocation for   international trades, to control inflation etc.

We hope you have understood the the What is Finance. If you are having some doubt, you can comment below. Our previous blog was on the Economics , do read that too and don’t forget to share. TELEGRAM

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