What is Finance? [Definition and Concept]

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Do you have problems with your finances? For a large part of the population, talking about money is a big challenge, since they do not always have the necessary preparation to face the economic changes that occur every day.

Therefore, it is important to have a basic knowledge about finances; Knowing what they are, what they are for and how we can handle them in our daily lives could make a difference in our economy.

Definition of finance

Some people see it as an art, others as a science, but what is finance? Most of us have heard about them and we know they are important, but do we really know their definition?

The more compact meaning of finances refers to these as a set of activities that are related to money or, well, as a set of goods that a person has, specifically, money.

One of the most important definitions of finance puts it as a concept under which the management of large sums of money works, referring specifically to the amounts that are managed in governments or in the most successful companies.

Likewise, finances are also defined as the management of activities related to money, such as investments, loans, credits, the establishment of budgets, savings and future projections.

What are finances for?

Finance characteristics

Types of finance

There are three main types of finance:

  1. Personal finances
  2. Corporate finance
  3. Public or government finances
Double exposure of graphs and rows of coins for financial and business concept
Photo: Shutterstock

Personal

Personal finance focuses on planning and analyzing the financial situation of an individual; From these, a financial situation can be predicted in the short, medium and long term, in addition to drawing up an action plan so that the individual can get the best out of the capital they have.

Of course, personal finances depend almost entirely on a person’s income, his budget to cover his personal expenses, lifestyle and the plans he has for his future.

Personal finance focuses on issues such as access to financial goods or services, such as credit cards, life, health or home insurance, and savings plans.

For example in USA A fundamental part of personal finances are financial savings and retirement plans such as IRAs and 401 (k).

Public

Public finances are in charge of the federal governments. These have the main task of managing the distribution of financial resources to guarantee the stability of the economy.

Federal governments are also responsible for sending financial aid to local governments; for this, they benefit from fees charged from airport services, navigation ports or other establishments. Government-imposed fines also represent an important source of revenue.

Corporate

When it comes to finance, many people assume that it corresponds entirely to the corporate world; However, this is only one area in which it is possible to project an economic situation in the short, medium and long term.

The way in which corporations obtain financing is through investments or credits; perhaps one of the greatest benefits available to them is bank loans, through which they can expand their operations and generate more capital to achieve their financial goals.

International

International finance, as its name implies, focuses on macroeconomics. It deals with the study of the way in which countries are related in the financial aspect, especially in the areas corresponding to foreign investment and variations in exchange rates.

Public

Public finances are in charge of the federal governments. These have the main task of managing the distribution of financial resources to guarantee the stability of the economy.

Federal governments are also responsible for sending financial aid to local governments; for this, they benefit from fees charged from airport services, navigation ports or other establishments. Government-imposed fines also represent an important source of revenue.

businessman working in a desk office with a calculator to calculate numbers, financial accounting concept
Photo: Shutterstock

Importance of finance

Why are finances so important?

  1. Because they allow establishing an action plan to provide economic stability to governments, companies and individuals
  2. It is possible to monitor the inflows and outflows of money
  3. They promise the possibility of family financial stability
  4. They contribute to making the right investment decisions
  5. It is possible to save according to income, lifestyle and future plans
  6. It is possible to receive personalized advice for each type of user

Financial services

Next, you will be able to observe some financial services that stand out for their usefulness for federal, corporate or personal plans.

Banking

One of the main financial services come from banking institutions. These form the basis of the entire finance offering, especially in the area of ​​savings, loans and credit.

Internally, banks generate income by charging interest rates applied to loans and the services they offer.

Investments

Investments are generally made through the advice of an agent, although they can also be made independently.

These types of services can be used for individuals to obtain access to stocks or bonds; These are provided by agents or intermediaries, either in person or through personalized platforms, which allow the purchase and sale of securities.

Financial agents can provide their services by charging an annual fee or by obtaining a commission for the movements made.

Sure

Insurance is a basic part of financial services; be it health, home, auto or life insurance, financial education establishes that these represent a necessary good to guarantee people’s economic stability.

There are options for all kinds of needs: environmental damage insurance, fire insurance, auto insurance, life insurance, disability insurance, insurance against legal disputes, etc.

Advise

Specialized advice is a financial service that undoubtedly represents an important benefit for all kinds of needs; from financial advice for governments, for private companies and for individuals who want to start a path towards financial stability.

Hand doing finance and calculates on the desk about the cost in the home office.
Photo: Shutterstock

Financial careers

There are different types of careers related to finance; among these stand out:

  • The experts in financial planning
  • The corporate finance area
  • Commercial Bank
  • Investment advisers
  • Insurance specialist
  • Public accountants
  • Venture capital specialist
  • Real estate agent
  • Hedge fund manager

FAQs

What are the most important facts to know about finances? To get the most out of a budget, investment or any movement related to the economy, it is necessary to have the basic knowledge about the services that can be accessed to make this happen.

What is finance and what is it for?

Finance is an area specialized in handling any amount of money to establish an action plan that allows generating the highest possible income for a government, company or individual to achieve stability in the short, medium and long term.

Finance can be defined as the handling of large sums of money, especially when it comes to amounts that are handled by governments or the most successful companies.

At the same time, finance is also defined as the management of money-related activities, such as investments, loans, credits, budgeting, savings, and future projections.

What are the types of finances?

Finances can be divided into:

  1. Public finances
  2. Corporate finance
  3. Personal finance

Where can finance be applied?

Finances can be applied in all kinds of situations in which a person is involved with a specific amount of money; mainly in banks, investments and insurance.

Likewise, finance can be applied in areas such as:

  • Specialized financial planning, both short and long term
  • Corporate finance, focused on the financial well-being of a company
  • Commercial banking services: savings accounts, loans, credits, etc.
  • Advice for the investment and purchase of bonds or stocks
  • The specialization in insurance sales
  • Public accounting
  • Specialization in identifying venture capital
  • Services as a real estate agent
  • Hedge fund management

conclusion

Finance offers a specialized vision of the way in which the budget and income of a person or company should be properly managed; There are many different ways to ensure that an individual’s economy is favorable despite the passage of time or the adversities that may occur. Services such as health insurance, auto or life insurance represent an opportunity to maintain financial stability, while investments are a practice that aims to project a positive financial situation within a set period.

Without a doubt, it is an area that can make a difference in the economy of countries and, therefore, of the people who live in them.

 

Source: investopedia.com / blueshorefinancial.com

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