Finance in a Nutshell
How would you explain finance to a child? Maybe something like finance is the management of money.
While this is totally true, it isn’t really the end of the story.
Let’s add some activities like investing, budgeting, and analyzing financial data for decision-making in the world. Add mergers & acquisitions, add markets, currencies, Real Estate, and more. While we are explaining all those components in separate blogs, let’s outline three major rubrics in finance.
Personal Finance deals with, who would’ve thought, individual or household finances. We’re talking budgeting, saving, investing, and planning for retirement, as well as making decisions about mortgages, loans, insurance, and other personal financial matters.It can get pretty rough sometimes and we may underestimate our budget more than we think (more about this in our Personal Finance blog).
Corporate Finance deals more with financial decisions made by businesses and organizations. It involves capital budgeting, (mostly regarded to investment decisions), capital structure (how to finance investments), and working capital management (managing day-to-day finances). Corporate finance also includes financial analysis, valuation, and risk management. See, this is what you learn in school but doesn’t really help your personal life unless you want to get into corporate finance one day.
Public finance is based on financial activities of governments and public institutions. That, again, involves budgeting, taxation, public expenditures, public debt management, and policies related to revenue generation and expenditure allocation.
We believe that the primary objectives of finance are to maximize wealth and value for individuals, businesses, and organizations. Because, at the end of the day, everything involves money.
How do we get there? – Education
Nobody gets rich overnight or out of the blue. But anyone can be if they wanted to. Growing financial wealth involves making decisions about how to raise money. How do we invest it, and how do we manage and control financial resources? How do we generate returns and mitigate risks? Those are questions we can look up, if we just take the time.
Don’t underestimate the power of education as it’s available everywhere. If you want to know more about financial wellness or the overall concept of finance, go online, read a book, read the news, study markets. Nowadays, information is one Google-search away. Whether it’s personal, corporate, or public finance, the principles of long-term wealth stay the same.
There is WAY more!
Finance is a system and its components work together at all times, which makes the industry extremely broad. Other attributes that you should know involve business law, accounting, and tax systems. Based on the fact that every state and every country outside of the U.S. has their own tax rules as well as laws, it is very challenging to provide detailed information about either of them. Be aware of the laws in your state or country, and let a financial expert explain those components to you.
Disclaimer: This content is for informational purposes only and is not intended as financial advice. We try to provide accurate information on personal finance and investing, but it may not apply directly to your individual situation. We are not financial advisors and we recommend you consult with a financial professional before making any serious financial decisions. There are risks associated with any investment which include but are not limited to stocks, bonds, currencies, cryptocurrencies, as well as any other market or investment vehicle. For more Terms, click here.