Everyone has a general idea of what finance is but ask them to define it and they will likely fumble and give a vague response. This article helps to demystify the topic and provide a quick guide to its basics.
What Is The Meaning Of Finance?
Finance can mean different things in different settings but generally, it is the generation, distribution, and management of large sums of money. To finance means to provide funds for a certain activity or product.
This involves the management of activities revolving around personal funds in order to achieve a long-term goal such as buying a home or retiring rich. The activities that fall under personal finance include maximizing personal income generation, conscious spending, savings and investments, debt management and capital protection.
Many people go through life without a plan for their financial success and perhaps this is why we have 1% of the population controlling most of the world’s resources. In order to have a comfortable future one must plan their money. The process of a successful personal financial plan starts with assessing where you currently are financially, setting goals for your future, developing an action plan to achieve your goals, executing the plan and then evaluation of your results to see whether the plan is working and adjusting the action plan if necessary.
Corporate finance is the management of corporate funds to ensure that the company achieves its goals. There are many activities that companies undertake in order to make profits and remain in business. These activities include the raising of equity, the creation measurement, and increase of a company’s value, distribution of company profits and management and disposal of company assets.
Finance is the lifeblood of a company’s existence as the main reason businesses exist is to make a profit or create value. Everyone in all levels of the business should have at least a basic awareness of how their company operates financially.
Public Finance is the process by which governments raise and distribute public funds in order to meet the needs of its population. The main components of government finance are tax collections, public spending, national debt, public deficit or surplus and annual national budget. When public funds are mismanaged through embezzlement or indiscriminate borrowing citizens suffer greatly leading to anarchy and failed states. Its is very important for citizens to have general knowledge or how public funds work so that they can make informed decisions when voting in leaders that will be in charge of managing these funds.
Why Is Money Important?
There is a common saying that money makes the world go around. We live in a capitalistic world whereby money is the main source of exchange therefore it is almost impossible to get by without money. Therefore finance, which is the skill of generating, spending, increasing and protecting personal funds, corporate funds or public funds is a valuable and necessary skill that everyone should possess.
Do you have any further questions about Finance? Drop them in the comments section below.