Understanding The Term “Finance”

“Finance,” as we all know, is a hard nut to crack. For those who have never been to a business school, understanding finance must be hard. Most naive people might even consider the term finance a synonym of economics. Therefore, it is important to lay a perfect financial knowledge foundation by understanding this terminology.

Finance is a vast discipline. We will make this easy and understandable. Keep scrolling down to walk straight into this trap.

Setting Up the Trap (Key Points)

• Finance is a huge discipline with a significant share in many other disciplines.
• Finance is the use of money to pursue financial activities.
• There are three major types of finance. Personal Finance, Public Finance, Corporate Finance
• Finance and economics are relatable terminologies but are still different.
• Personal finance relates to the financial activities of a household.
• Public finance is the financial management of a country through a governmental system.
• Corporate finance is the financial keyholder of a corporate business or entity.

What Is Finance? – Understanding Finance

Finance is a discipline that relates to the study of money, capital assets, and currency. Every activity involving the utilization of money can simply be referred to as financial activity. Therefore, investing your money, buying stocks, selling shares, and raising capital fall in the category of finance.

Financial transactions define the core meaning of finance. You can also rename financial activities as financial transactions. There is a huge cache of subfields while understanding finance. Therefore, every financial activity itself depicts a discipline.

Are Finance and Economics Same?

Technically, finance and economics are the roots of the same tree. Therefore, people often fail to differentiate them. There is a strong relationship between finance and economics. You may not be able to define many aspects of fiscal discipline without involving economics. The same goes for the economics discipline.

Economics studies local and global markets in terms of products and services. In contrast, finance is a subject that relies entirely on money. The study of money-related activities forms the subject of finance. Economics is a parameter that defines the financial well-being of a country. On the other hand, finance is the combination of activities that have money involved.

What Are the Types of Finance?

Categorically, there are three types of finance. The level of complexity is different for every type of finance. Furthermore, the financial activities within a certain type of finance also differ. The bird’s eye view of different branches of finance is as follows:

Personal Finance – Understanding Finance

The financial management of a household or an individual is categorized as personal finance. Therefore, personal finance’s applicability is not as complex as the other branches. Some personal finance processes include managing the household’s budget, calculating expenditures, and assessing different financial situations.

Public Finance

Public finance is the financial management of a country. To make it easy, the United States Department of Treasury is an example of public finance. This department controls the expenditure, budget, financial assets, circular debt, and loans of the USA. Therefore, public finance is the financial powerhouse of a country.

Corporate Finance – Understanding Finance

Corporate finance is considered the most complex form of finance. It involves the financial management of a business or a company. Hence, it controls the processes like revenue, profit, loss, capital, loans, operating income, and much more to stabilize a business financially. Corporate finance management also plays a direct and indirect role in public finance.

Conclusion

Understanding finance is not a piece of cake, especially for those who do not have a financial background. However, the very easy definition of finance is that everything related to money management comes under the context of financial management.

Furthermore, there are three accepted types of finance. Personal finance, public finance, and corporate finance with all of them having different scopes. Managing the finance of your household is personal finance. Governmental finance management is called public finance. Corporate finance deals with the financial activities within a corporation.

Every type of finance has its ins and outs, with a different level of complexity. However, one must be able to differentiate between these different types of finance easily. Understanding finance will become easy once you have a firm grip on these basic terminologies.