Everyone claims to know finance after watching 'The Wolf of Wall Street' but really, what is finance?
Finance can be essentially defined as a way to manage your money. It's comings and goings into and out of your bank account and the likes. Activities like investing, borrowing, lending, budgeting, saving,and forecasting.Broadly speaking, it is the management of money. Examples of some big finance companies are-Axis bank, State Bank of India,Reliance Capital,PTC India etc.
Three main types of money are:
1.Personal Finance
It involves taking into account an individual's current financial position and developing plans for his or her future requirements within the constraints.Personal finance is very personal.What I mean is, it differs from person to person and depends on a lot of factors like their current income, lifestyle, future goals etc.
When you want to go on a trip with your friends, what do you do? You save up money each month till you have collected enough to afford the trip.That is the essence of personal finance. It relates to any activity wherein you invest enough money for a period of time in order to fund your long term plans.The main areas of personal finance are income, spending, saving, investing, and protection.
2.Corporate Finance
It consists of financial activities required to run a company. Corporte finance is somewhat like personal finance except that it focuses on a company's requirement.Corporate finance depends on mainly what the company wants to achieve. It's activities range from capital investment decisions to investment banking.The purpose of corporate finance is to maximize shareholder’s value.
If you are a start up, your primary focus is getting enough funding.Now you could initially do this through angel investors where you get your money in exchange for a precentage of ownership. Once your start up starts doing well, you'll want to sell your shares on the stock market and go public to raise more money,this is an example of corporate finance.
The five basic corporate functions are financing(or capital raising), capital budgeting, financial management, corporate governance, and risk management.
3.Public Finance
It comprises of policies and the ways in which the government pays for the various services it provides to the public.The government has to ensure a stable economy by routinely checking on the distributions of resources and income.The goals of public finance are to recognize when, how and why the government should intervene in the current economy, and also understand the possible outcomes of making changes in the market.
Have you ever checked your restaurant bills? They contain a small 'tax' section.This tax is what helps the government with its funding. It's deducted from every working persons income to ensure they get adequate public services. Sometimes the government also borrows money from banks and other countries.
The government has to ensure that public finance is appropriate enough to ensure the smooth functioning of public services and at the same time,not to disrupt the economy.
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