What is finance?

There are a variety of definitions of finance but they can be summarized to state that finance is the study of money its value and its management. It can also be used to mean activities that people employ to acquire needed funds and this is where the term financing comes in. Finance studies will involve understanding the development of money, how to make sound investments and the need to do so, how to manage money and make decisions, banking, liabilities, assets, credit and risks involved in money transactions.

Money can be valued in terms of time this is because its value today may not be the same tomorrow it either appreciates or depreciates. This necessitates the study of finance which can be categories into three areas which are corporate finance, personal finance and public finance.

Corporate finance

This is the provision of funds for corporate operations and the financial system within a corporation. It begins with investment where a company determines which ventures to pursue. Secondly, financing which determines where the money to fund the ventures will be obtained. Thirdly, dividends which are based on whether the company will plough back profits to the business or distribute it to the shareholders.

Personal finance

This is basically how an individual plans their finance system and decisions they make on their finances. Individuals may assess the need to save for their future in order to earn pensions and so on, issues of investment, credit and an individuals’ credit worth, tax and how it affects an individual’s finances, insurance, estate management after ones death are all issues addressed through personal finance. Personal finance is geared toward enabling individuals make sound financial choices in terms of the above mentioned.

Public finance

This is finance with regards to public societies and institutions such municipalities and public hospitals. It involves the assessment of financial needs with regards to public institutions, where funds to finance these needs will come from and the risks involved in financing these need. The central bank in a country is also a major player in decisions regarding public finance and in most cases it lends the funds to be used in fulfilling the needs of the public societies and institutions.