Finance is a broad term that describes activities associated with banking, debt, credit, capital markets, funds, and investments. Finance represents money management and the process of acquiring needed funds, and it encompasses the oversight, creation, and study of all the elements that make up financial systems and services.Read more about FinanceMany of the basic concepts in finance originate from micro-economic and macro-economic theories, and these theories have gone a long way to shape the systems upon which many financial structures operate.However, individuals, businesses, and government entities all need funding to operate.The finance field includes three main areas:
PERSONAL FINANCE
Personal finance deals primarily with family budgets, the investment of personal savings, the use of consumer credit and individuals typically obtain mortgages from commercial banks, savings and loan associations to purchase their homes, also financing for the purchase of consumer durable goods such as automobiles, appliances, can be obtained from banks and finance companies. Charge accounts and credit cards are other important means by which banks and businesses extend short-term credit to consumers. If individuals need to consolidate their debts or borrow cash in an emergency, small cash loans can be obtained at banks, credit unions, or finance companies. Therefore, it is specific to an individual’s situation and range of activities from purchasing financial products such as credit cards, insurance, mortgages to various types of investments, and these financial strategies depend largely on the person’s earnings, living requirements, goals, and desires.For example, individuals must save for retirement, which requires saving or investing enough money during their working lives to fund their long-term plans. This type of financial management decision falls under personal finance.Personal banking is also considered a component of personal finance, because individuals use checking and savings accounts as well as online or mobile payment services such as PayPal and Venmo.The most important aspects of personal finance include:
Assessing the current financial status: expected cash flow and current savings
Buying insurance to protect against risk and to ensure one’s material standing is secure
Calculating and filing taxes
Savings and investments
Retirement planning
Sign up to the Connect Nigeria daily newsletter2. CORPORATE FINANCECorporate finance refers to the financial activities related to running a corporation, usually within a division or department set up to oversee those financial activities, and also it can be seen when businesses obtain finance through a variety of means, ranging from equity investments to credits arrangements. A firm might take out a loan from a bank or arrange for a line of credit. Acquiring and managing debt properly can help a company expand and become more profitable.Corporate finance can be seen when a large company may have to decide whether to raise additional funds through a bond issue or stock offering, and investment banks may advise the firm on such considerations and help it market the securities.Startups may receive capital from angel investors or venture capitalists in exchange for a percentage of ownership. If a company thrives and decides to go public, it will issue shares on a stock exchange through an initial public offering (IPO) to raise cash.In other cases, a company might be trying to budget its capital and decide which projects to finance and which project to put on hold in order to grow the company. All these types of decisions fall under corporate finance.
PUBLIC FINANCE
Public finance includes taxing, spending, budgeting, and debt-issuance policies that affects how a government pays for the services it provides to the public. This is a part of fiscal policy that helps the federal and state governments to prevent market failure by overseeing the allocation of resources, distribution of income, and stabilization of the economy. Regular funding for these is secured mostly through taxation and also borrowing from banks, insurance companies and other governments, and earning dividends from its companies also help finance government spending.Other sources of public finance include user charges from ports, airport services, and other facilities; fines resulting from breaking laws; revenues from licenses and fees, such as for driving; and sales of government securities and bond issues.Featured image source: Connect NigeriaGot something you want to read about on our platform? Contact us: editor@connectnigeria.com
