Finance is a broad field that encompasses the management of money flows, assets, and liabilities. The term “finance” covers all operations involving the acquisition, retention, investment, and expenditure of funds to maximize profit or achieve other financial goals. It can also be used synonymously with funds or money, though this is not entirely accurate, as finance includes not only physical but also digital assets, which are not always expressed in cash equivalents. This field enables individuals and legal entities to use money to achieve set financial goals, efficiently plan budgets, and manage their assets.

Types of Finance

Finance can generally be divided into two major categories: personal and corporate. Personal finance involves managing money within an individual or family budget. It includes capital growth, expenditure, debt management, financial planning, and accumulation, all within the framework of meeting personal needs and achieving individual goals.

Corporate finance is a vast field that involves managing a company’s money. This includes planning how to raise funds (such as through selling shares or taking loans), spend those funds (such as on new equipment), and ensure that the company remains profitable.

Finance in the context of the state and international relations should also be highlighted. This macroeconomic system involves regulation, asset distribution, planning, and more but on the scale of an entire country or even international organizations like the International Monetary Fund and similar institutions.

A Closer Look

Personal finance is managing an individual’s or family’s assets (money and other assets). This process includes planning expenditures, saving money for the future, investing (putting money into ventures to earn more), managing loans, saving for children’s college education, or creating retirement savings.

Budgeting is a process in financial management that includes analyzing available assets and planning their efficient allocation toward expenditures, investments, and savings.

Savings are funds for unforeseen situations, such as purchasing large, expensive, and important items, vacations, education, and retirement. There are also insurance savings.

Investments involve putting money into ventures to earn more in the future.

Debt management is the process of planning loans or repaying existing debts. It involves allocating personal or corporate funds so that all mandatory payments are made on time, and the principal of the loan is paid off within the stipulated period or earlier.

Retirement planning involves personal pension funds that allow individuals to accumulate funds that can be used in old age, ensuring financial stability in the event of loss of work capacity.

Fundraising pertains to the commercial sector. It is necessary to attract additional investor funds for the development and profitability of the enterprise.

Capital budgeting refers to creating a plan for covering significant company expenses, such as opening new offices or purchasing new equipment.

Dividend payment is the process of determining a certain amount of the company’s total profit to be distributed among shareholders. Dividends are paid only if a portion of the finances remains within the company for its further development.

The key goal of financial management is to achieve the primary objectives: liquidity, profitability, risk minimization, and asset value growth. Thus, any person, business, or even state should manage financial flows to achieve this comprehensive goal: work with liquid assets that can be quickly converted into money, earn income from investments, strive to minimize all potential risks, and aim to increase the value of existing assets, regardless of their type.