Understanding Finances

Finance is a very broad term that encompasses many different things regarding the study, generation, and management of funds and assets. The world of finance has become quite competitive in recent years due to the internet, globalization, changes in tax rules and regulations, and new strategies for funding businesses and organizations. As such, professionals who work in finance are expected to be innovative, analytical thinkers with strong math skills.


Finance can be broken down into three different categories, including: banking, insurance, and investing. Banking, as everyone probably knows, is the process by which individuals and institutions borrow money to purchase goods and services. Interest on loans is the main source of revenue for banks. Some banking activities include: checking the customer’s bank account to ensure that funds are available when needed, transferring funds from one account to another, creating guarantees, and dealing with the public through banks. In addition, banking influences many other aspects of society such as setting interest rates, regulating the size of banks, insuring debt, and lending to businesses and individuals.

Investing, on the other hand, is the process of managing an individual’s wealth. Assets may be accumulated by using real estate, bonds, stocks, and/or mutual funds. Financing is the process by which businesses acquire capital to create new jobs, expand their operations, or make purchases. Business financing can include: borrowing money from banks to build existing facilities, receiving credit cards to make purchases, obtaining loan payments from customers to obtain machinery and equipment, and selling assets to raise funds for new ventures.

All three categories of financial management are necessary for sound financial health. However, some are far more important than others. Banking and investing, for example, are essential if you want to participate in the stock market. Without investments, your savings will most likely remain dormant. Therefore, financial management must include careful consideration of these three areas in order for investors and banks to make sound investments.

Business finance include analyzing market fluctuations, financial statements, budgeting and forecasting, evaluating investment strategies, determining appropriate taxes, and setting firm prices. The analysis portion of business finance involves the study of current financial situations and historical trends to ensure that the goals of the company can be achieved. Current financial issues include analyzing the impact of natural disasters such as hurricanes and tornadoes, economic recessions, fluctuations in equity prices, and changing consumer preferences. Business finance include the careful analysis of market fluctuations. This includes understanding inflation, deflation, employment trends, consumer spending, business cycles, government spending, and interest rates.

The third category of finance is that of social finance. Social finance includes assisting people in meeting their needs. These could be people who are struggling with low incomes, people who need assistance to purchase a home, or single parents who need help with child care. In addition, social programs also support people who are facing short-term hardships because of emergencies, illness, divorce, accidents, and similar circumstances. The major areas of social finance include the evaluation of assistance to achieve these objectives, and the provision of services that address the needs of the clients.