3 Major Finance Types
To be financially strong and independent, understanding finance is very important. Finance is a broad term that deals with money management. To understand finance and its types, we must first understand finance.
What is Finance All About?
Finance is all about managing and allocating money. At a basic level, the problem arises with how to allocate the money. Choices are many: Money can be lent, borrowed, or saved, or it can be invested in projects or the market itself. Finance also includes budgeting and forecasting. Finance is about how best to decide what to do with your money.
Since Finance is a broad term, it is majorly divided into 3 different types:
- Personal Finance
- Corporate Finance
- Public Finance
Let's discuss them in brief.
Personal Finance
Explanation:
Personal finance includes budgeting, investments, banking, insurance, tax, expenses after retirement, etc. It majorly includes the industry that helps individuals manage their money and plan for the future.
Personal finance includes investments in education, real estate, health expenses, and many more. Personal finance helps an individual prepare for retirement, paying for a loan or debt, Investments and wealth accumulation goals, etc.
Example:
Corporate Finance
Explanation:
Corporate finance deals with an organization's finances. It is important in every business. It includes the financial decisions of a corporation, such as raising funds, investments, capital structuring, accounting, and distributing dividends among the shareholders. These decisions aim to maximize shareholder value. Corporate finance also includes the study of the financial market, financial institutions, and how they interact with each other.
Example:
A Company decides whether to invest in a new factory or equipment. Another example is a company deciding to raise its capital by issuing and selling stock shares to the public through an (IPO).
Public Finance
Explanation:
Public finance is the study of managing a country's economy. It is a branch of economics that deals with the government's expenditures and income and how they affect the economy and society as a whole. It includes the government's budget, public debt, taxation, and other public policy issues. The country's revenue comes from its various ROI, taxes, and other revenue streams.
Public finance is concerned with how the government spends the revenue they had generated on things like infrastructure, social programs, and public goods and services.
Example:
The government decided to increase tobacco product taxes to discourage smoking and generate revenue to fund public health programs.
Additionally, there are some other types of finance, such as social and behavioural finance. But on a basic level, these three are the major types of finances.
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