What is finance?
Finance is closely related to accounting. It deals with assets allocation and all liabilities under the conditions of uncertainty and the certainty. At some level it also accepts the theory of economics. It can be defined as money management also. Time value of money is the key of the finance. It fixes a goal of price at their risk and rate of return is expected. It can be differentiate into three categories-
• personal finance
• public finance
• Corporate finance.
Paying for education, real estate, buying insurance, cars, property insurance, health insurance, saving for retirement these involve personal finance. It also involve debt obligation, paying for a loan.
It mainly examined by net worth and household cash flow of the loan taker. The balance sheet of the person’s is called as the net worth. It is mainly calculated by the adding all assets which are under that person. Next all liabilities of the household should be minus at the point of time. The household cash is all kind of sources of incomes is added of one year and the minus of all expenses from the same year. From all this the financial planner can get one idea what time the goals can be accomplished.
The income tax is the largest expense of the household. If we pay the tax at the correct time and the correct amount then it is not a big deal to manage. We can manage it very easily.
It is the ability to protect a household from risks is seen. It is mainly divided into property, disability, health, liability, death and long term care. Some of them are self insurable.
Accumulation goals and investment:
It is the Plan for making large amount of money for future investment like car purchase and other life events. It includes opening a business, education expenses, purchasing cars and house loans and saving for the requirements. The main problem of this plan is the price increment after a certain time. It is totally a risk. When we are planning to save the money, that time price we use to calculate. But after a certain time it increases. Then the problem rises. So it is better when we are planning for something in future we should increment the price level about 10 percent.
It is cost estimation about how much we need after our retirement to live our life and coming up with the plan to distribute the assets for any side income. This is called the retirement plans.
It is about after death the assets repositioning. One can leave one’s assets to family, friends or any charitable groups.
This is all about the personal finance.
Public finance is the sub national entities, agencies, related public entities like; provinces, municipalities, counties, school districts etc.
It is mainly concerned with budgeting process, the entity of public sector and the expenditure requirement, municipal bonds for the projects. In public finance some of the banks are very strong like United States, Federal Reverse System, United Kingdom, and Bank of England. They are very strong in credit conditions in economy.
Dealing with sources of funding and the capital of corporation; this is called the corporate finance. It mainly involves in profitability and balancing risk. It includes stock investing, scope business valuation, investment management. It overlaps with the accounting profession which is the financial function. It is the allocation of capital resources to increase a firm value to the shareholders. The corporate finance is totally depends on the risk management.