What is Finance in Daily Life? Simple Examples and 3 Main Types Of Finance.

Oh, yeah here you are, in search of what is finance in daily life? Sure, you are landed at the right place; here we will discuss the concept of term finance and its main types in simple words with practical life examples. So let’s start with the definition of finance.

Finance Meaning

The term finance is all about “Money”. The art and science of managing money, includes the creation, spending, lending, saving, and investing of money.

If I am not wrong, it means that every one of you is a finance manager, right. You manage your money, you find the ways to produce money, when you acquire money then you find the ways to spend money, you allocate your money and you invest your money to increase your wealth.

Now we will discuss in brief the importance of finance in personal life and its main types. There are three main types of finance. When the money is managed by an individual then it’s called personal finance, and when money is managed by a company then it’s called corporate finance while the management of money resources by a state or Government of a country then it is named corporate or government finance.

Personal Finance in Daily Life

The term personal finance is concerned with a specific individual’s personal income and spending management. Personal finance deals with the management of the financial resources of a person. In everyday life, every one of us is involved in personal finance. We all earn money; spend money, save money, purchase financial products, e.g., insurance, credit cards, mortgages, and more, all this is personal finance. In this modern age, you cannot do anything without finance.

Practical Example: When you want to purchase a new car, you need money. Then you start finding ways to arrange money for your new car right. You may have many options, you can get a bank loan, you can borrow from your friends and relatives, you can use your savings, all this. Here in this case what you are going to do (purchase a new car) is Personal Finance and the whole process you are going through is personal financing.

Corporate (Business) Finance

As the name indicates that it is the management of financial resources of a company or business entity. As we know that a company has a separate legal entity just like a person, so that is the same thing as in personal finance but on a large scale. So the term corporate finance means how a company manages its financial affairs. How it raises funds for projects, how it generates income to fund all expenses.

Every company has a Finance Department, which is responsible to manage all the financial activities of the company, for example, issuing shares to raise business capital, managing assets, and liabilities, and managing cash flow, income and expenses.

Practical Example: When a company is going to start a new project, it needs funding. The company’s finance department makes proposals and financial plans to raise funds from donors. It presents the project proposal plan to financial institutions, which shows interest and makes fundings to get a return on their investment. So the company got funds to execute the project and donors will get the share profit or interest on their lending money; hence the whole process is called corporate financing.

Public (Government) Finance

It is the type of finance in which we study Government funding and spending activities. In simple words, it is just like personal finance and corporate finance but in a broader sense. It covers all the financial activities of a state or a country. Like corporate finance, public finance also has a special finance department or ministry which deals with the financial affairs of the state or country.

The Finance Ministry is responsible to generate the revenue, collecting the taxes for the state, and spend the money for the welfare of the people and state in the shape of, health, education, transport, and others.

Hope you understood that what is finance? And what are the three main types of finance in daily life? Share this article with your friends and relatives to spread the knowledge and don’t forget to leave your feedback as a comment. Thank you for your precious time.

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