What's Finance precious ?

What's Finance precious ?

We hear the word finance everyday in our life and in many different contexts and situations. But what is exactly finance and how is it helping us to shape the modern world?

The term finance means the possession and management of an amount of money in various ways that fulfill the goals of the manager or the person that in behalf of whom the manager works.

Although this sounds a very corporate thing, finance is further splitted in 3 main categories: personal finance, corporate finance and government/public finance. As it is shown, finance exists wherever money exists, and for sure in the modern world, money exists everywhere.

It's true that Finance is a broad field that includes many different areas of expertise. The main fields will be mentioned by name, although there will be other articles to deep dive into them.

  1. Accounting : tracking and analyzing financial information.
  2. Economics : studying how societies allocate their funds to meet their needs.
  3. Banking : provision of services such as bank accounts, loans, credit/debit cards.
  4. Investments : buying and selling of securities such as stocks and bonds.
  5. Risk Management : identifying, analyzing and finding ways to mitigate risk.
  6. Financial Planning : planning, budgeting and monitoring financial progress.
  7. Insurance : protection against unexpected financial losses.
  8. Real Estate : buying, managing and selling residential and commercial property.
  9. Corporate Finance : managing monetary resources and performing financial analysis.

The way of Finance.

Regardless of whether you, a company you love or the government you voted for manage the money in hand, there are some things that everyone of you is doing. These things are budgeting, saving, borrowing, lending, investing and forecasting. Both you, Apple and Joe Biden's Administration face everyday challenges about how much money to spend, where to spend it, how much of it to save for later, assumptions about how this future will look like and where to invest this money to let it grow.

Of course every situation is different, but everyone from a single mother to a small local grocery store to a technical giant company to a government needs to use financial thinking.


a. in Personal Finance: a plan that compares the amount a single person gets every month (/quarter/semester/year) with the expenses this person makes in the same period, such as rent, utilities costs, subscriptions etc. Although budgeting and forecasting is not the same thing, in Personal Finance they get pretty close. A person forecasts different scenarios, for example some emergency costs, which he/she can add to the budgeting plan.

b. in Corporate Finance: a Corporate Budgeting is the comparison of the estimated revenue that the company will generate with the expenses it will have in a specific time period. The goal of Corporate Budgeting (or Business Budgeting) is to help its management allocate its money available in a way that will help the company meet its running expenses and achieve better financial results. In Business Finance forecasting refers to the process of estimating future events and transactions and how these will affect the company's financial results. Examples of Corporate Financial Forecasting are the Sales Forecasting, the Financial Statements Forecasting and the Scenario Analysis (which includes tests about different scenarios outcomes).

c. in Government/Public Finance: the Government Budget is an integral part of the Government's values and goals. Through this Budget each Administration announces what income it expects from the citizens' taxation and how it will use these financial resources to improve its people's lives. This type of budget includes the government's opinions about tax rates, fiscal policies and financial management. In Government/Public Finance forecasting helps the administration come up with estimation about the amount of taxes, Gross Domestic Product (GDP) growth and Scenario Analysis.


a. in Personal Finance: as it says is the process of saving some amount of money, usually in a bank deposits account, for later use. In general there are three types of decisions a person can take when it comes to her/his money. 1) paying for necessities, 2) paying for recreation and entertainment , 3) saving the money for later. Here there are many different "rules" that many people follow like the 50%/30%/20% rule, where a person spends 50% of their income on must have items such as food or rent, 30% of it for entertainment purposes such as shopping and traveling and 20% of it in savings. Another famous movement about spending is the F.I.R.E., which stands for Financial Independence, Retire Early and focuses on extreme saving plans in order to retire at a young age.

b. in Corporate Finance: is the amount that the company sets aside from its earnings after it has paid off its expenses. This money can be used in future in case the company is unable to meet its obligations, pay its dividends or be invested to generate more money. So it is very important that the management considers carefully how to allocate these funds.

c. in Government/Public Finance: the governments manage their income, which most of it comes from taxes, in a way that can save some public money for the future. The policies and the savings that previous governments have made can help a country overcome difficulties that may occur during a recession. Additionally, these savings can reduce the country's dependence on outside borrowing and boost its financial stability. For example, many countries during the Covid-19 pandemic managed to perform better than others because they were depending on their own savings, rather than asking for borrowing or printing more money and thus increasing inflation.


a. in Personal Finance: happens when someone borrows from a bank or a friend or lends to a bank or a friend. Citizens' deposit accounts on banks is similar to lending money to a friend. These deposits are an obligation to the bank, as it takes that money and borrows it elsewhere in order to make money through interest differences. The fall of Silicon Valley Bank (SVB) is such an example, where too many people/companies asked for their deposits back, while the bank didn't have this huge amount of liquidity to support these withdrawals.

b. in Corporate Finance: companies can borrow money through two main ways. The first one is borrowing from external sources, which is mostly loans from financial institutions or funds, and the second internal one is by issuing and selling shares of the company. On the other hand companies can also lend money to customers (by giving trade credit), to suppliers (by pre-paying for goods and services) and to employees (by employees' loans), but one of the most common is by issuing corporate bonds and claiming interest payments.

c. in Government/Public Finance: the primary vehicle for government's borrowing and lending is the buying and selling of bonds. Government bonds are low-risk investments that let the buyer reclaim his principal plus an interest when the bond matures after a specific time period. Instead, the government takes this initial capital and can spend it to exercise its fiscal policies. Other types of government borrowing is through large banks and global organizations such as the European Central Bank (ECB) and the International Monetary Fund (IMF). On the other hand other ways of lending is to give government grants and allowances to banks, businesses and citizens.


a. in Personal Finance: is not like investing in yourself as a human being, for example reading books or going to the gym or relaxing, but investing monetary resources in order to grow your wealth in the future. This includes investments in Stock Market, in Bond Market, in Real - Estate, in Private-Equity and other financial assets that will generate more personal wealth.

b. in Corporate Finance: investments are mostly about capital expenditures (long-term assets such as equipment,technologies and property), research and development (exploring new technologies, developing new products, improving existing products or services), mergers and acquisitions with/of other companies and investments in securities (stocks,bonds etc).

c. in Government/Public Finance: as governments are a non-profit structure and promote its citizens' well-being, the goal of investments in Government/Public Finance focuses on improving infrastructure, public education, public healthcare, research and development and social programs. So investing in a country-level perspective is the development and improvement of things that will boost future economic growth, the amount and the quality of jobs and result in better public services provided.

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