What is 'Finance'
Finance describes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments. Some people prefer to divide finance into three distinct categories: public finance, corporate finance and personal finance. Additionally, the study of behavioral finance aims to learn about the more "human" side of a science considered by most to be highly mathematical.
BREAKING DOWN 'Finance'Public finance includes tax systems, government expenditures, budget procedures, stabilization instruments, debt issues and other government concerns. Corporate finance involves managing assets and debt for a business. Personal finance includes proper management of an individual’s income and expenses so enough money is left over for savings.
The government helps prevent market failure by overseeing allocation of resources, distribution of income and stabilization of the economy. Regular funding for these programs is secured mostly through taxation. Borrowing from banks, insurance companies and governments; receiving grants and aid; and earning dividends from its companies also help finance the government. In addition, user charges from ports, airport services and other facilities; fines resulting from breaking laws; revenues from licenses and fees, such as for driving; and sales of government securities are also sources of public finance.
Businesses bring in financing through equity investments and credit arrangements, and by purchasing securities. Startups may receive investments from angel investors or venture capitalists, and established companies may sell stocks or bonds. Businesses may purchase dividend-paying stocks, blue-chip bonds or interest-bearing bank deposits. Acquiring and managing debt properly can help a company expand and become more profitable.
Earning more money and spending less money is the basis of personal finance. Individuals may earn more money by starting a business, taking on additional jobs or investing. Spending less money can be done by deciding whether what is being purchased is truly worth the price being paid. For example, instead of purchasing coffee every day from a cafe, a person can buy bags of coffee at a grocery store and make the coffee at home for much less money.
Paying off debt and establishing an emergency fund are also important parts of personal finance. Having at least six months’ income set aside in case of a job loss, medical issue, car accident or other large expense helps a person pay cash for expenses rather than charging them and gaining more debt.
Saving for retirement is also important. People need enough money set aside to live on when they decide to stop working and enjoy the freedom of choosing to do what makes them happy.
Example of Finance
In July 2016, newspaper publishing company Gannett reported net income for the second quarter of $12.3 million, down 77% from $53.3 million during the same quarter in 2015. However, due to acquisitions of North Jersey Media Group and Journal Media Group in 2015, Gannett reported substantially greater circulation numbers in 2016, resulting in a 3% increase in total revenue to $748.8 million for the second quarter.