Finance is something we know very well. There is no need to be autonomous, have an SME or a large company to understand that this concept is present in the day-to-day life of any person and / or family. And it is that today managing what you earn and what you spend is essential, especially to make ends meet.
But What is finance? Is it the same as accounting? And what type of finances exist? All these doubts, and a few more, is what we are going to discuss in this article today.
What are finances
According to the RAE, finances are conceptualized as "Obligation that someone assumes to respond to the obligation of another person." However, among the other meanings it offers, we have that of "Flows, goods", which is how we commonly know it. In reality, finances can be defined as a part of the economy that is responsible for studying money and capital markets, as well as the institutions that work in them, and its objective is to develop policies to attract resources. In other words, we are talking about the science that studies how to create, develop and manage the money you have.
It not only focuses on the ways to obtain money (income, salary, etc.) but also takes care of saving and investment, proposing plans to make everything profitable.
The difference between finance and economics
That said, it is clear that finance is one thing and economics another. We could say that finance is a small part of everything that is included in the economy.
While economics has a broad approach to different disciplines, because it focuses on seeing how to satisfy the needs of people through economic production; finance has just a more money-centric approach.
Finance vs accounting
Now, there are many who confuse two concepts that a priori could be considered the same, but in reality it is not like that. We talk about finance and accounting. What do you think they are the same right now?
Well, the truth is that it is not like that. They are two similar concepts, but at the same time very different. To give you an idea, we have:
- Accounting: Accounting is a discipline that encompasses the rules and procedures for ordering, analyzing and cataloging economic and financial operations. Or, in other words, we are talking about the way in which financial and economic operations are collected, analyzed and ordered.
- Finance: Finance itself is more important than accounting, because it is up to this discipline to make decisions about money, whether it is to invest, save, spend or seek plans to obtain more financing.
In other words, accounting is part of finance, since without it, finance could not be carried out.
Features
Once you are clear about the concept, and especially the difference between finance, economics and accounting, the next step is to know what characterizes finance to strengthen your knowledge. In this case, we are talking about the following:
- Your goal is to manage money. But also capital goods. That is to say, it not only deals with managing the money you have, but also savings, investments, loans ... Both what you have and what you have to take into account for finances.
- Handles specific concepts. We talk about financial and economic terminology: benefits, interest rate, risk, investment costs ...
- Help improve money management. By knowing perfectly what you have, what you owe and where you want to go, the decisions made by finances seek to achieve that objective and, with it, improve the economic situation. That is why they are so important to businesses as well as to families and individuals.
- They are helped by other disciplines. In fact, you have already seen that accounting is closely related to finances, but also economics, statistics, probability ...
What are finances for?
It is clear that finances are present in our day to day. It is a way of showing people, and companies, what they have, what they owe and what they can do with their benefits or with their debts, in such a way that they seek to obtain the best result, and the most appropriate resources , so that the economy (whether of a person, a family or a company) takes its course.
Therefore, a waste, bad investment, or poor financial decisions can have negative repercussions (to the point of going to ruin), which is why you can not leave this to your free will, but have a head not to spend more than what you have, nor to leave savings without movement because they could give great benefits .
Types of finance
Finally, you should know that finances can be divided into four broad groups.
Corporate finance
They are those that focus on companies. That is, what they are looking for is study how to obtain, manage and use the economic resources of a company. For example, they can decide in which projects or products to invest, in how to divide the profits, or in how to obtain sources of financing to carry the company forward.
Finanzas person biennial
These are the best known, since we apply them daily individually and as a family. We refer to those that study how to obtain resources and how to manage them. And it would not only encompass the economic issue, but also the labor and training, since depending on the career or profession, as well as the job that one has, the decision-making will be different, including investment and savings.
Public
Public finance refers to analysis and management of all financial and economic resources that state institutions have.
That is, how to obtain resources through taxes, how to invest money in projects; how to redistribute resources as well as profits, etc.
International
These refer to international transactions, mainly focused on companies that work exporting or importing, or buying and selling abroad.
They must be very aware of currency exchange fluctuations, profitability, a country's indebtedness, as well as the risks that may arise from these transactions.