What Does Finance Mean? Its History, Types, And Importance Explained.

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Finance – What is it?

Benjamin Franklin an American Polymath, who is known as the father of the United States Of America once stated: “Beware of little expenses, a small leak will sink a great ship”. Financial Management plays a crucial role to develop economic stability. Finance is a term used to describe the utilization and handling of money for various tasks. Channelizing of finance includes Investments, Savings, Budgeting, Assets, Liabilities, and so on.

Finance can be categorized into 3 parts – Personal Finance, Corporate Finance, and Public Finance. The growth and development of each sector, will not only contribute to the financial steadiness of a country but also to the Global market. So proper management of money in all fields is necessary. Otherwise, a financial crisis can happen.

But did money exist in the same format from ancient times? No there has been an evolution in the case of money also. And now money rules everywhere, it become a crucial component in day-to-day life. Jobs in the area of Finance and Risk Management are also arising. So In this blog, you will get to know about major aspects related to finance, the History of Finance, the Importance of Finance, and Types Of Finance.

History Of Finance

In a financial system the flow of money is studied, but when did the concept of money come into existence? It is said that the origin or importance of finance occurred when started. It was around 3000 BC. While discussing the history of finance Barter System is a term that we cannot avoid.

In Barter System, people used to exchange things or animals to buy or sell Products. Cattle, Grains, and Jewels were some of the items. Later, they were unable to find an equal value for the products interchanged, and the system got declined eventually. After that, people started using ’Cowrie Shells’ which was the longest-used currency.

Era Of Coinage

Coinage began after 650 BC and has a remarkable role in the history of finance. Initially, ancestors used Bronze and Copper coins. The usage of first coin, made in gold and silver was traced in Lydia between 1200 BCE-546 BCE. China was the first country which implemented paper currency. But then, further usage was unidentifiable due to various reasons. Many years later, Europe started using paper currency, and now it become the main form of money.

Nowadays, currency and coins become common. Each country has its Currency with specific values based on many factors such as interest rates, inflation, capital flow so on. Compared to the history of finance, at present, the financial sector has developed a lot. Great improvements happened in the areas like Banking, Exchange, Investment markets, Accounting so on.

Types Of Finance

There are 3 sectors of Finance.

Personal Finance
Corporate Finance
Public Finance

Personal Finance

Personal Finance plays a vital role in the economy of a country. The growth and financial stability of each citizen ultimately contribute to the progress of a nation. Moreover, Family Budgeting is essential to avoid risks and to lead a smooth life. Personal finance can be described as the efficient planning and utilizing of income for necessities. Such as,

Needs -The ultimate goal of everyone who works hard is, to have enough money to meet day-to-day needs. This includes Food, Shelter, Household things, Groceries, Education, Travel so on.

Savings – You should always save money for future requirements. For example to meet up your longterm term goals like buying a house or car, and so on. In addition, at the time of retirement or to overcome any unexpected risks, savings will be always beneficial.

Investments – Investing finance in various sectors like share markets, banking, and other business is really helpful to have extra income. These additional earnings will help you to have a better financial position.

Desires – Life is too short and unpredictable, so you should also focus on your dreams and passion. A portion of your income should be spent to fulfill your interests.

Initially, controlling the family budget was considered to be the department of housewives. But, when it realized that it has a role in the global market it was reckoned as one of the major types of finance.

Corporate Finance

Industries, either small or large, are the building pillars of a Nation’s development. Corporate Finance is a term used to explain the financial activities of a Company. Financial Management is an imperative factor for the advancement and progress of a Firm. Sometimes, the Performance of employees, Sales, Customer Relations, and Technical Teams will be really good, but if the finance sector of the company is not up to the mark then it will affect the entire team. So, compared to all other sections of a firm the Finance Wing Should be strong enough.

Proper financial control is a prime factor for both the market value and the existence of a company. In addition, a well-organized Accounting and Taxation Team is an asset for the economic stability of an industry. Moreover, having sufficient funds for future projects and investments are also necessary. Finding out new investors, Putting Efforts to increase sales, and Investing in new shares are all methods of a company to generate funds.

Public Finance

Considering the types of finance, Public Finance plays a crucial role in the economy of a country as well as the life of citizens. Public Finance includes proper planning and budgeting of government projects and visions for a financial year. Both Central and State Governments implement their action plans for a respective year. In addition, Monetary Policies taken by the central bank of each country control the usage of money by taking necessary strategies. In India, RBI [Reserve Bank Of India] is the Monetary authority.

Another major task for the Government is, to organize Funds for Current and Future proposals. The major sources of income are Taxes, Fines, Revenue from Public Organisations, and Services like Transportation, Education, Telecommunications so on. Also, if there is any shortage of money, the authorities tend to sign ‘Bonds’ or borrow money from other nations or even from the banks.

Furthermore, to have Economic Constancy and Secureness of a Nation, the government should hold sufficient revenue. Having enough budget is not only to meet the needs of people but also to face the risks, such as natural calamities, and pandemics. eg Corona, Plague so on. Moreover, Financial crises can also impact the lives of people. It can create unemployment and insecurities in food and shelter, and further, it will affect the development of a country. So a well-structured financial budget is necessary.

Social and Behavioral Finance

Comparing the 3 major types of finance Social and Behavioral Finance also holds a remarkable position in the economy.

Social Finance

Social finance comprises, building an economic value and reputation by solving social and financial issues. For example, there will be several small-scale industries and startups in a country which will not have the capital money to launch their business. So what happens, major corporates will invest in such small-scale businesses and charities not only to help them but also to have social value. Such kinds of investments are also considered marketing strategies. A certain percentage of profit will be shared in addition to that. Not only the big industries but also the countries make such agreements. Mainly, developed nations will invest in underdeveloped nations based on some policies or mutual agreements they signed. It will create global recognition for the developed nations.

Behavioral Finance

Behavioral Finance explains the psychological effect of decision-making on investors. Everyone wishes to go along with the flow even though there are numerous theories on financial management. So Behavioral Finance deals with all the consequences of such situations. Some of the main concepts discussed in Behavioral Finance are Herd Behavior, Over Confidence, Irrational Thinking so on.

Herd Behavior – Herd Behavior means funding in particular shares or areas where our competitors are investing, without thinking whether it is profitable to us or not. In such situations, a person will not be in a state of mind to think about the financial risks that may occur.

Overconfidence – The majority of individuals possess overconfidence about their talents after having success or profit. It may lead to wrong decision-making in the future. Always stay grounded.
Irrational Thinking -In the financial sector, Irrational decisions are not at all good. Your decisions should be logical and based on facts.

So Behavioral Finance has a great role in the success and failure of a business.

Importance of Finance

Money plays a great role in the life of every individual. To avoid crises and debts, proper handling and control of finance are essential. Moreover, capital is an integral part, of the growth and progress of an individual and organization. Also to have sustainability in the economy of a country financial stability is important.

For an individual, money is essential to meet his or her basic needs, and to lead a happy life by fulfilling their dreams and ambitions. Not only to fulfill your goals but also to meet up with unwanted situations like health issues, and unemployment savings are crucial. When considering an industry, to have a turnover, the appropriate functioning of the finance department is mandatory. A slight malfunction in the accounts can create huge losses.

Apart from all these, every country requires an accurate financial ministry. The importance of finance in the functioning of an administrative system is unavoidable. That’s why all countries give much value to budget presentations. If the income and expenditure didn’t get tally it will lead the nation to a huge economic disaster. Also, It will badly affect the citizens. Moreover, a country should be always ready to safeguard and secure the lives of its residents in any risky conditions.

In all these situations the importance of finance is evident. Adequate money is essential to lead a stable and secure life. Finally, money makes power.

Commonly Used Financial Terms

To have an idea about financial management you must know some of the financial terms. Some of the commonly used financial terms are,

Assets – These can be defined as resources that will be beneficial to an individual, industry, or country either in the present or future. It will have an economic value. Assets can be classified as Current Assets, Fixed Assets, Intangible Assets, and Tangible Assets.

Liabilities – Liabilities are just opposites of assets. It can be termed as something that we owe. Mainly in the form of money or the forms of Loans, Bonds, Mortgages, Leases so on.

Cost of Capital – The minimum return that is expected from a Business, Investments, or Project can be termed as Cost of Capital. It is essential to avoid financial risks. The project or business can be considered as a loss If a minimum profit is not achieved.

Balance Sheet – It is a financial document to check -measure the financial condition or total net worth position of a business or a person. The document gives an outlook on the assets and liabilities of a Business or a Project.

Cash Flow – The cash flow statement is prepared to understand the performance of the company. All inflows and outflows of money are noted. So it will be helpful to make necessary decisions or changes for controlling losses.

Accounts Receivable – Accounts Receivable can be termed as the money that should be paid by the customers in return for the goods or products they purchase. It is considered an income source. So If it is unpaid for a long time it can affect the business and further sales.

Relation Between Economics and Finance

While studying the financial sector there arise always a question of whether Finance and Economics are the same. They are not the same, but interrelated. Finance deals with everything related to money, such as investments, savings, loans so on. But Economics is the study of the performance of a country or region or business in a Global Market.

In Economics the Production, Consumption, and Market value of goods and services are studied. The two branches are Macroeconomics and Microeconomics. Moreover, Professional Economists are there to research the demand and supply of products in a global market. Based on their findings individuals or organizations invest their money in new businesses or shares.

For example, If the production of Steel faces a decline in the global market, or loses its demand, starting a business in that particular area or buying shares in the steel industry can create huge losses for a company or a person. All economic findings related to that will help to avoid a financial crisis. Economics gives us a bigger picture of the current economy of a nation or region. Hence Finance and Economics are Correlated.

Finance as a Career

Are you good with numbers and in search of a well-paid job? Then a career in the financial sector will be a good option. The financial field is an area that has always had continuous growth and is in demand for talented people. Every organization whether it is public or private needs a strong financial department to maintain profits and losses. So the opportunities in this field are high. In addition, as per the reports, in the near future wages for financial and accounting occupations will be high than the other jobs.

Areas like Public Administration, Construction, Management, and Healthcare, Insurance are in need of Financial Graduates. A four-year degree either in the areas of Business, Accounting, Statistics, or Economics is essential for developing a career in this field. Moreover, there are competitive exams like Chartered Financial Analyst, Certified Public Accountant, Financial Risk Manager, etc to enhance skills in financial management. Also, there are a plethora of jobs in the area of finance and Economics such as,

Investment Banker
Financial Planner
Budget officer
Risk Analyst
Auditor
Underwriter
Business Analyst
Portfolio Manager

These are a few examples of job possibilities, there are many more.

The finance department is the backbone of every business. As the development of the economy occurs there will be more urge for financial graduates. If you have an interest and talent in this area don’t hesitate, it offers you a well-paid and secured career.

Certification Courses In Finance

Finance is a highly competitive career field. Having a degree will not be enough to survive in this area. You should emphasize your skills by adding extra certification courses to your profile. It will not only update your job profile but also boost your Income, Reputation, and Career. There are enough certification programs in Accounting and Finance. Such as Chartered Finance Analyst Course, Certification in Public Accountant, Risk Management so on. Moreover, getting trained in a reputed organization is also imperative.

And Henry Harvin will be one of the best options.

Henry Harvin’s Accounting And Finance courses

Henry Harvin is considered to be number one in delivering courses in Finance. The institute offers many industry-oriented programs. Out of that, two major courses are

ACCA Course Training
US CPA Course

ACCA Course Training

ACCA Course of Henry Harvin recognized as number one by Sakshi Post.
The institute provides Globally recognized ACCA Certification.
Live Online Classes.
Practical training is provided. So learners get experienced with Real-world Projects.
Guaranteed Internships and Placements.
Boot camps for one year.

US CPA Course

Subject matter experts having vast industry knowledge conduct the programs.
E-learning sessions that can access from anywhere.
250 Hours of online training.
Masterclasses for 12 months.
1- year gold membership program.
Assignments and Projects for Practical Experience.
Access to Hackathons and Competitions.

Some of the other courses offered by Financial Academy are,

Financial Statement Analysis Course
Stock Market Course.
Financial Risk Management Training
Chartered Financial Analysis Course

And many more.

Apart from the Financial academy, The institute also provides excellent courses in accounting as it also has a vital role in the financial sector of a firm. The programs delivered are,

Accounting and Taxation Course.
Professional Certification income tax.
GST Practioner Training.
Advanced Excel Course.

If you are really in search of a program to amplify your skills in Finance and Accounting Henry Harvin will be a good option.

Conclusion

Finally, Finance can be termed as all aspects related to money, its resources, and spending. It has a great influence on the growth, functioning, and development of an organization, nation, or even the life of an individual. A balanced Budget is imperative to avoid risks and losses in life or business. To achieve goals, and targets or to meet up daily needs money is essential.

Therefore it has a crucial role, in the large global market to the life of an individual. That’s why even in the job sector, demand and opportunities for finance graduates are high. Proper planning and channeling of money are important. Otherwise, it destroys the entire economic system. A slight carelessness can destroy the entire assets into a liability. You should value every penny of the money you own or owe.

What Does Finance Mean? Its History, Types, And Importance Explained

Finance – What is it?