Know What Finance is: Definition, Types, Services

Know What Finance is: Definition, Types, Services

Know hatw finance is-When it comes to activities, what is finance refers to a term that describes activities related to banking, debt, credit, capital markets, money, and investment, .

Basically, the definition of finance is the management of money and the process of obtaining the needed funds. Finance also includes the supervision, creation, and study of the money, banking, credit, investments, assets and liabilities that make up the financial system.

Many of the basic concepts in finance are derived from micro and macroeconomic theory. One of the most fundamental theories is the time value of money, which holds that a dollar today is worth more than a dollar in the future.

After knowing the definition of what finance is, the next question is what is finance activity?

Financial activities will continue to exist if there are transactions (money in and out) from individuals, businesses, or the government. Because they are trying to achieve their economic goals. For example, from the individual side, they sell products, buy shares, start loans, and save.

From the company side, their activities include selling shares and paying debts. From the government side, the financial activities of state managers include collecting taxes from their citizens (taxpayers) and distributing business loans to business people.

Type of Finance

Know what finance is

Everyone needs funds to meet their daily needs. This does not only apply to individuals, but businesses to government. Therefore, there are three types of finance, namely personal finance, corporate finance, and public (government) finance.

  • Personal Finance

Personal finance is financial planning that involves analyzing one’s current finances to formulate a strategy for future needs. So the financial strategy is very dependent on the income, necessities of life, goals, and desires of the person.

A person who wants to manage his finances, he must save for retirement and invest while still working to fund long-term plans. As a result he can make financial decisions on his control.

Personal finance includes purchasing financial products such as credit cards, insurance, debt, and various types of investments. Banking is also considered a component of personal finance because individuals use savings or checking accounts as well as online payment services (internet banking or mobile banking).

  • Corporate Finance

Corporate finance refers to the financial activities related to running a company. Usually, there is a division or department formed to oversee financial activities.

For example, a national company must decide to raise additional funds through the issuance of bonds or a stock offering. Then the investment bank will advise the company on possible decisions that will be taken as well as help market the company’s shares.

Startups, for example, can receive capital from angel investors or venture capitalists in exchange for a percentage of ownership. If a company develops and decides to go public, then the company will issue shares on the stock exchange through an initial public offering (IPO) to raise money.

In another activity, a company tries to budget its capital and decide which projects to finance and which projects to postpone. The decision was taken to grow the company. Well, the decision is under the company’s finances.

  • Public Finance

The next type of finance is public (government) finance. This finance includes taxes, the state budget, expenditures, and debt issuance policies that affect how governments pay for services provided to the public.

In addition to managing money in day-to-day operations, the government also has social and fiscal responsibilities. Such a government is expect to ensure adequate social programs for its citizens who pay taxes and maintain a stable economy so that people can save and their money is safe.

For example, the federal government prevents market failures by overseeing resource budgets, income distribution, and economic stability. Regular funding is mostly obtained through taxation. Meanwhile, borrowing funds from banks, insurance companies, and other countries helps government spending.

Financial Services

After discussing what finance is from its definition and types, we will review financial services. This is the process by which consumers and businesses acquire financial goods.

For example, financial services offered by payment system providers when receiving and transferring funds between payers and recipients. Service providers will provide transaction facilities that can be complet by check, credit card, debit card, or electronic fund transfer.

Financial services also include the financial services sector. This sector is one of the most important segments of the economy. The reason is that it is able to encourage a country’s economy, provide capital flows, and free liquidity in the market. Companies that provide financial services include banks, insurance, securities, lending companies, to housing agents.

When the financial sector is strong, the economy of a country will be strong. As a result, consumer confidence and purchasing power have increased. Conversely, if the financial sector is sluggish, the economy will decline and will cause a recession.

For those of you who want to get financial services in the investment sector, choose a securities company or Investment Manager that already has permission from the Financial Services Authority (OJK). Register as an investor, then study the stock fundamentals or the investment portfolio fact sheet.

Compare between products. But choose the one that suits your investment goals. For example, if you have a long-term financial goal to secure assets and avoid inflation, then the choice is stocks. If the goal is medium term, no more than three years, then choose money market mutual funds or state bonds.