Finance Definition

According to the dictionary of the Royal Spanish Academy (RAE), the term finance comes from French finance and refers to the obligation that a subject assumes to answer the obligation of another person. The concept also refers to flows, goods and public finances.

Finance

In everyday language the term refers to the study of the circulation of money between individuals, companies or individual states. Thus, finance appears as a branch of the economy that is dedicated to analyzing how funds are obtained and managed. In other words, finance is in charge of money management.

The notion of personal finance refers, in principle, to the money a family needs for subsistence. The person should analyze how to obtain such money and how to protect it in unforeseen situations (such as a job dismissal). Other applications of personal finance refer to the ability to save, to spend and to invest. Within this branch of finance, they are looking for alternatives for the lives of individuals in a society to advise them how to invest their money in order to achieve a positive balance, where losses decrease and, through a Sustainable economy, collaborate with the environment and increase the quality of life.

Corporate finance, for its part, focuses on the ways companies have to create value through the use of financial resources. Investment, financing, profits and dividends are some of the concepts linked to this area.

Related concepts

Finance There are a number of concepts whose meaning allows you to understand even more the movement of money and the way in which finances are organized. Some of them are listed below.

* Risk and benefit: refers to the search for an increase in profits without investing more than advisable, that is, minimizing the risks of investment. If the investor is willing to face greater uncertainty, his profits may be greater;

* Value of money in time: refers to the fluctuation that lives the money over time, that is to say the change that represents between the present and the future (money, when it is invested it acquires a future value potentially greater than that Today owns). Over time, money has been a fundamental element for the economic growth of the countries, however, the increase of inflation and certain state strategies that are of little benefit to the finances of the territory, Over time, therefore, money instead of charging a higher value, loses it.

* Interest rate or interest rate: the value that is paid for the funds requested in loan, which responds to the exchange between the current value of money and the value of the money in the future (speculation). When the interest rate rises both consumption and investment decrease as citizens lose the capacity to pay their debts, therefore, when they decrease, those elements increase when receiving a significant stimulus to be able to pay less interest. This concept is very present in those that outline macroeconomic policies when trying to boost economic growth; However, it is extremely dangerous because in many cases it leads to severe economic problems in the future, because it can not bear the costs that the “citizens’ debt” has left uncovered for a certain amount of time.

Finally, we can say that public finances are related to the fiscal policy of a State. The government obtains funds through the collection of taxes and that money reinvests it into society through public spending (with the construction of hospitals and schools, cleaning care, etc.).