1. What is Finance?
Finance means managing your money through various activities. It’s all about figuring out how individuals, groups and corporations make and use money. If you have witnessed any of the following situations in your life then you have already experienced the art of Finance:
- Putting aside some money regularly in order to buy something that you want such as a new car. In the Finance world, this act of putting aside your money for use in the future is called ‘Saving.’
- Lending your extra cash to a friend in need or borrowing money from someone when you are short on cash.
- If you lend your money to a friend, you probably get the same amount back after sometime. But what if there was a way to lend your money to a person or an institution but get more than what you gave? This is called ‘Investing’ and is one of the primary pillars in the field of Finance.
- You must have witnessed a situation where your expenses are expected to increase in the future and you start planning your current spending and finances accordingly. A simple example would be an increase in your apartment’s rent in 3 months. If you are getting the same amount of salary each month, you may have to adjust your current spending in order to fund the increase in your rent payments. This is the art of ‘Budgeting.’
Therefore, the field of Finance encompasses almost every situation you come across every day and the decisions you make to resolve those situations.