Basics Of Classification Of Finance

Finance is closely bounded with money after the barter system has been replaced as a means of exchange. In business, finance is defined as the means to raise funds through sale and issuance of equity or debt. It is basically the study of how people or business allocates their funds and assets over time. It encompasses different functions like:

  • Budgetary functions
  • Cash flow management
  • Management of risk and return
  • Risk and governance

Categories of finance

Finance is broken into major 3 categories such as corporate finance, personal finance, and public finance.  And these 3 contains further sub-categories.

Personal finance- It refers to all the financial decisions which the individual needs to make so that his future is secured. These decisions include:

  • Receiving the monetary resources
  • Budgeting
  • Planning on the application of income
  • Deciding on the mode of saving and the amount
  • Spending on the monetary resources

The decision on where to invest, how much to invest, etc plays a major role in securing your financial future.  Read through here to widen your knowledge about investment options.  During the process of personal financial planning, one is expected to consider all the financial risks and life events that would take place in the future.

Corporate finance– It is the task of raising and administering the funds for conducting various organization’s activities. The corporate finance main function is to analyze the fund requirements and find different sources of funding like the general public, financial market, and other financial institutions. In this process, the corporate finance works towards balancing profitability and risk while making an attempt to maximize the value and wealth of the stock.

Public finance- It borders on fields of political science and government. It is the study of public authorities and the government’s financial activities.  Public finance describes the government’s expenditure and all the techniques and methods used by the governments to finance the expenditures. It is mainly concerned with the identification of the required expenditure of public sector entity.  It also helps in understanding the reasons why the different types of taxes are levied and the reasons why certain services or activities are conducted by the government.

Other classification of finance

Finance is further classified into direct and indirect finance and short-term and long-term finance.  Also finally the finance is grouped on the basis of sources of the fund such as borrowed capital and owned capital.