What Are The Three Areas Of Finance?


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Iris Phillips answered
Finance as a whole deals with the management of funds. It involves saving, lending, borrowing, spending and budgeting. Finance works with concepts of money, risks and time, and the way these concepts are interrelated. It can be separated into three general areas, namely personal, or private, finance; business, or corporate, finance and public finance.

  • Personal Finance
Some of the issues around which personal finance revolves include a person's or family's monetary needs, protection against unforeseen personal or external events, the transferal of assets to the next generation, tax policies and the way they affect personal finances, credit and how it affects financial standing and planning for a secure financial future. Paying for education, purchasing durable goods, such as cars or real estate, buying insurance, investments and loan or debt repayments are all personal financial decisions.

  • Corporate Finance
Corporate finance revolves around providing funds for the activity of a corporation. It involves balancing profitability and risk, while maximizing wealth and stock value. It typically consists of three interrelated decisions: Investment decisions, relating to which projects will be undertaken; the financing decision, relating to the funding of the investments and the dividend decision, which decides how profits are either re-invested or distributed among shareholders. Short term management of finances usually relates to the management of inventory, cash and debtors.

  • Public Finance
Public finance is the financial management of sovereign states, provinces, counties, etc and related public entities, such as school districts, etc, and agencies. Its concerns are identification and sourcing of required expenditure within the public sector, the process of budgeting and the issue of municipal bonds for projects of public work.

The responsibilities, functions and implications of these three financial areas are in reality far more complex, and have been significantly simplified and abridged due to the limited space available.

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