Finances and finance – Definition and examples
As a plural noun, ‘finances‘ means the money and other liquid assets of a person, organization, business, or government. We use the term when talking about the state of our debts versus income and how well we are managing. Finance is a huge branch of economics that includes managing a company’s or organizations assets, revenues, and debts.
If I say “my finances are a mess,” I mean that I am in financial trouble. Perhaps I owe too much or need to reduce my spending.
‘Finance’ is also an academic subject that involves the study of the use and management of money.
As a verb, ‘to finance,’ means to provide funding for a business, project, government agency, or person. The adjective, ‘financial,’ has several meanings.
Finance Box has the following definition of finances:
“The money that people, businesses, or national economies earn and spend.”
Put simply; finance includes anything that makes up part of an economy’s financial system. It also includes the study of the system’s financial instruments.
Finance vs. finances
Although the term ‘finances’ may be the plural of ‘finance,’ its meaning is usually quite specific.
We use ‘finances’ when referring to a person’s, organization’s, or government’s financial arrangements, management, or situation.
If I want to know how somebody is managing their debts, spending, savings, etc., I might ask “How are your finances?”
Finance, on the other hand, means:
- The study of the use and management of money, i.e., it is an academic subject.
- Money that a bank lends for investment or consumption.
- (verb) To fund.
Finances – three categories
We usually break down finance into three categories: 1. Public. 2. Corporate. 3. Personal.
Public finance, a branch of economics, is the study of the role that government plays in the economy.
It is the study of government revenue and expenditure. Revenue means earnings, i.e., money coming in, while expenditure means money going out, i.e., spending.
Governments get their revenue from taxation and spend that money on infrastructure, welfare benefits, and civil servant salaries. They also spend that money on defense, education, and law and order.
Scottish economist and philosopher Adam Smith (1723-1790), who many call ‘the father of modern economics,’ once said:
“The investment into the nature and principles of state expenditure and state revenue is called public finance.”
Each decision that company executives make has financial implications. Any decision they make that affects a business’ finances is a corporate finance decision.
Corporate finance is anything to do with providing money for businesses and the sources that provide that money.
These sources of money provide companies with capital to pay for expansion and structural improvements. They also pay for other enterprises and value-added projects.
According to Accounting Explained:
“Corporate finance is the study of sources of finance and how to use the money raised to add maximum value to the shareholders’ wealth.”
Anything to do with the management of money and a person’s or family’s financial decision’s is part of personal finance.
This includes investments and retirement planning. It also includes budgeting.
When planning our personal finances, we should consider the suitability of our needs for a variety of banking products.
Checking accounts, savings accounts, and consumer loans, for example, are banking products. Credit cards and mortgages are also banking products.
We should also consider which investment equities to acquire. Bonds, mutual funds, and company shares, for example, are investment equities.
In other words, personal finance includes determining what type of investment portfolio an individual or family should have.
A person’s ‘portfolio’ is their spread of investments.
Etymology of finance
Etymology is the study of where words came from, i.e., their origins. It is also the study of how the meanings of words have evolved. The Etymology Online Dictionary was the source for the information below.
As a noun, the term ‘finance’ emerged in the English language in the fourteenth century. At the time, it meant ‘an end, retribution, settlement.’
It came from the Old French word ‘Finance,’ which meant ‘ending, end; pardon, remission; expense, payment; settlement of a debt.”
The French word came from Medieval Latin Finis, which meant ‘fine, tax, a payment in settlement.’
By 1770, the term had also acquired the meaning ‘science of monetary business, management of money.’
In the late fifteenth century, ‘to finance’ emerged as a verb with the meaning ‘to ransom.’
It was not until the nineteenth century that it also meant ‘to furnish with money.’