What is Finance? – Definition, Overview, Types of Finance

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What is Finance? Finance is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting. There are three main types of finance: (1) personalPersonal FinancePersonal finance is the process of planning and managing personal financial activities such as income generation, spending, saving, […]

What is Finance?

Finance is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting. There are three main types of finance: (1) personal, (2) corporate, and (3) public/government. This guide will unpack the question: what is finance?

 

Video Explanation of Finance

Watch this short video to quickly understand the main concepts covered in this guide. It’ll explain the definition of finance, provide examples of finance, and cover some of the common topics on finance.

 

Examples

The easiest way to define finance is by providing examples of the activities it includes. There are many different career paths and jobs that perform a wide range of finance activities. Below is a list of the most common examples:

  • Investing personal money in stocks, bonds, or guaranteed investment certificates (GICs)
  • Borrowing money from institutional investors by issuing bonds on behalf of a public company
  • Lending money to people by providing them a mortgage to buy a house with
  • Using Excel spreadsheets to build a budget and financial model for a corporation
  • Saving personal money in a high-interest savings account
  • Developing a forecast for government spending and revenue collection

 

 

Finance Topics

There is a wide range of topics that people in the financial industry are concerned with. Below is a list of some of the most common topics you should expect to encounter in the industry.

  • Interest rates and spreads
  • Yield (coupon payments, dividends)
  • Financial statements (balance sheet, income statement, cash flow statement)
  • Cash flow (free cash flow, other types of cash flow)
  • Profit (net income)
  • Cost of capital (WACC)
  • Rates of return (IRR, ROI, ROA)
  • Dividends and return of capital
  • Shareholders
  • Creating value
  • Risk and return
  • Behavioral finance

 

Sources of Financial Information

To learn more about the industry, here are some of the most popular and helpful resources:

 

Finance Careers

A definition of finance would not be complete without exploring the career options associated with the industry. Below are some of the most popular career paths:

  • Commercial banking
  • Personal banking (or private banking)
  • Investment banking
  • Wealth management
  • Corporate finance
  • Mortgages / lending
  • Accounting
  • Financial planning
  • Treasury
  • Audit
  • Equity research
  • Insurance

 

CFI Finance Career Map

 

Additional Finance Resources

CFI is on a mission to help anyone become a world-class financial analyst by creating the Financial Modeling & Valuation Analyst (FMVA)™ certification program. To continue developing and preparing for a career in the field, these additional CFI materials will be helpful:

  • Types of Financial Models
  • Interactive Career Map
  • Compensation and salary guides
  • The Analyst Trifecta® Guide

 

More Questions and Answers

CFI is the official global provider of financial modeling and valuation analyst FMVA Designation. CFI’s mission is to help anyone become a world-class financial analyst and has a wide range of resources to help you along the way. In order to become a great financial analyst, below are some additional questions and answers for you to explore further:

  • What are the types of financial models?
  • What is sensitivity analysis?
  • What is bookkeeping?
  • What are the most common valuation methods?

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