Financial planning is not just about creating strategies for achieving your goals but also about determining how to allocate resources to achieve them. Many people confuse financial planning with budgeting, but both involve planning and management. The purpose of financial planning is to establish the proper balance between spending and income.
There are various different types of finance including personal finance, business finance, public finance, etc. Each type of finance can have distinct advantages and disadvantages.
The purpose of financial planning is to ensure that you do not incur a financial burden that you cannot afford to pay. Personal finance is mainly used by individuals. This includes money that are used for day-to-day expenses such as food and clothing, as well as money for entertainment and travel. Business finance can be used by business owners, managers, organizations, etc.
The main aim of public finance is to provide a safety net for the private sector. Public finance usually comes in the form of loans, grants, guarantees and insurance policies. Financial services include investment banking, commercial banking, insurance, retirement services and so on. Financial institutions and banks are usually regulated by government agencies.
When looking at the economy and economic development, finance plays a key role. Without finance, economic growth would be difficult to determine. A major part of the growth cycle of any economy is the finance development of the country. Without adequate finance, economic growth would be severely impacted. The government can use tax revenue, debt funding and other sources to assist in the growth of a nation’s economy.
While finance has been described as a major source of support for the overall development of a nation, there is also the need to protect and stabilize it. The role of finance in that protection and stabilization is to help an economy in times of crisis. An economic crisis is caused when the demand for funds exceeds the supply of funds.
The main objective of all finance policies is to provide growth by improving the financial resources. to support the economy. It is also to provide a safety net for the private sector in times of crisis and financial instability.
Various different types of finance may be classified as direct, indirect or blended financing. Direct finance refers to a specific type of financing, such as a loan from a lender, whereas indirect finance refers to using money that comes from the lending party to repay a loan. Lastly, blended finance combines a variety of direct and indirect financing.
There is a major difference between direct and indirect financing. Direct financing requires the borrower to pay back the money borrowed from the lender directly, whereas indirect financing requires the borrower to repay money that comes from someone else such as from his/her employer or another lender. For example, the government borrows money from banks to fund the roads. and then the banks lend money to the public.
There are also two main types of loans. There are personal loans, business loans and corporate loans. Individual loans are made on a need-to-have basis.
Finance is very essential for any economy to manage credit card debts. Credit card debts are very high and growing. People have no control over their debt levels and have a tendency to take on more debt than they can handle. This in turn is very risky for them. The use of credit cards has led to high interest rates, late payments and other fees.
