The importance of finance management is such that no one can ignore it, and so, here is an attempt to make you aware about the importance of finance in an economy, and how much is financial health of the economy important for your well being.
Finance plays a very important role in the day to day lives of each individual or corporation. It is a very wide term and it can be said to be the study of the science of managing funds. Usually finance includes the areas of public, personal and business finance. It includes things related to lending, spending and saving money. An important aspect of finance is that individuals and corporations deposit money in a financial institution, especially banks, who in turn lend out money and charge an interest for their services.
Pivotal Roles of Finance
Corporate finance deals with financial decisions which an organization makes, whether it’s investments, analysis of credit, selling of assets or products or acquiring assets. Maximizing corporate value and at the same time managing risks associated with investing in a particular product or project is the main aim of corporate finance. Moreover, corporate finance also studies the short term and long term implications of a decision and looks into matters related with dividends to shareholders’ debt or equity. Matters related to taxes which a corporation has to pay are also taken into consideration when dealing with corporate finance.
Finance for a business can’t be undervalued and it can be regarded as the lifeline of a business which is required for its well being. It acts as a lubricant helping to keep the business running. Whether you have a small, medium or large business, you will always need finance, right from promoting and establishing your product, acquiring assets, employing people, encouraging them to work for the development of your product and creating a brand name. In addition to that, a current business may need finance for expansion or making changes to its products as per the market requirements.
Finance Department in a Company
This department is of utmost importance as it is responsible for financial planning, thus ensuring that adequate funds are available for achieving the objectives of the organization. Moreover, it is the finance department which makes sure that the prices are controlled, besides looking after the cash flow and controlling profitability levels. One of the most important jobs of the finance department of a company is to identify the necessary financial information (like return on assets, return on capital employed or the net profitability which reveal the outcome of efforts made by the company and its employees) which should be revealed to managers so that they can make informed decisions and judgments. The department is also responsible for making financial documents and preparing the final accounts so that they can be presented in the annual general meetings of the company.
Personal finance budgeting is an important part of your long term plans to gain financial stability, especially after retirement. You need to have a clear idea of what you want in future such as the amount of money you need after retirement, the location of a place you live in, etc. You need to have a plan and goal of translating these ideas into reality. You also need to consider the things you have purchased in the past and the kind of things which you will purchase later on. This is an important step as this reflects that you will come up with a retirement plan for the future. You must be capable of identifying the good as well as bad choices you make.
While thinking of a long term plan, budgeting your savings becomes an important part of personal finance. Savings would help you to make investments in the future so that you have a secure life. But then, having said that, you also need to take care to keep your expenses to the minimum, which is one of the most important personal finance tips which you should use. Some of the most common expenditures like those on electricity and water should be reduced.
Financial Planning in Tune with Economic Conditions
Planning involves insight into the economic condition of your country and its future. Be it a developing or developed country, finance can be used as a tool to shape a country’s economic well being. For developed nations it can help to stabilize the growth at the maximum level, and for an underdeveloped economy it can change the face of overall financial condition by effectively applying the tools of finance. Moreover, personal finance should also be planned looking at the overall economic condition of the country. If the country is going through an inflationary phase it’s better to save more and spend less, but if the economy is in the deflationary phase it is advisable to invest and do productive expenditures.
Finance is such a thing that can’t be substituted by anything, so make sure you use your finances in the proper order, so that you can secure your future.