What is Finance?
So many of us are involved in a one-person startup now than ever. We all dream and aim for high growth and eventually make every attempt to translate our efforts into a successful business. What is the key hurdle in rising and becoming a star? You may have heard the famous phrase ‘Time is Money’. Hence, the main hurdle, is how best do you manage your time in business which in turn translates into money. In other words, knowledge about finance brings immense clarity regarding how best to spend time in exchange for the available monetary opportunities.
Although, some will disagree while we narrow ones’ lifelong target to a monetary variable, and I would agree with them, nevertheless, these articles aim to make you financially literate. This article is the beginning of a series of articles on business finance. Again, the idea is to transform finance into human language.
The main ideas discussed in this article include,
· What is finance?
· What do I need to know in finance?
· How does finance knowledge help me achieve my goal?
Let’s begin. Finance surrounds us everywhere. All of us have a lot of knowledge about finance. For instance, we buy groceries and sell used items, save money in cash from salary, and invest to pay for a home mortgage, invest in gold, stocks, bonds, or even reinvest the same cash in our business or employment (such as course from online university). Many of us have access to banks or online banking systems where we transfer money, convert currencies, borrow to pay bills, or invest in something special such as children’s education. The list on saving and investing will go on. The following questions come to mind,
How much to spend and how much to save for the future? Should I leave something for rainy days, or should I cover the bad days with insurance? Where should I put my money for the future, in the drawer, with my friend Gold, with uncle Bank or aunt Stock-Exchange? These questions point towards our ability to manage money. We deal with these issues and make decisions daily. All this is finance.
Naturally, If I am already managing money, and acquired some skill in it, then the question arises, why do I need to know finance and what I need to know more in finance? Finance knowledge can help you structure the issues which have financial consequences and lead you to make better and optimal decisions. For instance, if you are a spender and do not save, finance can help you prepare for future challenges that you are likely to face in future. As the figure shows, financial planning is key to achieving long-run goals.
For example, i) after a certain age (retirement age) you may need cash for monthly spending hence you may save a certain amount and invest in a pension fund, ii) finance can help you buy insurance that suits your needs corresponding to your future health challenges iii) It can help you bypass the traditional institutions which offer lower returns compared to investment vehicles which offer higher returns. Then there are questions difficult to answer if not financially literate such as, how to overcome personnel cash-draught or the business cash requirement? At what cost? and so on.
Like other languages, finance also has its grammar(concepts/rules) and vocabulary. Learning these will help you to easily structure a problem and solve it.
What Next!
In the next article, we will start learning the types of business.
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