Put Savings (and Yourself) First With a Budget

Personal savings have reached record lows, yet saving is essential to ensure a comfortable future. Learn how to track monthly expenses with a budget and potentially free up cash for saving.

1

Put Savings First With a Budget

Where does that money go? America, it seems, is in the midst of a savings crisis. Personal savings rates have dropped in recent years and remain low by historical standards as many people continue to spend beyond their means.

If you're among those Americans who can't seem to save, it might be time to create a budget. A budget allows you to understand where the money goes and may help you free up cash for important savings goals, such as college and retirement.
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2

Getting Started

Setting up a budget will require some work, but the benefits more than offset the time invested. How you create your budget is up to you. You may choose a piece of financial planning software, such as Microsoft Money or Quicken, or you may choose the paper and pencil route. The above worksheet is a simple yet inclusive budget that you can use to get started.

The first element of any budget is your income, or how much money you receive each month. This can include paychecks, legal settlements, alimony, royalties, fees, and dividends from investments that you do not reinvest. Once you know what your monthly income is, you can use a budget to make sure you don't spend more than you earn, thus helping to reduce debt and freeing up cash for savings.

Next, you need to know how you spend your money. Start by tracking your spending for a month. Gather bills and receipts, and don't forget to include newspapers from the corner store and trips to the soda machine. Don't assume any expense is too small to record.

Write down your expenses and break them into categories. Using the budget worksheet as an example, we find Fixed Committed Expenses -- mortgage, loan, and insurance payments that stay the same from month to month; Other Committed Expenses -- things you can't live without, like food, utilities, and clothing; and Discretionary Expenses -- things you like but don't necessarily need.
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3

Less Spending = More Savings

Once you know where the money goes, it's time to analyze your expenses. There probably isn't much you can do about Fixed Committed Expenses without moving or getting rid of the family car. However, if these expenses are greater than your monthly income, you are probably carrying too much debt to effectively save.

You may find some room to economize in Other Committed Expenses, but look at Discretionary Expenses first. This is typically the easiest place to reduce spending. Begin by canceling magazine subscriptions to titles you don't read. Eat fewer meals out, or choose less expensive restaurants. Across much of the country, you can rent two DVDs for the price of a single adult ticket to a movie and throw in some microwave popcorn for a dollar more.

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4

Digging Deeper

Once you've reduced discretionary spending, look at those Other Committed Expenses. Can you reduce the grocery bill with coupons or more economical meals? How about taking public transportation instead of cabs?

One area to closely examine is credit card debt. If a high balance is keeping you from saving, you need to find ways to trim those monthly payments. Call your credit card company and ask them for an interest-rate reduction, or shop around for a card with a lower rate. You can find a list of low-rate cards through CardWeb (1-301-631-9100 or online at www.cardweb.com). Beware of low introductory "teaser" rates that increase to much higher rates after six months.

You could also consider a home equity loan, which may offer a tax deduction, or a consolidation loan. Make sure that you'll be able to afford the monthly payments before you take the loan. Banks can foreclose on a home equity loan within 90 days if you miss payments.

If your savings are still being crushed under the weight of debt, or if you're having trouble making minimum monthly payments and covering necessary expenses, consider getting some help. The nonprofit National Federation for Credit Counseling (call 1-800-388-2227, or visit www.nfcc.org) can help you set up a budget and negotiate payment schedules with lenders for a modest fee. Once you start paying off your credit cards, the extra money can be used to build savings.
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5

The Goal: More Savings

Once you've figured out where to economize, you can enter amounts in the Expected column of the budget. Notice that Savings and Children's Education appear under Fixed Committed Expenses. This is to encourage you to pay yourself first, a key rule of saving. By setting aside a certain amount each month for savings, you can build toward your goal without missing the money. You may be able to set up a payroll savings plan through your bank or credit union. Also look into any employer-sponsored retirement plans you may have at work, which potentially offer tax benefits along with savings for the future.

It might also help to set a savings goal, both for short- and long-term needs. Studies have revealed that families with savings goals tend to save more.

Remember that your budget is a living document. As your circumstances change, so will your goals and needs. Review your budget every few months to make sure it reflects your goals and to see if you are saving as much as you possibly can.
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Summary

• You can use computer software or a pencil and paper to create a budget.
• Analyze your spending for a month to see where your income goes. If your living expenses are greater than your income, you'll need to find ways to economize.
• Your spending can be broken down into three categories: Fixed Committed Expenses, Other Committed Expenses, and Discretionary Expenses.
• To free up cash for savings, begin by reducing Discretionary Expenses, then look at Other Committed Expenses.
• Pay down credit-card debt aggressively. Once the debt is paid off, direct the extra money to savings.
• Set aside some of each paycheck for savings goals. Ask your bank or credit union about payroll savings plans and investigate your employer-sponsored retirement plan.
• Review your budget periodically to make sure it is still in line with your needs and goals.

Checklist

• Start carrying a pocket-sized notebook and pen or pencil to record purchases throughout the day.
• If you plan to use computer software to help create your budget, begin shopping around for the best deal.
• Set a new savings goal for the year ahead -- such as saving 5% or 10% of income for retirement and other priorities.
• If you still don't know where to start, consider seeking advice from a trusted financial advisor.

Management of current assets

Credit policy

Credit gives the customer the opportunity to buy goods and services, and pay for them at a later date.

Advantages of credit trade

1. Usually results in more customers than cash trade.
   
2. Can charge more for goods to cover the risk of bad debt.
3. Gain goodwill and loyalty of customers.
4. People can buy goods and pay for them at a later date.
5. Farmers can buy seeds and implements, and pay for them only after the harvest.
6. Stimulates agricultural and industrial production and commerce.
7. Can be used as a promotional tool.
8. Increase the sales.
9. Modest rates to be filled.

Disadvantages of credit trade

1. Risk of bad debt.
2. High administration expenses.
3. People can buy more than they can afford.
4. More working capital needed.
5. Risk of Bankruptcy.
   
   

Forms of credit

1. Suppliers credit
2. Credit on ordinary open account
3. Installment sales
4. Bills of exchange
5. Credit cards
6. Contractor's credit
7. Factoring of debtors
8. Cash credit
9. Cpf credits

Factors which influence credit conditions

1. Nature of the business's activities
2. Financial position
3. Product durability
4. Length of production process
5. Competition and competitors' credit conditions
6. Country's economic position
7. Conditions at financial institutions
8. Discount for early payment
9. Debtor's type of business and financial positions

Credit collection

  Overdue accounts

Attach a notice of overdue account to statement.
Send a letter asking for settlement of debt.
Send a second or third letter if first is ineffectual.
Threaten legal action.

[edit]
Effective credit control
Increases sales
Reduces bad debts
Increases profits
Builds customer loyalty
Builds confidence of financial industry
increase company capitlisation

[edit]
Sources of information on creditworthiness
Business references
Bank references
credit agencies
Chambers of commerce
Employers
Credit application forms
Credit repair companies

[edit]
Duties of the credit department
Legal action
Taking necessary steps to ensure settlement of account
Knowing the credit policy and procedures for credit control
Setting credit limits
Ensuring that statements of account are sent out
Ensuring that thorough checks are carried out on credit customers
Keeping records of all amounts owing
Ensuring that debts are settled promptly
Timely reporting to the upper level of management for better management.

[edit]
Stock
Purpose of stock control
Ensures that enough stock is on hand to satisfy demand.
Protects and monitors theft.
Safeguards against having to stockpile.
Allows for control over selling and cost price.
Stockpiling
Main article: Cornering the market

This refers to the purchase of stock at the right time, at the right price and in the right quantities.

There are several advantages to the stockpiling, the following are some of the examples:
Losses due to price fluctuations and stock loss kept to a minimum
Ensures that goods reach customers timeously; better service
Saves space and storage cost
Investment of working capital kept to minimum
No loss in production due to delays

There are several disadvantages to the stockpiling, the following are some of the examples:
Obsolescence
Danger of fire and theft
Initial working capital investment is very large
Losses due to price fluctuation
Rate of stock turnover

This refers to the number of times per year that the average level of stock is sold. It may be worked out by dividing the cost price of goods sold by the cost price of the average stock level.
Determining optimum stock levels
Maximum stock level refers to the maximum stock level that may be maintained to ensure cost effectiveness.
Minimum stock level refers to the point below which the stock level may not go.
Standard order refers to the amount of stock generally ordered.
Order level refers to the stock level which calls for an order to be made.

[edit]
Cash

[edit]
Reasons for keeping cash
Cash is usually referred to as the "king" in finance, as it is the most liquid asset.
The transaction motive refers to the money kept available to pay expenses.
The precautionary motive refers to the money kept aside for unforeseen expenses.
The speculative motive refers to the money kept aside to take advantage of suddenly arising opportunities.

[edit]
Advantages of sufficient cash
Current liabilties may be catered for.
Cash discounts are given for cash payments.
Production is kept moving
Surplus cash may be invested on a short-term basis.
The business is able to pay its accounts timeously, allowing for easily-obtained credit.
Liquidity

Management of current assets

Credit policy

Credit gives the customer the opportunity to buy goods and services, and pay for them at a later date.

Advantages of credit trade

1. Usually results in more customers than cash trade.
   
2. Can charge more for goods to cover the risk of bad debt.
3. Gain goodwill and loyalty of customers.
4. People can buy goods and pay for them at a later date.
5. Farmers can buy seeds and implements, and pay for them only after the harvest.
6. Stimulates agricultural and industrial production and commerce.
7. Can be used as a promotional tool.
8. Increase the sales.
9. Modest rates to be filled.

Disadvantages of credit trade

1. Risk of bad debt.
2. High administration expenses.
3. People can buy more than they can afford.
4. More working capital needed.
5. Risk of Bankruptcy.
   
   

Forms of credit

1. Suppliers credit
2. Credit on ordinary open account
3. Installment sales
4. Bills of exchange
5. Credit cards
6. Contractor's credit
7. Factoring of debtors
8. Cash credit
9. Cpf credits

Factors which influence credit conditions

Nature of the business's activities
Financial position
Product durability
Length of production process
Competition and competitors' credit conditions
Country's economic position
Conditions at financial institutions
Discount for early payment
Debtor's type of business and financial positions

[edit]
Credit collection

[edit]
Overdue accounts
Attach a notice of overdue account to statement.
Send a letter asking for settlement of debt.
Send a second or third letter if first is ineffectual.
Threaten legal action.

[edit]
Effective credit control
Increases sales
Reduces bad debts
Increases profits
Builds customer loyalty
Builds confidence of financial industry
increase company capitlisation

[edit]
Sources of information on creditworthiness
Business references
Bank references
credit agencies
Chambers of commerce
Employers
Credit application forms
Credit repair companies

[edit]
Duties of the credit department
Legal action
Taking necessary steps to ensure settlement of account
Knowing the credit policy and procedures for credit control
Setting credit limits
Ensuring that statements of account are sent out
Ensuring that thorough checks are carried out on credit customers
Keeping records of all amounts owing
Ensuring that debts are settled promptly
Timely reporting to the upper level of management for better management.

[edit]
Stock
Purpose of stock control
Ensures that enough stock is on hand to satisfy demand.
Protects and monitors theft.
Safeguards against having to stockpile.
Allows for control over selling and cost price.
Stockpiling
Main article: Cornering the market

This refers to the purchase of stock at the right time, at the right price and in the right quantities.

There are several advantages to the stockpiling, the following are some of the examples:
Losses due to price fluctuations and stock loss kept to a minimum
Ensures that goods reach customers timeously; better service
Saves space and storage cost
Investment of working capital kept to minimum
No loss in production due to delays

There are several disadvantages to the stockpiling, the following are some of the examples:
Obsolescence
Danger of fire and theft
Initial working capital investment is very large
Losses due to price fluctuation
Rate of stock turnover

This refers to the number of times per year that the average level of stock is sold. It may be worked out by dividing the cost price of goods sold by the cost price of the average stock level.
Determining optimum stock levels
Maximum stock level refers to the maximum stock level that may be maintained to ensure cost effectiveness.
Minimum stock level refers to the point below which the stock level may not go.
Standard order refers to the amount of stock generally ordered.
Order level refers to the stock level which calls for an order to be made.

[edit]
Cash

[edit]
Reasons for keeping cash
Cash is usually referred to as the "king" in finance, as it is the most liquid asset.
The transaction motive refers to the money kept available to pay expenses.
The precautionary motive refers to the money kept aside for unforeseen expenses.
The speculative motive refers to the money kept aside to take advantage of suddenly arising opportunities.

[edit]
Advantages of sufficient cash
Current liabilties may be catered for.
Cash discounts are given for cash payments.
Production is kept moving
Surplus cash may be invested on a short-term basis.
The business is able to pay its accounts timeously, allowing for easily-obtained credit.
Liquidity

Management of current assets

Credit policy

Credit gives the customer the opportunity to buy goods and services, and pay for them at a later date.

Advantages of credit trade

1. Usually results in more customers than cash trade.
   
2. Can charge more for goods to cover the risk of bad debt.
3. Gain goodwill and loyalty of customers.
4. People can buy goods and pay for them at a later date.
5. Farmers can buy seeds and implements, and pay for them only after the harvest.
6. Stimulates agricultural and industrial production and commerce.
7. Can be used as a promotional tool.
8. Increase the sales.
9. Modest rates to be filled.

Disadvantages of credit trade

1. Risk of bad debt.
2. High administration expenses.
3. People can buy more than they can afford.
4. More working capital needed.
5. Risk of Bankruptcy.
   
   

Forms of credit

1. Suppliers credit
2. Credit on ordinary open account
3. Installment sales
4. Bills of exchange
5. Credit cards
6. Contractor's credit
7. Factoring of debtors
8. Cash credit
9. Cpf credits

Factors which influence credit conditions

1. Nature of the business's activities
2. Financial position
3. Product durability
4. Length of production process
5. Competition and competitors' credit conditions
6. Country's economic position
7. Conditions at financial institutions
8. Discount for early payment
9. Debtor's type of business and financial positions

Credit collection

[edit]
Overdue accounts
Attach a notice of overdue account to statement.
Send a letter asking for settlement of debt.
Send a second or third letter if first is ineffectual.
Threaten legal action.

[edit]
Effective credit control
Increases sales
Reduces bad debts
Increases profits
Builds customer loyalty
Builds confidence of financial industry
increase company capitlisation

[edit]
Sources of information on creditworthiness
Business references
Bank references
credit agencies
Chambers of commerce
Employers
Credit application forms
Credit repair companies

[edit]
Duties of the credit department
Legal action
Taking necessary steps to ensure settlement of account
Knowing the credit policy and procedures for credit control
Setting credit limits
Ensuring that statements of account are sent out
Ensuring that thorough checks are carried out on credit customers
Keeping records of all amounts owing
Ensuring that debts are settled promptly
Timely reporting to the upper level of management for better management.

[edit]
Stock
Purpose of stock control
Ensures that enough stock is on hand to satisfy demand.
Protects and monitors theft.
Safeguards against having to stockpile.
Allows for control over selling and cost price.
Stockpiling
Main article: Cornering the market

This refers to the purchase of stock at the right time, at the right price and in the right quantities.

There are several advantages to the stockpiling, the following are some of the examples:
Losses due to price fluctuations and stock loss kept to a minimum
Ensures that goods reach customers timeously; better service
Saves space and storage cost
Investment of working capital kept to minimum
No loss in production due to delays

There are several disadvantages to the stockpiling, the following are some of the examples:
Obsolescence
Danger of fire and theft
Initial working capital investment is very large
Losses due to price fluctuation
Rate of stock turnover

This refers to the number of times per year that the average level of stock is sold. It may be worked out by dividing the cost price of goods sold by the cost price of the average stock level.
Determining optimum stock levels
Maximum stock level refers to the maximum stock level that may be maintained to ensure cost effectiveness.
Minimum stock level refers to the point below which the stock level may not go.
Standard order refers to the amount of stock generally ordered.
Order level refers to the stock level which calls for an order to be made.

[edit]
Cash

[edit]
Reasons for keeping cash
Cash is usually referred to as the "king" in finance, as it is the most liquid asset.
The transaction motive refers to the money kept available to pay expenses.
The precautionary motive refers to the money kept aside for unforeseen expenses.
The speculative motive refers to the money kept aside to take advantage of suddenly arising opportunities.

[edit]
Advantages of sufficient cash
Current liabilties may be catered for.
Cash discounts are given for cash payments.
Production is kept moving
Surplus cash may be invested on a short-term basis.
The business is able to pay its accounts timeously, allowing for easily-obtained credit.
Liquidity

Management of current assets

Credit policy

Credit gives the customer the opportunity to buy goods and services, and pay for them at a later date.

Advantages of credit trade

1. Usually results in more customers than cash trade.
   
2. Can charge more for goods to cover the risk of bad debt.
3. Gain goodwill and loyalty of customers.
4. People can buy goods and pay for them at a later date.
5. Farmers can buy seeds and implements, and pay for them only after the harvest.
6. Stimulates agricultural and industrial production and commerce.
7. Can be used as a promotional tool.
8. Increase the sales.
9. Modest rates to be filled.

Disadvantages of credit trade

1. Risk of bad debt.
2. High administration expenses.
3. People can buy more than they can afford.
4. More working capital needed.
5. Risk of Bankruptcy.
   
   

Forms of credit

1. Suppliers credit
2. Credit on ordinary open account
3. Installment sales
4. Bills of exchange
5. Credit cards
6. Contractor's credit
7. Factoring of debtors
8. Cash credit
9. Cpf credits

Factors which influence credit conditions

1. Nature of the business's activities
2. Financial position
3. Product durability
4. Length of production process
5. Competition and competitors' credit conditions
6. Country's economic position
7. Conditions at financial institutions
8. Discount for early payment
9. Debtor's type of business and financial positions

Credit collection

  Overdue accounts
Attach a notice of overdue account to statement.
Send a letter asking for settlement of debt.
Send a second or third letter if first is ineffectual.
Threaten legal action.

[edit]
Effective credit control
Increases sales
Reduces bad debts
Increases profits
Builds customer loyalty
Builds confidence of financial industry
increase company capitlisation

[edit]
Sources of information on creditworthiness
Business references
Bank references
credit agencies
Chambers of commerce
Employers
Credit application forms
Credit repair companies

[edit]
Duties of the credit department
Legal action
Taking necessary steps to ensure settlement of account
Knowing the credit policy and procedures for credit control
Setting credit limits
Ensuring that statements of account are sent out
Ensuring that thorough checks are carried out on credit customers
Keeping records of all amounts owing
Ensuring that debts are settled promptly
Timely reporting to the upper level of management for better management.

[edit]
Stock
Purpose of stock control
Ensures that enough stock is on hand to satisfy demand.
Protects and monitors theft.
Safeguards against having to stockpile.
Allows for control over selling and cost price.
Stockpiling
Main article: Cornering the market

This refers to the purchase of stock at the right time, at the right price and in the right quantities.

There are several advantages to the stockpiling, the following are some of the examples:
Losses due to price fluctuations and stock loss kept to a minimum
Ensures that goods reach customers timeously; better service
Saves space and storage cost
Investment of working capital kept to minimum
No loss in production due to delays

There are several disadvantages to the stockpiling, the following are some of the examples:
Obsolescence
Danger of fire and theft
Initial working capital investment is very large
Losses due to price fluctuation
Rate of stock turnover

This refers to the number of times per year that the average level of stock is sold. It may be worked out by dividing the cost price of goods sold by the cost price of the average stock level.
Determining optimum stock levels
Maximum stock level refers to the maximum stock level that may be maintained to ensure cost effectiveness.
Minimum stock level refers to the point below which the stock level may not go.
Standard order refers to the amount of stock generally ordered.
Order level refers to the stock level which calls for an order to be made.

[edit]
Cash

[edit]
Reasons for keeping cash
Cash is usually referred to as the "king" in finance, as it is the most liquid asset.
The transaction motive refers to the money kept available to pay expenses.
The precautionary motive refers to the money kept aside for unforeseen expenses.
The speculative motive refers to the money kept aside to take advantage of suddenly arising opportunities.

[edit]
Advantages of sufficient cash
Current liabilties may be catered for.
Cash discounts are given for cash payments.
Production is kept moving
Surplus cash may be invested on a short-term basis.
The business is able to pay its accounts timeously, allowing for easily-obtained credit.
Liquidity

Managerial or Corporate finance

Managerial or corporate finance is the task of providing the funds for a corporation's activities. For small business, this is referred to as SME finance. It generally involves balancing risk and profitability, while attempting to maximize an entity's wealth and the value of its stock.

Long term funds are provided by ownership equity and long-term credit, often in the form of bonds. The balance between these forms the company's capital structure. Short-term funding or working capital is mostly provided by banks extending a line of credit.

Another business decision concerning finance is investment, or fund management.

An investment is an acquisition of an asset in the hope that it will maintain or increase its value. In investment management – in choosing a portfolio – one has to decide what, how much and when to invest. To do this, a company must-:

• Identify relevant objectives and constraints: institution or individual goals, time horizon, risk aversion and tax considerations
  
  
• Identify the appropriate strategy: active v. passive – hedging strategy
  

Measure the portfolio performance

Financial management is duplicate with the financial function of the Accounting profession. However, financial accounting is more concerned with the reporting of historical financial information, while the financial decision is directed toward the future of the firm.


Capital

Capital, in the financial sense, is the money that gives the business the power to buy goods to be used in the production of other goods or the offering of a service.


The desirability of budgeting

Budget is a document which documents the plan of the business. This may include the objective of business, targets set, and results in financial terms, e.g., the target set for sale, resulting cost, growth, required investment to achieve the planned sales, and financing source for the investment. Also budget may be long term or short term. Long term budgets have a time horizon of 5–10 years giving a vision to the company; short term is an annual budget which is drawn to control and operate in that particular year

Capital budget

This concerns proposed fixed asset requirements and how these expenditures will be financed. Capital budgets are often adjusted annually and should be part of a longer-term Capital Improvements Plan.


Cash budget

Working capital requirements of a business should be monitored at all times to ensure that there are sufficient funds available to meet short-term expenses.

The cash budget is basically a detailed plan that shows all expected sources and uses of cash. The cash budget has the following six main sections:

1. Beginning Cash Balance - contains the last period's closing cash balance.
   
   
2. Cash collections - includes all expected cash receipts (all sources of cash for the period considered, mainly sales)
   
   
3. Cash disbursements - lists all planned cash outflows for the period, excluding interest payments on short-term loans, which appear in the financing section. All expenses that do not affect cash flow are excluded from this list (e.g. depreciation, amortisation, etc)
   
   
4. Cash excess or deficiency - a function of the cash needs and cash available. Cash needs are determined by the total cash disbursements plus the minimum cash balance required by company policy. If total cash available is less than cash needs, a deficiency exists.
   
   
5. Financing - discloses the planned borrowings and repayments, including interest.
   
   
6. Ending Cash balance - simply reveals the planned ending cash balance.
   
   

Personal finance

This is the application of the principles of finance to the monetary decisions of an individual or family unit. It addresses the ways in which individuals or families obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.

Components of personal finance might include the following-:

checking and savings accounts, credit cards and consumer loans, investments in the stock market, retirement plans, social security benefits, insurance policies, and income tax management.

Personal financial planning

A key component of personal finance is financial planning, a dynamic process that requires regular monitoring and reevaluation. In general, it has five steps:
Assessment: One's personal financial situation can be assessed by compiling simplified versions of financial balance sheets and income statements. A personal balance sheet lists the values of personal assets (e.g., car, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit card debt, bank loan, mortgage). A personal income statement lists personal income and expenses.
Setting goals: Two examples are "retire at age 65 with a personal net worth of $200,000" and "buy a house in 3 years paying a monthly mortgage servicing cost that is no more than 25% of my gross income". It is not uncommon to have several goals, some short term and some long term. Setting financial goals helps direct financial planning.
Creating a plan: The financial plan details how to accomplish your goals. It could include, for example, reducing unnecessary expenses, increasing one's employment income, or investing in the stock market.
Execution: Execution of one's personal financial plan often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, investment advisers, and lawyers.
Monitoring and reassessment: As time passes, one's personal financial plan must be monitored for possible adjustments or reassessments.

Typical goals most adults have are paying off credit card and or student loan debt, retirement, college costs for children, medical expenses, and estate planning.[citation needed]

techniques & sectors of the financial sector

An entity whose income exceeds their expenditure can lend or invest the excess income. On the other hand, an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims, decreasing its expenses, or increasing its income. The lender can find a borrower, a financial intermediary such as a bank, or buy notes or bonds in the bond market. The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary pockets the difference.

A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays the interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity. Banks are thus compensators of money flows in space.

A specific example of corporate finance is the sale of stock by a company to institutional investors like investment banks, who in turn generally sell it to the public. The stock gives whoever owns it part ownership in that company. If you buy one share of XYZ Inc, and they have 100 shares outstanding (held by investors), you are 1/100 owner of that company. Of course, in return for the stock, the company receives cash, which it uses to expand its business; this process is known as "equity financing". Equity financing mixed with the sale of bonds (or any other debt financing) is called the company's capital structure.

Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance), as well as by a wide variety of organizations including schools and non-profit organizations. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments and methodologies, with consideration to their institutional setting.

Finance is one of the most important aspects of business management. Without proper financial planning a new enterprise is unlikely to be successful. Managing money (a liquid asset) is essential to ensure a secure future, both for the individual and an organization.

What is Finance

Finance is the science of funds management. The general areas of finance are

1. business finance
2. personal finance
3. public finance.

Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interrelated. It also deals with how money is spent and budgeted.

Finance works most basically through individuals and business organizations depositing money in a bank. The bank then lends the money out to other individuals or corporations for consumption or investment, and charges interest on the loans.

Loans have become increasingly packaged for resale, meaning that an investor buys the loan (debt) from a bank or directly from a corporation.

Bonds are debt sold directly to investors from corporations, while That investor can then hold the debt and collect the interest or sell the debt on a secondary market.

Banks are the main facilitators of funding through the provision of credit, although private equity, mutual funds, hedge funds, and other organizations have become important as they invest in various forms of debt.

Financial assets, known as investments, are financially managed with careful attention to financial risk management to control financial risk. Financial instruments allow many forms of securitized assets to be traded on securities exchanges such as stock exchanges, including debt such as bonds as well as equity in publicly-traded corporations.

Central banks act as lenders of last resort and control the money supply, which affects the interest rates charged. As money supply increases, interest rates decrease.