According to the dictionary of the Royal Spanish Academy (RAE) , the term finances comes from french finance and refers to the obligation that a subject assumes to respond to the obligation of another person . The concept also refers to flow rates , the goods and the public finance .
In everyday language the term refers to study of the circulation of money among individuals, the Business or the different state . Thus, finances appear as a branch of the economy which is dedicated to analyze how the funds are obtained and managed. In other words, finance takes care of the Money Management .
The notion of personal finance It refers, in principle, to the money a family needs for subsistence. The person must analyze how to obtain this money and how to protect it from unforeseen situations (such as, for example, a job dismissal). Other applications of personal finance refer to saving capacity, spending and investment . Within this branch of finance, they are dedicated to finding alternatives for the lives of the particular individuals of a society to advise them on how to invest their money in order to achieve a positive balance, where losses decrease and, through a sustainable economy, collaborate with the environment and the increase in the quality of life.
The corporate finance On the other hand, they focus on the ways that companies have to create value through the use of financial resources. Investment, financing, benefits and dividends are some of the concepts linked to this area.
There are a number of concepts whose meaning allows us to understand even more the movement of money and the way in which finances are organized. Some of them are the ones mentioned below.
* Risk and benefit: refers to the search for an increase in profits without investing more than is advisable, that is, minimizing the investment risks. If the investor is willing to face greater uncertainty, his earnings may be greater;
* Value of money over time: it refers to the fluctuation that money lives over time, that is to say the change it represents between the present and the future (the money, when invested, acquires a future value potentially greater than it currently has). Over time, money has been a fundamental element for the economic growth of countries, however the increase in inflation and certain state strategies that are not very beneficial for the territory's finances, make it devalued both Over time, therefore, money instead of charging a higher value, loses it.
* Interest rate or interest rate: is the value that is paid for the funds requested on loan, which responds to the exchange that exists between the value of the current money and the one that it will have in the future (speculation). When the interest rate rises, both consumption and investment decrease since citizens lose the ability to pay their debts, therefore, by decreasing, these elements increase when they receive a significant stimulus for being able to pay less interest. This concept is very present in those who trace the macroeconomic policies when trying to boost economic growth; However, it is extremely dangerous because in many cases it leads to severe economic problems in the future, unable to bear the costs that the "citizens' debt" has left uncovered for a certain amount of time.
Finally, we can say that Public finances are related to fiscal policy of a state. He government obtains funds through the collection of taxes and that money reinvested in the society through public spending (with the construction of hospitals and schools, cleaning care, etc.).