ABCs of Finance: Everything about Finance


Finance is the term used to define anything related to the management and study of money and other financial instruments like investments. It is a fundamental aspect of our lives. It influences how you manage your money, make financial decisions, and plan for the future.
Today, the world of Finance has become quite complex compared to a generation or two ago. Understanding the basics has become essential for building a solid foundation of financial literacy. Thus, in this article about the ABCs of Finance, we will take a deep look at the basics about Finance, and we will provide you with all the needed information to know everything about Finance that will help you make informed decisions as an individual or for your company.
What is Finance? What are its types?
The term "finance" describes the system or study of creating, circulating, and managing money and other financial assets. It may include various activities such as financial planning, budgeting, investing, and saving money. 
Finance can be primarily divided into three categories - 
  1. Public Finance
  2. Corporate Finance
  3. Personal Finance
Public Finance  - 
Public Finance - It is the branch of Finance that deals with the revenue and expenditure of the governmental authorities. Tax is usually the primary source of public Finance. Borrowing money from banks and buying governmental securities and bonds are the other source of Public Finance.
Corporate Finance or the Business Finance -
As the name suggests, Corporate Finance is part of the finance industry that is primarily concerned with the financial aspects of a company or business.
Private Finance -
Private Finance refers to all the personal financial decisions and activities of an individual. It encompasses saving, budgeting, taking personal loans, financial planning, etc.
What is Financial Planning and Financial Management?
Finance management is referred to as the strategic planning and managing of one's finances and financial activities to better align their financial status to their goals and objectives.
Financial planning is the first step of financial management. It can be considered a comprehensive process of evaluating one's current financial situation and building a specific financial plan to reach the desired goals. A financial plan is essential as it helps you plan your life in advance and helps in making the right investments that fit your needs, personality, and desired goals.
What are the principles of Finance Management?
Everything about finance work on some principles. Understanding these principles of Finance is essential to manage personal and business Finance and eventually achieving your desired goals. These principles can be considered the ABCs of Finance Management - 
1. Time Value of Money
This principle suggests that the value of money changes over time; the same 1-dollar note was more valuable five years ago than the current time. Fiat money is a depreciating asset. This principle becomes the foundation for many key financial decisions, like whether to invest in mutual funds or stocks.
This principle is based on the notion that money can generate more money by the right investments over time. According to this principle, you need to think about the economys inflation rate (the percentage by which the currency depreciates) before investing your money anywhere. It also emphasizes that you need to achieve an ROI (return on investment) that is more than the inflation rate. 
This principle not only wildly impacts your investment strategy but also the loan repayment plans. It suggests that you need to first clear the loans with higher interest. Loans, with a lower rate of interest than inflation, can be repaid at a later stage.
2. Budgeting
Budgeting is a fundamental principle of Finance that involves creating a financial plan by estimating your income & expenses and saving for a specific period of time. Well-performed budgeting helps you avoid overspending on unnecessary areas, thus helping in managing your expenses.
3. Must Have an Emergency Fund - 
An emergency fund is one of the most crucial principles of financial management. Even if you know everything about Finance, not only the ABCs of Finance, you still can't predict what life has decided to throw at you. So, it is crucial to keep some funds aside for maybe an emergency visit to a dentist. As per experts, one must have six months to 1 year's worth of expenses as an emergency fund to sustain you in bad times. Only after you have kept a sufficient emergency fund aside should you start taking risks with other financial instruments.
4. Diversification 
Ever heard the phrase, "Don't keep all your eggs in one basket," It is because if the basket falls, all your eggs are gonna be ruined; multiple baskets reduce the dependence on a single basket. Diversification is essentially a risk mitigation strategy, which means spreading your investments across different assets or asset classes to minimize the risk. It is the best way of protecting yourself from the negative impact of one or two assets failing.
5. Risk vs Reward
The principle of risk versus reward recognizes the relationship between the level of risk and the potential for rewards. Generally, higher returns come with higher risks. Thus, Balancing risk and reward becomes crucial to find the investment strategy that aligns with your financial goals and risk appetite.
6. Asset Allocation
Asses allocation is tied to the concept of diversification. It involves dividing the entire investment portfolio into different asset classes such as stocks, cryptos, precious metals like gold/silver, real estate, etc. It is done to maximize the potential gains while keeping the risk low. This principle is crucial for creating a well-diversified portfolio.
How Can I Learn the ABCs of Finance?
The best possible way to learn everything about Finance is to join an undergraduate or master's program in Finance or accounting. An MBA in finance program from a good enough college will teach you all the ins and outs of financial management and financial accounting.
However, I understand that many of you might not have the time or money to invest in pursuing an MBA degree from a reputable college. Many of you have already graduated without Finance as your discipline. For such individuals, there are many quick finance certifications out there. You can enroll in such a financial management course to understand the ABCs of Finance.
If you want to know everything about Finance, then CFA or Chartered Financial Analyst is a self-study program that teaches you everything about Finance. It is also a well-recognized qualification in the world of Finance. If you want any help in finding a suitable financial accounting course or clearing that course, then feel free to contact us at NorthStar Academy (NSA). We at the NSA are determined to spread the knowledge of Finance to each and every student. We have many finance experts working to provide the best quality education to everyone.
Careers in Finance
Information about Finance can not be finished without talking about the career options available in Finance. There are many career options available to someone interested in Finance. Some of the most common options include - 
  1. Accountant
  2. Auditor
  3. Commercial banker
  4. Investment banker
  5. Capital manager
  6. Financial market analyst
  7. Financial Consultant


1. What are the ABCs of Finance?

Finance is the study of how individuals, businesses, and governments manage money. The ABCs of Finance include understanding concepts like budgeting, investing, risk management, and the time value of money.

2. What is Finance?

Finance is the term used to describe anything related to managing and generating  money and other financial assets. Although it deeply impacts our lives, many individuals don't even know the ABCs of Finance. Finance can be categorized into three primary types - Public Finance, Private Finance, and Corporate Finance.

3. What are the benefits of saving money?

Saving money has many benefits; it helps you have a secure financial future. Saving is handy in emergencies; it reduces your reliance on debt. If you have saved some money, you can also take advantage of any new investment opportunities. Most important of all, it offers peace of mind and a sense of control over one's financial situation.

4. Why is budgeting important in Finance?

Budgeting is crucial in Finance. It enables you to plan your finances, set goals, and allocate resources effectively. It helps in reducing unnecessary spending on products that you may not need. Thus, keeping your expenses in check. Proper budgeting can help you deal with your debts more effectively. It also assists in planning a roadmap for achieving long-term financial stability and success.

5. How can I manage and reduce my debt?

First of all, you need to understand where you stand. First, evaluate all your debts, and know the total amount and interest rate of the debts. Allocate some money from your monthly salary for the repayment of the debts. Pay the debts with higher interest rates first. If the maturity date is near and you do not have the required sum, you may consider issuing a new loan from the bank to settle that debt. You should also try to earn more money to clear your debts.

6. What is financial planning?

Financial planning is a process of evaluating an individual's current financial conditions and constructing a well-defined plan to achieve the required financial goals while considering current and future needs.

7. How can I improve my financial literacy?

To improve financial literacy, you can start by reading books and articles on Personal Finance. You can seek guidance from financial advisors and practice budgeting and financial planning to gain hands-on experience with managing money effectively. However, if you want to know everything about Finance and not just the ABCs of Finance, then enrolling in a financial accounting course is the best way to go.

8. What is compound interest?

Compound interest is the concept where interest is calculated not only on the initial amount of money (principal) but also on the accumulated interest. It results in the interest earned being reinvested, leading to exponential or compounded growth over time. Compound interest is the most commonly used concept in today's world. Long-term investments and savings accounts use this concept.

9. What is credit, and why is it important?

Credits can be considered as a financial agreement between the lender and borrower with the promise of future payment. The borrower promises to repay the lender, often with a pre-determined interest rate. It is important because it allows individuals and businesses to make purchases or investments without having to pay the full amount upfront. How the borrower repays, the lender impacts the borrowers credit score.. A higher credit score allows individuals to get larger loans at a lower interest rate.


Despite the tremendous importance of Finance in our lives, we are rarely thought much about personal Finance in schools. For such individuals, participating in a financial management course or financial accounting course can be a great idea to learn the ABCs of Finance.
There are many world-class tutors available online and offline that are willing to teach the ABCs of Finance. You just have to join the top institute like NorthStar Academy, offering the best Finance related certifications like ACCA, US CPA, etc. 
For any further queries, you can contact us and talk to our counselors.
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