Finance is the study of money and investment that explains the fundamentals of investment, banking, capital market, etc. It is the management of money which includes different activities like – investment, saving, borrowing, budgeting, accounting, etc.
What is the meaning of finance – Definition
It is the management, study and creation of money and investments. It can be categorised as public, corporate and personal finance. Social and behavioural finance are the recently identified subcategories of finance. Those professionals who have to make certain financial decisions are part of this industry. Finance can be divided into three broad areas, which are as follows:
- Personal Finance: This refers to analyzing one’s own, or an individual client’s financial position and providing financial advice. Personal finance also involves buying or taking financial products or services like credit cards, insurance, mortgages, loans, etc.
- Corporate Finance: This segment refers to financial activities related to running an organization and overseeing the income, expenditure, and profit and maintaining the balance sheet, conducting audit, etc.
- Public Finance: This refers to a country’s financial policies in terms of tax, budgeting, investing, and expenditure for the citizens, which is directly linked with the country’s growth prospects.
History of Finance
The earliest evidence of finance can be found around 3000 BC. In the Babylonian empire, banking was found to be in existence in the form of temples and palaces as storage for valuables. The Code of Hammurabi is a legal text from the Baylonian empire that includes banking operation laws.
Earlier grains could be deposited but with time, precious materials and cattles were also stored. During this period, Uruk in Mesopotamia started the use of interest. By the year 1200 BC, cowrie shells were being transacted as money in China. By 600 and 570 BCE, use of coins as money started.
In modern culture, finance was initially a part of Economics. In 1940-50s, works of economic scholars such as Markowitz, Tobin, Sharpe, Treynor among others led to the distinction of finance from economics.
Finance Applications In Your Daily life
In daily lives, we use personal finance to make financial decisions that will benefit on an individual level. It is the individual level of financial planning and management. Through personal finance, one can manage, save and grow money for various purposes. It can be used for short term and long term financial goals.
- Short term goals: These are the financial goals that you have to fulfil in less than one year. These may include paying utility bills, credit card bills, school and college fees, grocery shopping etc.
- Long term goals: These are the financial goals for health and financial emergencies, education, marriage and retirement funds. These are meant for the future.
One of the important financial applications is budgeting. To efficiently manage personal finances, one may use different techniques such as 40-20-40 and 50-30-20 budget rule.
Where do we use finance? – Other real-world finance applications
There are three main areas of finance applications including:
- For individuals: Personal finance is the area of finance that helps in financial management for individuals. These include budgeting, investment decisions, tax saving and building financial corpus.
- For public: Public finance covers this area where government strategies, manages and applies monetary policy for the citizens of the country. Inflation rate, income tax, GST, bank rates, etc. are some examples of public finance.
- For business: This area includes business finance. All financial decisions that impact and enhance the finances of an organisation form a part of corporate finance. Most organisations have a dedicated finance department and a finance manager who is responsible for looking after the financial matters of the company.
Why use Finance?
Finance is a very important subject that ensures the stability of economies, banking systems, financial markets, businesses and individuals. With finance, we are able to sustain, manage, invest and grow money.
Without proper financial planning, business would become inoperable since they can face the lack of capital for crucial business operations. Without the knowledge of finance, investment will be non-existent and money will no longer be able to generate money. Overall, our lives will become very fundamental with the barter system.
Advantages of Finance
Following are the advantages of finance:
- Savings: It is one of the most fundamental objectives of finance. Through the basic knowledge of finance such as budgeting, you can save money. These savings can be further invested or used for different expenditures.
- Working capital: Through financial management, businesses can identify the amount of working capital they have. Working capital is the capital used for day-to-day business operations.
- Profits: Knowledge of finance helps businesses in earning and retaining profits. They can make financial decisions that can ensure less investment with positive ROI.
- Investments: In the 21st century, the concept of investment has become extremely important. Most of us are trying to make money out of money. This is possible through investment which ensures that money is put into assets and activities that will make them profit over a period of time. Fixed Deposits, real estate, mutual funds and SIPs, share markets, stock bonds, gold are some of the forms of investments.
Jobs in Finance
The financial services industry as a whole is very broad and has numerous job opportunities. Each finance job requires different skills, knowledge, and interest. Those who have interest in this field can opt for the following finance jobs :
- Commercial banking
- Personal banking (or private banking)
- Investment banking
- Wealth management
- Corporate finance
- Mortgages / lending
- Financial management
- Equity research
Popular Career Prospects in Finance
Let us now take a look at some of the most popular financial job profiles:
|Career Opportunities for Accounting Professionals|
|Senior Accountant||Senior Accountant – Commercial Finance & Accounts|
|Head – Accounts & Finance||Sr. Accounts – QuickBooks|
|Accounts Executive||Assistant Manager-Accounts Audit|
|Chartered Accountant||VP Portfolio Accounting|
|Career Opportunities for Bankers|
|Non-Branch Banking – Phone Banking||Credit Analysis – Specialist|
|Bank Officer Branch Banking||Acquisition Manager|
|Branch relationship manager||Banking Advisor|
|Associate – Financial Modeling||Banking and Capital Market Domain Analyst|
|Branch Banking||Behavioural Scorecard Development (Credit Risk)|
|Operations Manager||Process Associate|
Finance Job Salary
As per the data from AmbitionBox, different financial job profiles earn as follows on average:
|Industry||Average Annual Salary|
|Financial Services||₹7.9 Lakhs|
|Financial Controller||₹ 22.4 Lakhs|
|IT Services & Consulting||₹4.5 Lakhs|
|Auto Components||₹4.5 Lakhs|
|Financial Analyst||₹4.0 Lakhs|
|Accounting / Auditing||₹4.0 Lakhs|
|Cost Accountant||₹ 5.1 Lakhs|
|Finance Risk Manager||₹ 9.0 Lakhs|
How to build your career in finance?
To start a career in finance, an aspirant can take the following steps:
- Clear all the fundamentals of accounting and financial management concepts
- Choose the desired field such as banking, financial agencies, corporates, government, NGOs, etc.
- Get a degree in finance or related undergraduate/postgraduate programs
- Qualify in profile-relevant finance exams such as CA, CS, CFA, JAIIB, etc.
- Go for financial boot camps
- Gain knowledge of financial markets
- Take up popular finance certification courses (CFA, CPA, FRM, etc.)
- Go for certified formal training in finance (Investment Management Certificate IMC)
- Gain work experience through internships and jobs
Who Can Start a Career in Finance?
A degree in finance or management is a prerequisite for most jobs in the financial industry thus students with a finance degree or certificate can easily start a career in finance. Also, since finance is a very broad industry with different roles, most of the professionals gain new skills to shift from one domain to another.
Must-have Skills for Finance Professionals
As there are various career options for finance professionals, the skills for each job profile differs. Here, we will discuss common and the most important technical and soft skills for finance professionals:
- Accounting software and databases
- Advanced computer skills and MS Office
- Financial practices, standards, laws and regulations
- Knowledge of FX, MM, OTC Derivatives products like Commodity swaps, FX Options, Swaps, NDFs, IRS, Equity and Bonds
- Risk Management
- Financial modelling
- Financial markets
- Detailed-oriented and analytical skills
- Interpersonal skills
- Mathematical proficiency
Choosing the Relevant Finance Certification Courses
Those who want to build a career in finance can opt for certification that is relevant for their profile. To choose the most appropriate course, you can do the following:
- Identify the finance domain/sector that you want to work for.
- Check out the popular certification courses available for that profile.
- Check the eligibility criteria and other course details.
- Go through user reviews and career benefits of that course.
- Apply for the certification course, qualify in the related exam and get certified.
Popular Finance Certifications and Courses
Following are the popular finance certifications:
1. Chartered Financial Analyst (CFA) certification
- For professionals looking to start a career in asset management and equity research
- Time for completion: 3-5 years
Explore CFA courses
2. Certified Public Accountant (CPA) certification
- For professionals looking to start a career in accounting
- Time for completion: 2.5-5 years
Learn more about CPA
3. Chartered Alternative Investment Analyst (CAIA)
- For professionals looking to start a career in asset management and hedge fund industries
- Time for completion: 1-2 years
4. Certified Financial Planner (CFP) designation
- For professionals looking to start a career in investment or wealth management
- Time for completion: 4 years
5. Financial Risk Manager (FRM) certification
- For professionals looking to start a career in risk management
- Time for completion: Less than one year
6. Financial Modeling & Valuation Analyst (FMVA) certification
- For professionals looking to start a career in corporate finance
- Time for completion: Less than one year
Top Courses in Finance
Following are some of the best courses in finance:
- Essentials of Corporate Finance Specialization
- Corporate Finance Essentials
- Financial Accounting
- Risk Management in the Global Economy
- Financial Analysis and Financial Modeling using MS Excel
Most Important Topics to Learn in Finance
Here is the list of the most important topics to learn in Finance:
|Interest rates and spreads||Financial statements|
|Profit (net income)||Yield (coupon payments, dividends)|
|Cash flow||Cost of capital (WACC)|
|Risk and return||Rates of return (IRR, ROI, ROA)|
|Dividends and return of capital||Creating value|
As you can see, the career scope of finance is vast and always lucrative. Financial literacy is not just essential for organisations and the society, but also for personal knowledge.