Key factors in finance decisions

Personal finance

How much money will be needed by an individual (or by a family), and when?
Where will this money come from, and how?
How can people protect themselves against unforeseen personal events, as well as those in the external economy?
How can family assets best be transferred across generations (bequests and inheritance)?
How does tax policy (tax subsidies or penalties) affect personal financial decisions?
How does credit affect an individual's financial standing?
How can one plan for a secure financial future in an environment of economic instability?

Personal financial decisions may involve paying for education, financing durable goods such as real estate and cars, buying insurance, e.g. health and property insurance, investing and saving for retirement.

Personal financial decisions may also involve paying for a loan, or debt obligations.

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

Public finance

In Government circle, finance is about governments’ income and expenditure, which invariably deals with a nation’s budget for the year while budgets are statements about the ways government, plans to obtain income (i.e. revenue) and the ways it plans to spend such income during a particular year. It could be a deficit budget where expenditure is greater than the estimated revenue and as a result government plans to save for emergency situations or carry out capital-intensive expenditure.

A surplus budget where government expenditure equals estimated government revenue.

The government acquires its revenue from the following:

a) Indirect taxes – e.g. custom duties, excise, purchase tax and sales tax.

b) Direct taxes e.g. personal income tax, company tax, death duties, capital gains etc.

c) Miscellaneous receipts from loans, profits, grants and fines and royalties.