What is the difference between the concepts of "money" and "finance"? Why is finance broader and more important than money? How to turn money into finance?
In everyday life, we are all used to operating with the concept of "money". "Make money", "spend money", "borrow money", "save money" - every person uses such an expression quite regularly. If we go up to higher levels, then it is easy to see that the concept of "money" is rarely used there - the concept of "finance" prevails: "enterprise finance", "municipal finance", "public finance", etc. What is the difference? How is money different from finance?
Money is a simpler concept. If we open textbooks on macroeconomics, we will read that money is a measure of value, a medium of circulation, a universal equivalent for determining the value of goods and services. At the household level, money can be earned and spent. This is where the key functions of money end for a common man in the street.
Finance is a more complex concept. Again, economics textbooks will tell us that finance is a set of economic relations that arise in the process of the formation, distribution and use of various funds. Let's simplify this tricky definition.
As you can see, finance is necessarily associated with some kind of monetary funds. Funds are created for specific needs. For example, an enterprise has a salary fund, a fund for the purchase of fixed assets, a fund for the purchase of raw materials, a reserve fund, etc.
Hence, we highlight the difference №1:.
Further. The definition shows that funds are formed, distributed and used. That is, there is a constant movement of money.
Hence the difference №2:.
Thus, if we simplify the definition of finance as much as possible and express it in simple words, we get the following:
Finance is targeted money in motion.
Unlike money, finance can not only earn and spend, but also distribute, take into account, plan, redistribute, save. This is much more important and correct.
Based on these differences, it is very important to change your attitude towards money at the level of each person or family and start treating it like finance. Replace personal money with personal finance. Start not just making and spending money, but use it as a tool for creating and distributing funds for your key needs.
For example, each person should have their own personal contingency fund, or, as they like to call it, a financial safety cushion - readily available funds that can always be used in an unforeseen situation requiring urgent expenses.
It is also advisable to form savings funds for large purchases that a person or family cannot pay from their current income. Large purchases can be considered to cost from 50-100% of the monthly budget and more.
And individual, the most important monetary funds can be considered investments - finances that are invested in various assets in order to generate income.
The availability of funds, their competent accounting and planning immediately increases the level of the financial condition of a person or a family, even with constant income. Therefore, I strongly recommend that you change your attitude towards money, start treating it like finance, which will definitely have a positive effect on your financial situation.
