How is money different from finance?
What is the difference between "money" and "finance"? Why is finance a broader and more important concept 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" – such an expression every person uses quite regularly. If you rise 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 exchange, 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 for a simple layman end.
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 formation, distribution and use of various monetary funds. Let’s simplify this complicated definition.
As you can see, finances are necessarily connected with certain monetary funds. Funds are created for specific needs. For example, the enterprise has a payroll fund, a fund for the purchase of fixed assets, a fund for the purchase of raw materials, a reserve fund, etc.
From here we single out difference No. 1: Finance has a specific purpose, but money does not.
Further. It can be seen from the definition that funds are formed, distributed and used. That is, there is a constant movement of money.
This is where difference #2 comes in: Finances are in constant motion.
Thus, if we simplify the definition of finance as much as possible and express it in simple words, we get the following:
Finance is target money in motion.
Unlike money, finance can not only be earned and spent, but also distributed, accounted for, planned, redistributed, and saved. 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 the concept of "personal money" with the concept of "personal finance". Start not just earning and spending money, but use it as a tool for creating and distributing cash funds for your key needs.
For example, each person should have their own personal reserve fund or, as they like to call it, a financial airbag – quick funds that can always be used in an unforeseen situation that requires 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 worth from 50-100% of the monthly budget and above.
And separate, the most important monetary funds can be considered investments – finances that are invested in various assets in order to generate income.
The presence of funds, their competent accounting and planning immediately increases the level of the financial condition of a person or family, even with constant income. Therefore, I strongly recommend that you change your attitude to money, start treating it like finance, which will definitely have a positive effect on your financial situation.