9 Types of Finance To Pursue (Plus Career Tips)
By Indeed Editorial Team
Published September 2, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Video: Top 10 Jobs in Finance
Are you interested in a career in finance, but are not sure which job is best for you, or how to start preparing for it? We have you covered!
Finance is important for businesses, regardless of size or industry. Different roles in the financial industry help regulate, improve and maintain many areas of business, banking and management. Understanding the focus areas of finance can help you learn more about what economic fields interest you. In this article, we discuss the different types of finance and list tips to help you choose the right financial career for you.
What is finance?
Finance is the general term for subjects surrounding the investment, management and study of money. Most areas of finance are largely scientific, concerning statistical, economical and mathematical studies. Scientific examples of finance include economic theory, corporate finance and equity finance. Some subjects, like behavioral finance, use psychology and social studies to explain economic events.
9 types of finance
To better understand finance, consider exploring the following nine finance categories:
1. Public finance
Public finance is the governmental level of financial activity that manages state, providence and country governments. The government makes long-term investment decisions with a focus on public and economic maintenance. Its finance responsibilities include taxing, budgeting, spending, allocating and distributing income for states and nations. Administrations maintain financial responsibilities by establishing social programs, a stable economy and overall safety. Governments may also monitor spending to keep the local economy financially secure.
Public entities such as businesses, government organizations and nonprofit organizations use public finance as a stable financial source. The federal government helps prevent market instability or inflation by allocating taxed resources and distributing income. Governments borrow from banks, insurance companies and other nations to help finance various spending needs, such as public service, emergency aid and military efforts. Public finances take charges from airports, public water ports, fines, licenses and governmental bonds. Citizens also pay taxes to help finance government spending.
2. Corporate finance
Corporate finance is business-exclusive economic activity. This includes activities like budgeting capital, financing products and promoting company growth. Corporate finance focuses on risk management between potential capital gain and value assessment. Corporations may invest in selling or buying stock to increase cash flow or may accept loans to cover expansion efforts. Large businesses may arrange a line of credit to handle spending needs. Corporate finance experts help identify additional funding sources through equities, debts, creditors and shareholders.
Startups, or small businesses entering an industry, may receive supplemental pay, known as capital, from corporate investors in exchange for a small percentage of ownership. If a startup makes a profit in business or through the stock exchange, capital investors share in a portion of that profit. Well-known companies may sell its stock for higher profits or re-buy its own stock to increase overall share value.
3. Personal finance
Personal finance is an individual's fund planning for retirement, budget and financial goals. This kind of finance depends on a person's earnings, living space and circumstances. It secures savings over time, which provides protection against sudden expenses, such as medical bills or job loss. It also helps individuals transfer wealth from family members and generations, and it can encompass investments in education, real estate and medical expenses.
Private banking, including savings and checking accounts, is an aspect of personal finance. Activities surrounding personal finance include purchasing credit cards, insurance, retirement plans and mortgages. Filing taxes and accumulating savings are a part of regular personal finance needs.
4. Social finance
Social finance is investments made with social entities, such as charities and nonprofit corporations. As opposed to donation with public finance, social financiers choose to make investments for financial reward or social approval. Investors can make contributions toward the government, which act as a contract between the government and investor, or social impact bonds. Governments can repay social impact bonds by meeting certain requirements or social achievements, such as improving a town's school system or repairing a natural landmark.
5. Behavioral finance
Behavioral finance is the study of psychology's impact on finance. Its purpose is to understand why people make certain financial choices. Behavioral finance assumes that available information and individual characteristics influence most people's investment decisions. Behavioral finance also assumes certain individual characteristics impact market outcomes. This kind of finance established multiple theories, including:
Mental accounting: This theory suggests that people are more likely to assign purposes to amounts of money, such as one savings account for vacations and another for groceries.
Herd behavior: This is the assumption that people are more likely to mimic the actions of the majority, regardless of how rational or irrational they may be. Behavioral finance suggests that herd behavior may be one of the key reasons for stock market crashes and other financial breakdowns.
6. Debt finance
Debt finance is a subset of corporate and personal finance that involves debt and payment. Borrowers pay specific amounts to loan owners, plus an agreed-upon interest rate. While loan owners have no ability to influence borrowers' payment rates, interest usually provides an incentive to pay their debts back as quickly as possible. There are three types of debts that borrowers can incur: short-term, medium-term and long-term debts.
Short-term debts are loans that cover financial shortages. They typically pay for services, raw goods and demanded resources. Examples of short-term debts include credit cards, bank overdrafts and capital loans. Medium-term debts can help businesses repair damages, expand offices or increase inventory. Businesses usually purchase medium-term loans to increase their overall cash flow and profitability. Long-term debts are primarily business-used loans that help purchase land, buildings and resources. This debt usually has a repayment limit of five to 10 years. Interest rates for both medium- and long-term debts are relatively low, while short-term debts often have higher rates.
7. Equity finance
Equity finance is a method of raising capital by a business offering partial ownership, or shares, to the public. Well-known companies may apply for this finance to expand cash flow for project funding or expansion. When the public purchases shares, they receive a percentage of future profits. For example, if you buy a $10 share and it appreciates by 10% because of company profit or market increase, you would gain $1.
Microfinance, or microcredit, is a collection of services that aid people who can't use traditional banking or other finance methods. It provides opportunities for individuals to become financially independent. Individuals or families in low-income households can receive microfinance advantages from certain banks or nonprofit organizations. For example, banks may offer services like small insurance plans or the ability to open savings accounts for free. They may also offer specialized grant loans. Microfinance benefits can include financial training on concepts like investing, interest rate, budgets, debt and cash flow. Organizations may offer training for certain jobs involving bookkeeping or data management.
Social finance encompasses microfinance. For example, when investors donate small amounts to individuals, that's considered microfinancing. Investors can also distribute microfinancing to charities and nonprofit organizations to support the cause or the local economy.
9. Trade finance
Trade finance is an economic service that promotes international marketing and trade. Importers and exporters use trade finance to traffic their goods through local systems rather than global systems. Global trade methods sometimes offer risk to goods and capital. Global trade can also require fees that trade finance does not. Trade finance protects both parties from payment, political and credibility risks.
Trade finance improves efficiency and revenue by enabling direct contact between marketing partners. Third parties use direct trade transactions to help eliminate payment risks. Importers can receive a credit for an order they make, and when exporters fulfill their order, they receive payment from the third party. This provides an incentive for low risk.
Tips for choosing a career in finance
If you're considering a career in finance, explore some of the following tips:
Evaluate your specialization
The financial industry has many specializations, such as budget analytics, portfolio management and financial planning. Before choosing a specialization, consider several aspects of positions in that field, such as commute time, relocation possibilities and travel expenses. For example, some banking positions in corporate finance may frequently require relocation to meet with clients.
Getting a certification can help verify your abilities and further your career opportunities. Many financial jobs require certifications before they hire new employees. For international banking, some certifications require at least two years of experience in a professional setting. Other certifications, such as the Certified Financial Planner, evaluate an applicant's work experience and ensure they follow the Certified Financial Planner code of ethnics.
Build finance-related skills
There are many skills that are useful across all finance fields. Bankers who work in personal finance or corporate finance both use communication skills to discuss funds, arrange deals and secure offers with their clients. Other skills, such as organizational aptitude and technical knowledge, can help you excel in a finance position. Consider accepting jobs that may help build finance-related skills for future applications.
Please note that none of the companies mentioned in this article are affiliated with Indeed.
Explore more articles
- What Are Mentions? Steps and Tips To Track and Interpret Mentions
- What Is a Transitional Leader? (Plus Why They're Important)
- 12 Contract Management Software (Plus Features)
- 5 Online PhD Programs to Consider (With Benefits)
- 15 Character Development Tips To Use in Your Writing
- What Is a BS Degree? Complete Guide With a Jobs List
- 14 IT Project Management Best Practices (With Benefits)
- How To Create a Sales Process (Plus Why It's Important)
- 18 Types of Schedule Software To Explore (With Descriptions)
- How To Welcome a New Employee Virtually in 7 Steps
- 7 Steps To Keep Top Talent (With Tips)
- FAQ: Is Salesforce Training Worth It? (Plus Types and Tips)