Finance fundamentals and contemporary applications

Finance

Lessons Learned in Finance

Personal and professional lessons learned and insights gained from studying finance are directly applicable to many decisions in everyday life. From balancing a checkbook to putting a down payment on an apartment, saving for a home, buying one, refinancing one, and purchasing a car all are directly influenced by finance. Most insightful is the powerful nature of a credit score on the interest rate lenders are willing to offer. A high credit rating as they relate to both individuals and businesses saves thousands of dollars in interest payments. This fact alone is reason to pay attention to the impact of finance on both personal and professional pursuits.

Over and above managing credit scores, a more insightful understanding of finance also makes both personal and professional lives has to do with managing income and expenses to a budget that is realistic and measurable. Where accounting provides the basic tools for managing the inflows and outflows of revenues relative to expenses, finance provides invaluable analytical tools for analyzing how and why there are variances relative to budgets and expense projections. This distinction of providing greater analytical insights into spending has direct implications on both a persons' professional and personal life. Of the many financial analysis tools, techniques and metrics, the liquidity ratio, current ratio, and measures of liabilities relative to assets are all critical for managing both professional and private lives' financial conditions. While few people use ratio analysis to analyze their own financial condition, many do the rough approximation of how they are doing on key measures of financial health compared to their goals and objectives.

The structuring of debt and its implications on cash flows, the structuring of payback periods, the use of fixed vs. adjustable-based loans, the use of accelerated loans, and conversely, the use of annuities, compound saving strategies, asset appreciation and portfolio planning all are based on finance. For the small business owner balancing these many strategies the need to trim down liabilities and aggressively manage debt while maintaining and growing annuity from customers is critical, in fact the lifeblood of their businesses. In many respects this same balance of managing liabilities and assets needs to pervade individual financing decisions. This goes beyond simply staying within budget; it requires the use of insightful tools and analytical techniques for managing to financial goals and objectives.