What Is Finance?

Finance is centred around the management of money. Budgeting, spending, saving, lending, borrowing and investing, these are all aspects of finance.

Planning your finances to suit your needs is important if you want to maximise your chances of covering the costs of living, growing wealth and achieving lifestyle goals.

Defining Finance

At its most basic level, finance concerns acquiring funds for a particular purpose. Such funding extends beyond what is already available from household income through salaries, wages, pensions and investments, or a company’s capital from equity contributed by the company’s shareholders.

Additional funds to be acquired, or ‘financed’, are most commonly available from banks and other lenders or credit providers.

Types of Finance

Certain subsets of finance aim to meet particular needs, such as those of individuals, businesses and the public.

Personal finance

Personal finance is typically concerned with decision-making and money management by individuals or families. If a person’s or family’s income and savings could not cover all immediate needs, they may choose any of the following:

• Fixed-term personal loan or lease to get a new car, for example. The former can last for several years and the latter for an agreed number of years.
• Credit card to pay for goods or services, including recurring payments for such things as personal private health insurance, car insurance, vehicle registration, gym memberships and council rates.
• Decades-long home loan to buy a home.

Corporate finance

Corporate finance, generally in the form of money borrowed under lines of credit, loans or corporate bonds, is one element of a company’s capital structure. Another is its equity, which represents money initially contributed to the company, plus any added later by shareholders who bought new shares.

Both elements are pivotal to decision-making and cash flow management carried out by a company’s directors and executives. These financing decisions are made with a view to grow a company and generate shareholder return.

Whenever a company borrows money to fund operations, it is critical that it does not become over-reliant on debt. It must remain capable of meeting its obligations to pay interest and other expenses associated with its borrowings.

Public finance

Also known as government finance, public finance concerns money raised by federal, state and local governments. This can be from many revenue sources, including taxes, investments, levies (e.g. Medicare levies and ‘Budget Repair’ levies), stamp duty, fees, council rates and fines.

Public finance also relates to government spending on items such as:

• welfare payments to pensioners, the unemployed and other disadvantaged groups;
• hospitals and other health services;
• defence and border security;
• education;
• infrastructure, transport and communication; and
• public housing and public order and safety.

Read: What Is Fiscal Policy?

Governments also borrow money, accordingly carry debt and incur liabilities to pay interest on borrowings.

Governments can establish special-purpose investment bodies to make money that is to be applied in discharging large looming liabilities. For example, Australia’s ‘Future Fund’ seeks to cover annual unfunded Commonwealth superannuation liabilities. When the Australian Government sold its shareholding in Telstra, the sale proceeds went into the ‘Future Fund’ along with money from budget surpluses. The fund has grown substantially since it started in 2006 through accumulated investment returns.

Finance vs Economics

Finance tends to focus narrowly on the household, company and industry levels. It encompasses assessing risks and budgeting returns.

Economics has a broader focus. It is more concerned with the performance levels of regions, countries and markets. Economics also addresses public policy issues.

Read: What Is Economics?

Understanding Financial Economics

Financial economics is a branch of economics which analyses the use of resources in markets in which decisions always carry a degree of uncertainty. Making financial decisions when investing needs to take into account possible future events, despite usually being contingencies.

However, some events are predictable. For example, a company faces being put into the hands of receivers or other external managers if it is trading while insolvent or is unable to pay its debts as they fall due.

Other events have a small chance of occurring. For example, a trusted key employee, having signed a confidentiality agreement, later takes the employer’s customer lists or trade secrets for use in a new, competing business.

Lastly, there can be unexpected and significantly damaging events which can occur suddenly. For example, it is highly unlikely someone could have predicted the scale or been properly prepared for the COVID-19 pandemic. These rare events can heavily impact a company’s or individual’s financial decisions.

So, how does financial economics manage a collection of uncertainties that might affect financial decision-making?

Statistics, mathematics, including probability, and modelling are among some of the tools used. Modelling involves the testing and discounting of potentially relevant variables by making evaluations of time horizons. For example, accepting the fundamental principle that due to inflation and business risk $1 today is worth more than $1 a decade from now, otherwise known as discounting.

Financial economics also evaluates risks, opportunity costs and information such as the levels and types of financing in place. By distinguishing the total risk of a portfolio, investors can more comprehensively plan and mitigate investment risk.

Personal finance in practice: a five-step starting point

Finance can feel abstract, but the first steps are practical. Collective Shift's live strategy sessions start with a short personal audit: look at your finances like a balance sheet before setting any investing goals.

• List your assets: cash, super, shares, property, business interests and crypto.
• List your liabilities and their interest rates.
• Write down your goals and timeframes, such as an emergency fund, a home deposit or retirement.
• Work out the gap between what you have and what each goal needs.
• Automate saving and investing so it happens before spending.

Watch: Ben Simpson on this topic

What Collective Shift teaches about financial planning

In the October 2026 cohort's Week 1 session, Build Your Strategy Sheet Live, the team walked members through auditing their finances as a balance sheet, covering shares, super and business valuations, before setting goals. They noted that it can take about 20 minutes to half an hour, depending on how recently you last looked.

In his retirement video, Ben frames long-term planning around one number: the capital needed to cover the gap between your income and your living costs when you stop working.

• Audit first, then set goals.
• Pay yourself first by automating savings.
• Plan around the funding gap, not a guessed total.

The hosts describe automating savings with a simple direct debit, so money moves to a separate savings account or an index fund before it can be spent, then builds up without you noticing.

Paraphrased from Ben Simpson and co-host, in 10 Money Mistakes That Will Destroy Your Wealth

Where this guide comes from

This guide is written and reviewed by the Collective Shift research team. Collective Shift is a crypto research and education company founded in 2020 in Melbourne, and a research and education partner to Coinbase, Swyftx and CoinSpot. Sources used in this update:

• Video: 10 Money Mistakes That Will Destroy Your Wealth, Ben Simpson on YouTube (2026-02-05)
• Video: How Much Bitcoin Do You Need to Retire Early?, Ben Simpson on YouTube (2026-10-07)
• Collective Shift Knowledge Hub: (Oct Cohort Week 1) Build Your Strategy Sheet Live (6 Oct 2026) (ref d67ca0fd)

Last updated 30 October 2026. General information only, not financial advice. Consider your own circumstances and seek professional advice before making investment decisions.

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