What is the meaning of private finance?


What is Private Finance?

Private Finance can be classified into two categories the personal finance and business finance. Personal finance deals with the process of optimizing finances by individuals such as people, families and single consumers. A great example is an individual financing his/her own car by mortgage. Personal finance involves financial planning at the lowest individual level. It includes savings accounts, insurance policies, consumer loans, stock market investments, retirement plans and credit cards.

Business Finance involves the process of optimizing finances by business organizations. It involves asset acquisition and proper allocation of funds to in a way that maximizes the achievement of set goals. Businesses can require finances on either of the three levels; short, medium or long term.

Differences between Public and Private Finance

1.  Income and Expenditure Adjustment in Public and Private Finance

The government adjusts the income according to the expenditure budget. The private sector including individuals and private businesses adjust their expenditure according to the income or future estimates. The government first creates an outline for the expenditure then devices means of acquiring the monetary budget needed. Private finance involves cutting your coat according to your cloth.

2. Borrowing in Public vs. Private Finance

The government can borrow from itself, it can simply go back to the people to ask for loans in whichever financial asset e.g. bonds, when shortages arise. However, an individual can’t borrow from itself.

3. Currency ownership in Public vs. Private Finance

The government is in charge of all aspects related to currency. This involves the creation, distribution and monitoring. No one in the private sector is allowed to create currency, this is illegal and most countries classify it as a capital offense.

4. Present vs. future Income

The public sector is more involved with future planning and making long-term decisions. The government makes decisions that will bear fruits in the long-term even ten years. These investments could include building of schools, hospitals and infrastructure. The private industry makes financial decisions on projects with a shorter returns waiting time.

5. Objective Difference in Public and Private Finance

The public sector’s main objective is to create social benefit in the economy. The private industry seeks to maximize on personal or profit benefits.