What are finances and how to use them to improve your money?
Finances are present in almost every decision we take, although often we are not aware of it. From paying for a coffee, saving at the end of the month, or deciding whether to invest, everything is part of money management. The problem is that no one teaches us to handle them well from the beginning.
In my case, I didn’t start with complex formulas or large amounts. I went to the basics: understanding how my money worked and, little by little, investing in some ETFs and stocks, without trying to get rich quick. And that is exactly what this article is about: understanding finances in a clear, practical, and realistic way.
What are finances and why they affect your day-to-day life
Finances are responsible for studying how money is obtained, managed, and used. It is not something exclusive to banks or large companies: they directly affect your daily life.
Every time you:
- decide how much to spend,
- choose to save or not,
- invest your money,
you are taking financial decisions.
The common mistake is thinking that finances only matter when you “have a lot of money.” In reality, the less you have, the more important they are, because every decision weighs more.
Types of finance: personal, business, and public
To understand the concept well, it is useful to separate finances into three large blocks:
Personal finance
These are the most important for most people. They include:
- income,
- expenses,
- saving,
- investment,
- debt.
This is where basic financial education comes in: learning not to spend more than you earn and making your money not lose value over time.
Business finance
Focuses on how companies manage their capital:
- investments,
- financing,
- growth,
- profitability.
Even if you don’t have a company, understanding them helps to invest better in stocks and understand what is behind a company.
Public finance
These are managed by States:
- taxes,
- public spending,
- debt.
They indirectly affect your pocket through taxes, inflation, and economic policies.
Personal finance: how to organize your money from scratch
If I had to summarize personal finance in one sentence it would be this: it is not how much you earn, but how you manage it.
When I started getting interested in this topic, I didn’t do anything sophisticated. First I organized my numbers and then I took simple decisions.
Saving, spending, and investment: the key balance
A basic and effective structure is:
- Controlled expenses (knowing where your money goes).
- Constant saving, even if small.
- Long-term investment to combat inflation.
Saving is important, but leaving money sitting for years usually makes it lose value. That is why, once you have a safety cushion, investing becomes key.
Common mistakes when starting
Some very common failures:
- Not keeping any control of money.
- Wanting fast results.
- Investing without understanding what one is getting into.
- Thinking that “investing is only for experts.”
I myself avoided many mistakes simply by not trying to guess the market or follow fads.
Investing as an individual: real options without complications
Here is where many people get blocked. Investing does not have to be complicated or risky if done wisely.
As an individual investor, there are two very common and accessible options: ETFs and stocks.
ETFs and stocks: what they are and how they are used
Before getting into comparisons, let’s look at the basics:
- Stocks: you buy a part of a specific company.
- ETFs: exchange-traded funds that group many companies into a single product.
In my experience, starting with ETFs was a simple way to diversify without having to analyze company by company.
Comparative table: ETFs vs Stocks
| Feature | ETFs | Stocks |
| Diversification | High (many companies) | Low (one company) |
| Risk | More controlled | More volatility |
| Dedication | Low | Medium / High |
| Ideal for | Beginners and long term | Those who analyze companies |
| Costs | Low | Variable |
| Complexity | Simple | Higher |
There is no universal “better” option. In fact, combining both is usually a quite logical strategy for many individual investors.
Risk, diversification, and long term
Three key concepts in finance:
- Risk: never disappears, it is managed.
- Diversification: not putting everything in one place.
- Long term: time is your best ally.
Investing without haste and with a clear strategy usually gives better results than trying to hit the best market timing.
How to start improving your finances today
If you are starting from scratch, these steps are more than enough:
- Track all your expenses for a month.
- Create a small emergency fund.
- Learn the basics about investment.
- Start little by little (you don’t need much money).
- Maintain consistency.
That is how I started: without complications, without unrealistic promises, and learning on the go.
Frequently asked questions about finance
What exactly are finances?
It is the discipline that studies how money is managed, both at a personal, business, and public level.
Is it better to save or invest?
Both are necessary. First save to have security and then invest to grow your money.
How much money do I need to start investing?
Nowadays, very little. There are ETFs and stocks accessible with reduced amounts.
Is investing risky?
Yes, but not investing is too, especially due to inflation. The key is to understand and manage the risk.
Conclusion
Finances are not just numbers, they are decisions that directly affect your peace of mind and your future. You don’t need to be an expert or dedicate hours every day: it is enough to understand the basics, avoid common mistakes, and be consistent.
Starting with simple options like ETFs, complementing with stocks if you are interested, and always thinking long-term is a realistic and achievable approach for the majority.