Finance is all about common sense

Alan Lester

Finance is the lifeblood of businesses and people; simply put, it is a study of money management and how it affects business and our personal lives. In other words, how to save and spend wisely.

Many of the students in my finance courses are initially apprehensive about the course itself. I tell my students that planning for financial success in business and our personal lives is no different than planning game strategy in sports. What is the game plan? How are we going to win? What must we do?

I explain that all organizations, households, and people need to set realistic goals from the five principles of finance; 1. cash flows (the most important since if a business or household does not have positive cash flow, survival is extremely difficult); 2. time value of money and the importance of compound interest; 3. need versus want — the monetary effect on our level of satisfaction, growth and success; 4. cost versus benefit — the comparison of benefits over costs; and 5. risk versus return — the level of risk undertaken for a level of return.

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