EU - Personal Money Management (Lesson)

Personal Money Management 

Introduction

Understanding money management is an important trait throughout your life. The sooner you understand good money habits, the more financial security you will have in your future. Money is needed to buy any goods and services. Your income provides you with the money to spend on these services. Often people use credit to purchase items now and pay for them later. Understanding the concept of interest and borrowing money is important to a secure financial future. 

 

Types of Personal Money Management

Income - Income is typically what you receive when you work, but income is also considered money made off investments, money from gifts, or money from selling an item. All income is taxable. 

Budgeting and Saving - 

• Creating a budget allows you to see where you need to spend your money and how much you can save.
• Saving is also important because it puts away money that can be used in an emergency.
• There are many different ways to save money.
• Many people save money in a bank so they can earn interest, which is a charge that a bank pays you for using your money.

Investments - Investing is spending money in the hope of earning more money than is spent.

• Investments can be within a product or within a stock.
• Home values often increases over time. This increase is one of the reasons that homes are considered one of the best investments a person can make.
• Stocks and bonds are another kind of investment. Stocks and bonds are small investments in large companies. If the company does well, the stock makes money. If it does poorly, the stock loses money.
• Many people invest in stocks and bonds through a retirement plan through their job known as a 401k.
• A small percentage of their paycheck is withheld and added to their retirement account.

Credit - Credit is money that you borrow from a bank. When the bank uses your money, the bank pays you interest, but when you use the bank’s money, you must pay the bank interest.

There are many different types of credit:

• Credit Cards
• Home Loans
• Student Loans

Anytime money is owed, credit has been extended.

The key to personal finance is never to borrow more than you can pay off in a reasonable amount of time and to monitor the interest you are expected to pay back.

 

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Understanding your personal finances is key to a successful adult life. An income is the money you earn through working. Each possible career choice offers a different income potential, what you do with that income allows you to plan for daily life and future. Everyone pays taxes and bills and creating a budget is vital to make sure you have money from your income to pay these items. Setting aside money into savings allows a financial security net in case of an emergency. Understanding investments to maximize your earnings and being careful about credit will round out a successful financial future. 

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