The Foundations of Personal Finance & Economics

Personal finance is one of the most important topics to know in today's day and age. Whether or not you have a part-time job right now, or are working towards getting a job after high school or college, it's essential to know how to effectively spend, budget, and save the money you earn.

Below, you'll find a short guide to some of the foundational topics of personal finance and economics, as well as some guides to money management tips!

---

Top 7 Words to Know:

• Active Income:

  • Income that you receive because of some service or action that was completed

  • This includes a salary, hourly wage, or tips! It could also be from bonuses or commissions.

  • Source

• Passive Income:

  • Income that you receive from activities that require less effort, time, and active participation

  • Some examples include dividends from stocks or money from rented items.

  • Source

• Credit

  • A form of borrowed money that is given to an individual with the understanding that it will be paid back at some point in time

  • You will usually accrue some type of interest on the money, which is a smaller additional payment made to compensate for any risks and more.

  • Source

• Debt

  • We hear this world used all the time in different contexts.

  • Debt is a certain sum of money that is owed to someone or some entity.

  • It is important to understand that remaining in debt for extensive periods of time can be detrimental to financial stability and success.

  • If you are unable to pay back debt (which I'll discuss below!), the bank can seize your assets.

  • Source

• Loans

  • A type of borrowed money that is usually in a large sum meant to pay for large expenditures, like a house or a car

  • There are different types of loans. Here are some of them:

    • Personal loans

    • Home equity loans

    • Small business loans

    • Cash advances

  • Source

• Fixed Expenses

  • Usually a term used in the budgeting world

  • These are expenses that will remain consistent even when there is a fluctuation in income or market conditions.

  • Examples include rent or mortgage, insurance premiums, loan payments

  • Source

• Variable Expenses

  • These are expenses that may change based on current needs, wants, and market conditions.

  • Some examples include groceries, entertainment, personal care, clothing

  • Source

    
    
  
  

Important Economics Concepts to Know:

Some of these ideas are more easily explained through a visual! Below I have provided some different infographics to help illustrate the concepts.

Supply & Demand Graph	Investing Explained
Types of Business Structures	Types of Insurance

If you're looking for additional resources about money management, I highly recommend reading through Investopedia, a website dedicated to all things finance!