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The Foundations of Personal Finance & Economics

5 days ago2 min read

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.



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





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