get smart with money

Posted : April 10, 2018
Last Updated : October 3, 2018

get smart with money

Personal finance includes everything you do with money. Learn what it means to be financially responsible, how to recognize the difference between assets and liabilities, and how to explain the meaning of net worth.

Money 101

Personal finances simply means how you handle your money. It refers to all the money choices a person or family must make in order to earn, budget, save, and spend money – as well as plan for emergencies and for the future.

Most people view money as simply a way to get something they want. When you get money, you probably spend it without putting too much thought into what you are buying. But it won’t be long before the way you spend money will impact your financial security in the future.

The Five Foundations are the beginner steps for establishing and maintaining financial peace. These are basic steps that any teenager can and should follow in order to win with money:
  • First Foundation – Save a $500 emergency fund
  • Second Foundation – Get out of debt
  • Third Foundation – Pay cash for your first car
  • Fourth Foundation – Pay cash for college
  • Fifth Foundation – Build wealth and give

Debt Is Expensive

You might think most people are doing pretty well when it comes to money. They drive new cars, live in big houses, and wear nice clothes. The truth is that most people are living paycheck to paycheck. They run out of money from their last paycheck before they get their next paycheck.

To fill this money gap, many Americans borrow money – or use credit. Just because someone appears rich doesn’t mean they have a lot of money. People can have really nice stuff and not be rich. It can all be purchased on credit, and that creates a huge pile of debt.

What’s Net Worth?

To win with money, you’ll need to learn the language of money. One of the terms to understand is net worth, which is basically how much money a person, family, or business can claim as total value. Your net worth is figured by subtracting all of your liabilities (the things you owe, including any debt) from the value of all of your assets (the things you own and the money you have).

Example: Jose and Julia want to determine their net worth. They are paying a mortgage on their home. Josie drives a four-year-old truck, and Julia drives a twelve-year-old car. They have some money in the bank, but they both owe on student loans and credit cards. They have the following assets and liabilities:

Assets Liabilities
House - $190,000 House - $155,000
Truck - $22,000 Truck - $24,000
Car - $3,000 Student loans - $31,500
Money in bank - $7,500 Credit cards - $16,500

Total Net Worth
$190,000 - $155,00 + $22,000 - $24,000 + $3,000 - $31,500 - $16,500 + $7,500 = $4,500

Final Thought

Making smart choices with your money is the first step toward becoming financially responsible.

Source: Ramsey Solutions

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