Money is NOT the most important thing in life, it is however, the most important thing FOR life. Just try living without it! What if you woke up tomorrow morning with no money and no way to earn any more? Would you hunt your breakfast, eat some berries in the woods, or drink from your local crystal clear creek? I’d be dead in three days, but that’s just me.
Financial literacy is a term describing knowledge and understanding about money and how it works in the real world. I suggest you become a tireless student of financial literacy. Money’s not that difficult to understand (it’s more about human nature) nor is it a math intensive subject. 3rd grade skills in addition, subtraction, the occasional division and, when you know a lot about money, multiplication will be sufficient. Here are a few terms to get you started:
- Financial literacy – the knowledge of money and how it works in the day to day world you live in. Knowledge is power, and you want power over money, not the other way around.
- Cashflow – as I said here, cashflow is money coming into your hands so you can pay for food, shelter and stuff.
- Earned income – money that you earn in a one-to-one exchange for work. “I’ll pay you $100.00 to play drums for a wedding this Saturday night.”
- Passive income – money you earn beyond a one-to-one exchange. “I won’t pay you to record the song, but you’ll get 10 cents for every copy that’s sold online.”
- Expense – anything that costs you money. It can be a one time expense like a book, or an ongoing expense like a credit card or water bill. Know the difference.
- Liabilities – anything that takes money out of your pocket. If you owe monthly payments on a car, it is a liability – owning the car costs you money each month.
- Assets – anything that puts money into your pocket. A savings account that earns interest and the song that pays 10 cents a copy are both assets.
- Balance sheet – a money tracking method where you write down all your money numbers to monitor and manage your financial health. The numbers should “balance”, thus the name. Income should balance with expenses (or be more) and assets should out number liabilities (or again, be more). When this happens you can pay your bills each month and pay off your liabilities by selling your assets.
- Financial independence – a worthy goal for you to have.
