Learn about earning, spending, saving, and investing money. Learn how they are related and how you can build wealth.
Do you have an allowance? Have you done chores and got paid? Do you have a job? If you have, then you have earned money. Earnings refer to the money you earn from a job. People earn money by having some sort of job. You can work providing a good or service.
Spending is the act of giving money to purchase goods or services. Everybody has to decide what they’ll do with the money that they earn. They will spend it on the things they need or want. You can’t have everything you want, so you have to make important decisions about the things you spend your money on.
Instead of spending, will you save it? It’s the process of putting aside money for future uses, and not spending it immediately. You can save money to achieve short-term goals, such as saving to buy new clothes, or a gift, or long-term goals such as buying a car, or house. Also, saving money can help you cover unexpected expenses such as medical expenses, or pay for repairs for your car.
Investing is something you can do with the money you save. Its related to saving, but with investing you take bigger risks with your money with the hope that they will increase in value. Investing is the process of buying assets, also called investments, with the hope that they will increase in value over time or provide income payments. It’s a way to hopefully increase the amount of money you have.
So how is earning, spending, saving, and investing related? Its all related to wealth. Saving and investing is about building wealth. We can summarize it all as
WEALTH = what you EARN (work, investments) – what you SPEND.
If you spend more than what you earn, you are in danger of losing wealth and going into debt. If you already have debt, it will grow bigger. By spending less than what you earn, and saving your money, you will create wealth.
Understanding earning, spending, saving, and investing is the foundation of smart personal finance. Mastering these skills is key to mastering money, and achieving your financial goals.