Money, Money, Money. In A Rich Man’s World

What Is It And Why Do We Need It?

Introducing Rule number 1

As a kid, you are probably in a hurry to ‘grow up’. You want to be an adult so that you can do those cool adult things like having a job, driving a car and using a credit card. Credit cards are just like free money right? We’ll get to that later.

But as kids, you also have heaps of questions. Here is a list of some of the most common questions that my students ask.

Why do we need money?

How much money do I need to be ‘rich’?

What are some different ways to make money?

How do credit cards work?

How much of my income should I save?

How do I get a loan to buy a car?

Should I start a business?

How does the stock market work?

What jobs pay the highest income?

Let’s start with the basics first. We will have plenty of time to get to the rest in later posts.

What actually is ‘money’?

In ancient times, people just traded the things that they had for the things that they wanted. A goat for a chicken and some loaves of bread along with a dozen eggs. You can see why this was not a perfect system.

Hence, the incredible invention of money. So what is this money that we have now?

Well according to the economics explanation (the boring one), money does three things.

1. 1. Money is a medium of exchange – we use it to get the things that we want. We basically give up money to buy goods and services.
   2. Money is a store of value – it tells us how much things are worth and how much we own in terms of money. For example, we have a bank account with a bank balance. We have money ‘stored’ in the bank and that bank account has a certain value. If we own a house or a car, we know the monetary value of these so we know how much we can sell them for.
   3. Money is a standard of deferred payment: this just means that we can use it to pay for things at a later date. For example, we may have bills that we need to pay.

To simplify things further.

Money gets us ‘stuff’. Some of this is ‘cool stuff’ like clothes, games, sports equipment, iPads, cars and swimming pools. But we also need it for food, electricity, rent and internet bills. Our parents take care of this now, but they won’t forever 😉

Now, you may not have any income right now, or maybe you do. You may get an allowance from your parents or you might have a part-time job. We will discuss sources of income in a later post. Let’s assume that you have at lease some income.

The simple key to financial success is to make enough money to pay for all of our wants and needs and then to hopefully save for some extra cool things that we might want in the future like a holiday or a house.

Rule number 1: Spend less than you earn and save the difference

Why should we save?

Well, the reality is that when you get a job you will only be paid a certain amount and this amount will not be enough to buy everything that you want right now. Some things require us to spend more than we have now.

This means saving some of your income so that you accumulate enough over time to buy the things that you want. Some people will for example save for a whole year so that they can afford a holiday. How do you think your parents have been able to pay for holidays or Christmas gifts?

Rule number 1 will allow you to get the big things that you want. But this requires two things – patience and sacrifice. I know we don’t all excel in these areas. Developing a good, disciplined savings habit will help you to achieve your goals. It is something that should be a long-term part of your life.

Whatever your income is right now (allowance, part-time job) you should save at least a small amount every time you receive money just to start the habit. It really will help you for the rest of your life.

If you don’t already have one, then this is the time to open your very first bank account. Yes, that’s real adult stuff you’re doing right there. A bank account in your name where you put ‘your’ money.

I will repeat rule number 1 and end there. This rule will change slightly as you learn more about what you can do with your savings. But for now, it is really important.

Rule number 1: Spend less than you earn and save the difference.