Introduction to Personal Finance

Personal Finance: All financial decisions an individual or family must make to earn, budget, save, spend and give money over time.
Asset: Anything owned by an individual, including money in the bank or investments.
Liability: Financial debts or obligations.
Debt: An obligation of repayment owed by one party to another, typically including interest.
Credit: The granting of a loan and the creation of debt; any form of deferred payment.
Expense: The cost of goods or services; money paid out.
Financial Literacy: The knowledge and skills to be an informed consumer and manage finances effectively.
Financial Plan: A plan of action to meet immediate needs and long-term goals.
Interest: The additional cost a lender charges for borrowing money.
Interest Rate: The percentage of principal charged by the lender for use of its money.
Net Income: Take-home pay after payroll taxes and other deductions.
Net Worth: The value of assets minus liabilities.
Negative Net Worth: Liabilities exceed assets.
Positive Net Worth: Assets exceed liabilities.
Paycheck to Paycheck: Living with income that is devoted to expenses with little or no savings.
Loan Shark: A lender who charges interest above the legal rate.
Financial Plan: A structured approach to reach both immediate and long-term goals.

Personal Finance covers all decisions to earn, budget, save, and spend over time.
Decisions are influenced by risk, planning, and future needs.
Core quote: wealth often comes from lifestyle choices like hard work, planning and self-discipline (The Millionaire Next Door).

The Five Foundations provide an action plan for personal finances (note: details not elaborated in the transcript).

Money math is easy; controlling behavior is the real challenge.
Personal finance is roughly 80% behavior and 20% head knowledge: $80\%\ \text{behavior},\ 20\%\ \text{head knowledge}.$
Wealth is often the result of discipline, planning, and perseverance.

The transcript provides a snapshot of debt by category for a "normal" American family.
You should understand the relationship between assets, liabilities, and net worth when evaluating progress.

Average U.S. household debt by category (illustrative values):
- Credit cards: Average debt $21{,}083$ ; Total US debt $1.25\text{ trillion}$
- Mortgages: Average debt $229{,}191$ ; Total US debt $12.44\text{ trillion}$
- Auto loans: Average debt $36{,}309$ ; Total US debt $1.62\text{ trillion}$
- Student loans: Average debt $55{,}573$ ; Total US debt $1.60\text{ trillion}$
Note: These figures illustrate scale and do not require memorization.

Today, about $83\%$ of American adults have at least one credit card.
Credit card companies market credit as normal.
Historical context:
- Before $1920$ , it was illegal for banks to charge interest on loans.
- The $1929$ stock market crash led to the Great Depression.
- The New Deal allowed banks to charge interest again to enable lending.
- Credit cards emerged in the $1950s$ .

You are in charge of your money, attitude, and behavior.
Lifetime Money Principles:
- Always make a Budget
- Stay out of Debt
- Live on Less than you make
- Be generous
- Live Like No One Else
Winning with Money:
- It’s not just understanding how it works; you must put your heart into it.
- 80% behavior, 20% knowledge.

Learn the language of money to tell your money what to do.
Before paycheck arrives: plan where money goes.
Communicate effectively with bankers, planners, and agents.
Steps to become Money Smart:
- Be comfortable with basic math.
- Learn the language of money.
- Learn to manage money behavior.

Are you a Saver or a Spender?
Quick self-check (based on statements):
- NATURAL SAVER: if you marked 2, 3, and 6.
- NATURAL SPENDER: if you marked 1, 4, and 5.
- BALANCE: if you marked a mix.