Let us begin with the question, what is money?
We may have different expressions for it – cheddar, bucks, dough, and
c-notes – but money usually finds a way to overcome these barriers of
dialects and speak to us. That said, money is simply a measure of value
and a medium of exchange for goods and services. It exists in the form
of an officially issued coin or note, gold, real estate, stocks &
shares, a deposit in a checking account or other commodity of value.
There are two basic types of money: investments and liquid money.
- Liquid money refers to the cash we have either in our wallets or our bank accounts. They are what we use to settle our immediate expenses such as purchase of consumables or payment for services.
- Investment is the act of committing money or capital to an endeavor (such as a business, project, or the purchase of a commodity) with the expectation of obtaining an additional income or profit in the future.
Any money that comes to us as salary, wages, profit or stipend is an
income and whatever money we pay for goods and, or services rendered to
us is an expenditure. To keep track of our incomes and expenditures, we
need a plan to guide us. This plan is called a budget.
It is very important to be mindful of our expenses by classifying
what we are buying into ‘necessities and ‘luxuries’. Necessities are
those things people require to survive, such as food, shelter, clothing
and healthcare. On the other hand, luxuries are expensive but desirable
things without which we can survive.
More importantly, it is financially wise to cut down on luxuries to
be able to save and eventually make investments with the money instead.
We may need to borrow to execute some capital projects such as
building or buying a home, a car or some other ventures. In such cases,
the loan can be spread over a certain period so that it is paid in
installments.
One should at all times ensure that his/her income accommodates the expenditures with a little extra for saving.
This article comes courtesy CITI Bank as part of The Bankers
Committee Financial Literacy Public Enlightenment Programme. It is also
brought to you by The Bankers Committee, comprising all the commercial
Banks in Nigeria and the Central Bank of Nigeria (CBN).
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