Unlocking Financial Literacy: Exploring the World of Finance and Money Management

Finance is a business term that is associated with banking, investments, capital, debt and credit. Managing money, such as balancing a checkbook, involves finance. At one point in every person's life, one must deal with finances. An important topic among finance is assets and liabilities. A diagram, such as a “cash flow quadrant” is used when talking money and even real estate can be important when talking about finance. Finance has multiple categories, such as personal, corporate and public finance, each with a different meaning. Finance interests me, and I believe becoming financially literate is something everyone should consider, which is why I choose finance as the topic for my project.

The term finance has multiple sub categories such as: personal, corporate and public. Personal finance deals with money management with an individual's life. Being able to manage assets to liabilities, debt to capital, etc. Corporate management deals with acquiring funds and the capital structure of an organization, where as public finance focuses on the role of government in the economy. This includes government regulation of taxes and production of goods within a business. Everyone deals with finance by comparing their assets to their liabilities. Well known entrepreneur, Robert Kiyosaki says that being rich comes down to managing your assets versus liabilities. Assets are items that put money into your wallet, such as real estate, dividends from stocks and bonds, and even owned business can be assets. A liability is something that takes money out of your pocket, such as cars, clothes. In the popular book, “Rich Dad, Poor Dad”, by Kiyosaki, he even says “your house is not an asset.” This is because the cost of owning a house takes money out of your account monthly. This is because of taxes like property tax and mortgage. Although some aren’t required to pay mortgage, the house requires maitence, which deems a house as a liability. People who are financially smart with finances and money management use their houses to “rent out” to other people. On the business persepctive, when entruepenurs or businessmen think of creating a new business or product they need funding. As the business grows, there are more financially creative wasy to aquire money. Being able to manage funds is important for upcoming businesses. An example of financial advancments in a company is productuion. As the years pass, technology becomes better, and serve as a great long-term investment. New technology is required to surpase competiotrs production rates and become more efficent. Financing these products allows the possibility for this to happen. This is an example of using your house as an asset. Money flows into your wallet, (generating passive income). Moreover, income statement shows your income to expense ratio, and financially balancing this statement is an effective way to make money. Income statements are a great way to measure cash flow. Along with income statements, assets and liabilites, cash flow is the most important term when managing finances. We are provided an income source, that either is spent on assets, or liabilities. Robert continues by saying “the rich don’t work for money in the form of income like employees do. Rather, the rich invest their money in assets that put more money in their pockets, such as real estate, stocks, bonds, notes, and intellectual property.” The poor (employees) work for their money and invest it in liabilities. This is why finance is important, because to acquire great wealth, one needs to have enough financial literacy to be financially smart.

The cashflow quadrant is a great way in measuring the placement of an individual within the financial world. The cashflow quadrant is divided into multiple sections. These sections are divided by letters. The letters in this quadrant are: E,S,B and I. The letter E stands for employee, S stands for self employed, B stands for business owner and I stands for investor. The point of this quadrant is to show the different paths an individual can take and explains why some are successful, compared to the many others who are employees. The left side of the quadrant is the “bad” side and the right side is the “good” side. The message this quadrant conveys is that the ones who strive for financial success must progress from the left side to the right side. The left side represents active income. Active income means that you’re trading your time for money. The right side is passive income. This is when the money works for you. Stocks, bonds and even real estate represent passive income because the money generates throughout time, even when we sleep. To follow this path is quite simple, the goal is to begin at the top left (E), and then end at I. The reason most people aren’t as successful as they want to be is because they’re comfortable, or don’t want to take on risk. They want job security, and this is what restricts a person from advancing. Even when you own your own business (self employed) you are still trading time for money, in which the business owns you. You spend time making sure production runs smooth, on account to your performance. It’s better than the employee level, but similar. Becoming a business owner with employees is one step higher, as they work for you and you don’t have to be present. The income generates while you aren’t at the business. Lastly, becoming an investor is a great way to generate passive income as the wealth grows all the time, this allows an individual to retire early, pay off any liabilities, etc. Becoming proficient at the stock market is a way many generate passive income, and terms to consider for the stock market are bull and bear market, liquidity, etc. Furthermore, financial markets are important to businesses who need capital.

In conclusion, managing money by determining assets to liabilities, debt to capital and much more can help you become financially literate, and help understand a sense for what finance is for the present day. Being knowledgable with finances ensures that you have enough financing for your business, or personal desires. For business owners, finance is crucial for career development, as it helps you secure funds for long-term investments. The cashflow quadrant is a great represntation of the strcutre of finance on empolyees, business owners, self emoplyed people and inveestors. It shows the difference between finacinal security and finanical freedom, and explains the difference between the two.Without finance, people will spend their lives trading time for money, never advnacing to aquire great wealth, and will always be in debt.