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An overview of how individuals manage their money and the importance of setting financial goals early in life.
If you were given 1,000 richer a year from now, or would it all be gone? The difference isn't how much you make—it's how you manage it.
Quick Check
If you have 10, what is your current Net Worth?
Answer
$40
To manage money effectively, you must categorize your goals by their time horizon. This helps you decide where to put your money. Short-term goals are things you want to achieve in less than a year (like buying a video game). Medium-term goals take 1 to 5 years (like saving for a used car). Long-term goals take more than 5 years (like college tuition or buying a home). By segmenting goals, you can apply different strategies, such as using a basic savings account for short-term needs and investments for long-term growth.
Let's categorize three common student goals: 1. Short-term: Saving 2,000 for a graduation trip in three years. 3. Long-term: Saving $40,000 for a university degree starting in four years (if started in 9th grade, this spans into the long-term category).
Quick Check
A student wants to buy a laptop in 18 months. Which goal category does this fit into?
Answer
Medium-term goal
Your spending habits aren't always your own. External factors constantly nudge you to spend money. Social media creates a 'highlight reel' of others' lives, leading to FOMO (Fear Of Missing Out). Peer pressure encourages 'conspicuous consumption,' or buying things just to show status. Additionally, targeted advertising uses algorithms to show you products exactly when you are most likely to buy them. Recognizing these triggers is the first step toward financial discipline.
Imagine you see an influencer unboxing a new 10/hour at a part-time job, those shoes cost 15 hours of work. 3. The Opportunity Cost: By spending that $150, you are moving your medium-term car goal 15 hours further away.
Which of the following best describes 'Net Worth'?
If you are saving for a down payment on a house you plan to buy in 7 years, what type of goal is this?
Targeted social media ads are considered an internal factor influencing your spending.
Review Tomorrow
In 24 hours, try to explain the difference between an asset and a liability to a friend, and recall the three time horizons for financial goals.
Practice Activity
Track your spending for the next three days. For every purchase, identify if it was influenced by an external factor like an ad or a peer.