01 – Basic Concepts of Personal Finance and the Origin of Money

Lesson 1 – The Best Free Finance Course in History

In this first lesson of The Best Free Finance Course in History, we'll cover basic concepts of money and personal finance. What is money? Why save? What tools do we have to do it?

What is money and how is its value defined?

Money is something we use every day, but we rarely stop to think about what it really is. It's like the "universal language" that allows us to exchange things: goods, services, time, and effort. But what makes it so special? Why do we trust it? Let's explain it in a simple and straightforward way.

What is money?

Money is a tool we use to make exchangesInstead of carrying a cow around to exchange for a TV (which would be quite inconvenient), we use money as an intermediary. Thus, money fulfills three main functions:

1. It is used to buy things. We use it to pay for goods (like clothes or food) and services (like a haircut).
2. Allows you to save value. If you work today and earn money, you can save it to use tomorrow or in a year.
3. It is a unit of measurement. It helps us put a price on everything. For example, we know how much a pizza costs because it's priced in pesos, dollars, euros, etc.

Money wasn't always what we know today.

Thousands of years ago, money didn't exist. People bartered: they exchanged one thing for another. For example, if you had a lot of chickens and wanted bread, you'd look for someone with bread who wanted chickens.

The problem was that interests didn't always coincide. What if the baker didn't need chickens? This is where money appeared, first as valuables (gold, silver, snails) and later as coins and banknotes.

Nowadays, most money isn't even physical. It's digital, like the money we keep in our bank accounts or virtual wallets.

Where does the value of money come from?

Here comes the most interesting part: the money itself, has no real valueA banknote is just a piece of paper with pictures and numbers on it. So why do we accept it as something valuable? There are two main reasons:

1. Trust. We believe in the value of money because we know other people accept it too. If I go to the supermarket with $100, I know the cashier will accept it because we all trust that system.
2. Government support. Banknotes and coins are issued by a central bank (in Argentina, the Banco Central de la República Argentina) and are backed by the country's laws.

The value of money can also depend on things like supply and demand. If there's too much money in circulation, it can lose value (this is called inflation). If there's too little, it can gain value.

Money does not always have the same value

The value of money changes over time and depends on each country's economy. For example:

• If they print too many bills, each one is worth less, because there are too many in circulation (like when there are too many players on a soccer team and not all of them can play).
• If the economy is stable and people trust the government, money generally maintains its value.

A simple example: in Argentina, the peso has historically lost value rapidly due to inflation. Because of this, many people choose to save in dollars, which is a more stable currency.

What can you do with this information?

Understanding what money is and how it works helps you make better decisions. For example:

• Save. Saving money is important, but it's also important to consider where you do it (in a bank, in dollars, investing).
• Invest. If you have a little extra money, you can put it to work for you instead of losing value due to inflation.

Money isn't magic. It's a tool created by people to simplify life. Understanding it well can change how you use it and how much value you give it..

Different savings approaches: short and long term

Saving is one of the best decisions you can make with your money. It's like planting a seed: you can choose a plant that grows quickly or a tree that takes longer to grow but will last for many years. Depending on what you want to achieve, there are two types of savings: short-term and long-term. Let's explain it simply.

What does it mean to save in the short term?

Short-term savings is putting money aside for something you'll need soon, such as in the next few months or a year.

For example, you can save in the short term to:

• Buy a new cell phone.
• Pay for a vacation.
• Have an emergency fund, such as car repairs or unexpected medical expenses.

Saving in the short term means choosing places where money is safe and quickly accessible. Some options include:

• Save it in a bank account.
• Use a virtual wallet.
• Invest in something low-risk that allows you to withdraw it easily, such as a traditional fixed-term deposit or low-risk mutual funds.

This type of savings is practical because you can use it quickly if something unexpected comes up.

What does it mean to save long term?

Long-term savings is setting aside money to accomplish important goals that will take several years. It's like building something big, step by step, with patience.

Some examples of long-term savings are:

• Buying your first house or apartment.
• Ensure a good education for your children.
• Saving for your retirement.

In this case, you can look for options that allow your money to grow over time. Some ideas include:

• Investments in the stock market.
• Medium or high-yield investment funds.
• Fixed-term deposits that offer better rates for not having to withdraw the money for a long time.

This type of saving requires patience, but it can generate more benefits because your money "works" for you over time.

How to choose the right approach?

It all depends on your goals. Think about what you want to achieve with your money and how much time you have to do it.

If you need money quickly, such as for an emergency or something important, then short-term savings are best for you. However, if your goal is big and requires time, long-term savings are the ideal option.

The ideal is to combine both approaches. You can have part of the money for immediate goals and another for bigger dreams. This way, you'll be sure to be prepared for everything.

The secret to success in saving

The key is consistency. It doesn't matter if you save a little or a lot, the important thing is to do it regularly. Over time, each peso you save adds up to the previous one and brings you closer to your goals.

Saving doesn't have to be complicated or a huge sacrifice. It's simply about making smart choices so your money can help you build the future you want.

Tools to control your personal expenses

Keeping track of your personal expenses is like having a map to avoid getting lost on a trip. If you know where you're going and which route to take, you'll ensure you don't run out of money before your time. Let's look at some simple tools you can use to better manage your money and avoid running into the red. Watch the following video to see these tools in detail.

1. Make a budget

A budget is simply a list of your income (money you earn) and your expenses (money you spend)Doing so helps you know exactly how much money you have available to spend and how much you need to save.

How to do it?

• Step 1: Write down how much you earn per month (your salary, your extra money, etc.).
• Step 2: Write down all your expenses, such as rent, food, transportation, entertainment, etc.
• Step 3: Subtract your expenses from your income. If you have any money left over, great! You can save or invest that. If you spend more than you earn, you'll need to cut back on some expenses.

2. Use an expense tracking app

Nowadays, there are many apps you can use to quickly and easily track your spending. These apps allow you to record everything you spend and show you if you're spending more than you should.

Some popular apps are:

• Fintonic. It shows you a summary of your expenses and alerts you if anything unusual happens.
• Monefy. It's very easy to use; just add what you spend, and the app organizes it by category.
• Spendee. It also organizes your expenses into categories and shows you graphs so you can better understand how you're spending.

3. Have a separate bank account for savings

One way to control your expenses is set aside money that you won't use immediately, so you don't spend it accidentally. You can open a savings account or simply use a separate account to set aside the money you want to save.

This way, you only use the money you have in your main account for daily expenses, and when you need to, you can transfer what you've saved to your main account.

4. Write down your expenses in a notebook or spreadsheet

If you don't like apps, you can always do it manually. Keep a notebook or spreadsheet (like Excel) to record everything you spend. Make sure you do this every day so you don't forget any expenses.

For example, you can have a column for each type of expense:

• Meal.
• Transport.
• Entertainment.
• Clothes.

5. Set savings goals

Having a clear goal will help you save more. If you know you need to save for a vacation or an emergency fund, it will be easier to control your spending. You can write down these goals and review them every month to see how you're doing.

6. Review your expenses regularly

It's important to review your spending from time to time to see if you're sticking to your budget. If you realize you're overspending on something you don't need, you can change it. For example, if you're buying a lot of coffee or eating out, you could try cutting back on those expenses.

7. Avoid impulse purchases

One of the best ways to control your expenses is think before you buyIf you've got your eye on something, wait at least a day to decide if you really need it. Sometimes impulse purchases can add up to a lot of money without you even realizing it.

Conclusion

Controlling your spending doesn't have to be difficult or complicated. It just takes a little organization and commitment. Using tools like a budget, apps, or simply recording your expenses can make a big difference. Remember that, in the end, the goal is to control your money so you can save and achieve your goals.

Summary of the most important ideas:

What is money and how is its value defined?
Money is a medium we use to exchange goods and services. Its value depends on people's confidence that it can be used to obtain what we need. Value changes according to supply and demand, that is, it depends on how much we can buy with it at a given time.

Different savings approaches: short and long term
Short-term savings are intended for immediate goals, such as purchasing something soon or having funds available for emergencies. Long-term savings are for larger, more distant goals, such as buying a home or for retirement. It's important to balance both types of savings to achieve financial stability.

Tools to control personal expenses
Controlling personal expenses is key to not spending more than you earn. To achieve this, you can use tools such as budgets, financial apps, and separate savings accounts. These tools allow you to keep track of income and expenses, ensuring that there is always money available for what you need and that you can save for the future.

To remember and apply:

What is money and how is its value defined?

1. Money has value because we all agree it's used to buy what we need. You can think of it as a tool we use to get things in exchange, like food or clothing.
2. The value of money depends on what you can do with it. If there are more things to buy, money has more value. If there are fewer things, its value decreases.
3. Money isn't always physical (like bills or coins). It can also be digital, like money deposited in a bank account or on a credit card, and its value is defined in the same way: by the trust we all have in being able to use it to exchange things.

Different savings approaches: short and long term

1. Short-term savings means putting aside money for things you'll buy soon, like a cell phone or a vacation. You can do this by setting aside some money each month until you have enough.
2. Long-term savings means setting aside money for larger goals, such as buying a home or saving for retirement. This takes much more time and patience because you need to set aside money consistently over several years.
3. Combining both approaches is a good strategy. You can save in the short term for more immediate things and in the long term for something important you'd like to achieve in the future, like having an emergency fund.

Tools to control personal expenses

1. Making a budget helps you know how much you earn and how much you spend each month. You write down your income and expenses to make sure you're not spending more than you have.
2. Using a finance app is an easy way to track your spending. Just enter your spending, and the app will show you if you're overspending in any category.
3. Separating your money into different accounts, such as one for everyday use and another for savings, helps you avoid spending what you want to save for the future.

Further reading:

https://elinversordebolsillo.com.ar/emision-de-dinero

Why Financial Planning is Essential

Living with 3,000,000 Pounds of Monthly Inflation: Germany's Incredible Hyperinflation of 1923

Next course date

Lesson 2 comes out on January 29th. You will be able to access it with this link.

Questions for you to reflect on

Does money itself have value? What does it depend on?

What tools do you have to take care of your savings?

Why is it essential to know how to distinguish between short-term and long-term savings?

A brief overview of The Pocket Investor

The Pocket Investor is a project that combines experience and passion for financial education to help you transform your relationship with money. Through personalized mentoringI help you design investment strategies tailored to your goals and needs, optimizing your portfolio to address challenges like inflation and the dollar.

My books on finance and investment, including the popular The Argentine Pocket Investor - El Inversor de Bolsillo argentino, are practical tools that explain complex concepts in a simple way, bringing the world of investments closer to anyone interested in financial growth.

In addition, in the course The Pocket InvestorI combine all this knowledge to offer you a complete experience: theory, practice, and strategies that truly work in the Argentine and global context. All this with a clear, friendly, and accessible approach, so you can achieve financial independence.

See more notes from our blog:

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