Almost everyone needs some amount of money to live the life they want… But not that many people actually understand how to use money wisely. Understanding money, how it works, how to budget and how to save it, will help you be better with your own money. Then you can be sure that you have enough of it to buy the things you need, and save up for the things you want!
But wait: what IS money, really?
Well, we all KIND OF know what money is. It’s something that we exchange to pay for things. We exchange money for goods and services that we need or want. Buying food and clothes, going to a movie, or eating at a restaurant… That’s spending money. We also can make money, which is when we receive money from other people or companies. Lots of people make money from working at a job, and some people get money from government funding, from their parents, or from other sources.
What does “money” mean to you? You may think of a $20 (twenty dollar) bill, which you can keep in your pocket and then spend at a store. That’s pretty easy to imagine. But sometimes money is harder to imagine, because you can’t hold it in your hand: it just looks like a bunch of numbers on paper, or on a computer screen! That’s where things get tricky.
On this page, we’ll be learning a lot about those hard-to-imagine kinds of money. Some of it may make you feel good, like the dollars in your bank account (that’s money that you own, and can spend later). Some of it may make you feel bad at first, like the dollars on a bill you owe (that’s money that you will have to give to someone else to pay for something, like using your telephone). But understanding both kinds of money is very important if you want to manage your money well, and make sure you have enough.
The more you learn, the less scary and confusing all that money will be. It doesn’t matter whether the dollars are in your hand or written-down: you can learn how to manage them, and become a money master!!!
When you buy things “with cash,” you give the seller some bills, coins, or both. If you give them too much money, they need to give you some back. That money you get back is called “change.”
People who sell things have to “make change” a lot, since most of the things they sell don’t cost exactly the same amount as the money their customers have in their pockets. For example, let’s pretend that you work at a coffee shop that sells cups of coffee for $3. If a customer pays for a coffee with three $1 coins, then they have paid exactly $3 and you don’t have to give them any change. That’s called “exact change,” and it’s nice and easy when that happens!
But what if a different customer only has a $5 bill? They can’t give you exact change, so you will have to make change for them. Since they’re paying for a $3 coffee with a $5 bill, we need to do some simple math. We start with the amount they gave you, and then subtract the amount they needed to pay (the price of the coffee). The result will be the amount we should give back to them (their change). Here we go:
5 – 3 = 2
It looks like you owe that customer $2 in change! Once you give it to them, everything will be fair. They started with $5, and ended up with $3 worth of coffee and $2 in change.
Sometimes the math is harder, especially when cents are involved. But no matter how big or small the numbers are, making change works the same way.
Here’s a video on how to make change using math:
Practice with Money Master
Ready to practice making change? Money Master is a game where you make change using coins. Click “Canada,” then the “Give Change” button in the bottom left corner. Then just drag the coins into the square to give the customer their change!
Try out Money Master by clicking below:
A “budget” is a special kind of plan that you can make. A budget will tell you how much money you should spend on certain things every month. If you make a good budget and then always follow it, you will not run out of money. That’s why budgeting is so important, and why lots of people do it.
Here’s an example to show you how a budget works:
Let’s pretend I make $1000 a month from my job, and I also get $1000 a month from the government. If we put those together, I make $2000 a month in total. That’s how much I can spend every month: if I spend more, I will run out of money. If I spend less, I can save some money for later. This money that I make every month is called my “income.”
Now that we know my income, let’s find out how much I need to spend every month. Let’s pretend that I have to pay $1000 a month to rent the room I live in. I also have to pay $500 a month for groceries, like food and toothpaste. This money that I need to spend every month is called my “expenses.”
Now that I know how much I make and how much I need to spend every month, I can compare them. Let’s do that in a table, like this one:
From this table, we can see that I make $2000 every month, but I only need to spend $1500. If we put “2000 – 1500” into a calculator, we get 500. That means that after I pay my rent and buy my groceries every month, I will still have $500 left over.
The extra $500 of income that I don’t need to spend every single month is called “disposable income.” I can save that money for later, or spend it on other things that were not included in my budget. For example, maybe I would like to eat at a restaurant, which is more expensive than buying groceries. Or maybe something I own is broken (like a microwave or bicycle) and I have to spend money to fix it or even buy a new one.
But I have to be careful: if I spend more than $500 on these extra things, then I am not following the budget and will run out of money for that month. This is why it can be smart to save a bit of your disposable income every month, so that you have “savings” when you need them. Luckily, your new budgeting skills can help you decide how much you need to save!
Here’s a video on how budgeting works, and why budgets are so important.
Click here for a quiz that will test your budget knowledge!
Ready to make your own budget? Try using this Budget Planner.
Think you’re a master at budgeting? Try out your skills with Money Magic!