In this series we have covered many topics in microeconomics and macroeconomics. To finish things off, for the remaining tutorials we will be looking at personal economics, or how we use economic foundations to make better choices in our lives. Before we begin to make better choices, we have to understand what money is. Money is anything accepted as payment. You probably already knew that, as all of us often think about money. Everybody needs it. Almost everybody talks about making it and wishes they had more of it. But what is the true purpose of money? To an economist, money generally has three purposes: to act as a medium of exchange, as a unit of account, and a store of value. A medium of exchange is anything that is used to determine value during the exchange of goods and services. Without money, people get things through bartering, or exchanging goods and services for other goods and services. For example, you might wash your friend’s car if they mow your lawn for you. However, bartering is not practical for most transactions. Imagine if you wanted to trade your old video game system for an electric guitar. You likely would have a hard time being able to make that exchange. First, you would need to find a person who wanted to both sell the type of electric guitar you wanted and buy the type of system you had. Second, this person would also need to agree that your system has the same value as their electric guitar. Now consider how much easier it would be if you could just sell your video games to anyone who wanted them for $300. After getting it, you could then spend that $300 on an electric guitar. Better yet, you can save up additional money to get the electric guitar you really want. Money also serves as a unit of account. This means it provides a way to compare the values of goods and services. For example, say you see a dress on sale for 50 dollars. You know this is a good price because you've checked the price of similar dresses in other stores. You can compare the cost of the dress in this store with the cost in other stores because the price is expressed in the same way in every other store. And money also serves as a store of value. This means that money keeps its value in case you want to store it, or save it, instead of spending it. If you don’t find that guitar or dress you really want, you don’t need to worry about waiting to purchase them, as your money will likely be worth the same in the distant future as it is today. However, there is a big exception. As we learned in a previous tutorial, when economies experience rapid inflation, holding on to money can be a bad thing for consumers because they lose purchasing power. You may have had $50 to buy the dress a few months ago, but now inflation has caused that dress to be $75. Thankfully, hyperinflation is something most societies rarely have to worry about. Therefore, it’s often better to save money rather than spend it, especially when you invest it. In order to manage our money, we must create a budget, or a plan for spending and saving. Budget counselors often suggest allotting 80% of the money you earn for needs, 10% of it for wants, and 10% for savings. In the following tutorials, we will learn about what that means, but for now remember that money is a tool, not a goal. In order to build up wealth, which is not the same as money, and more importantly, to have more economic freedom, we have to use money, not just collect it. Let’s move forward and learn more about personal economics.