Five Things You Need to Know About Money

People (usually grown-ups) say money is complicated. But people (especially grown-ups) can be wrong! The truth is this: There are only a few things you need to learn about managing your money. And once you learn them, the key to success is doing them habitually from now until, well, forever.

About five years ago, I shared the five lessons about money that you need to know. As I said then, these lessons are timeless. I was right: They were true five years ago, they’re true today, and they’ll be true 100 years from now. Here they are again—plus the most important financial terms you need to know—on the pages that follow. Read them carefully, then think about how you can incorporate them into your life. —By Jean Chatzky

1. Earn a Decent Living

If you want to be able to pay for a nice place to live, transportation—such as a car or a train pass—to and from work, and healthy food for yourself and your family, you have to earn enough money. How much is that? The median household income in America is about $69,000 a year. Where you live plays a big role in how far your money will go. It’s cheaper to live in Detroit, Michigan, than in Miami, Florida, for example. (When you are an adult, if your employer asks you to move to a place with a higher cost of living, be sure to ask for a raise.)

2. Spend less than you make.

Life is full of emergencies and small surprises. You get strep throat and have to go to the doctor. You forget your mother’s birthday—oops—and have to buy a last-minute gift. If you spend everything you make, you have nothing left to bail you out of these small jams. And if a bigger problem comes along, like a leaky roof, you have real trouble. Learning to save is difficult, but it’s important. Don’t make excuses. A good rule of thumb is to try to save 15¢ of every dollar you bring home.

3. Save, then invest, the money you don’t spend.

Save for emergencies and for things you’ll need in the next few months or years. Put that money in a savings account at a bank, where it will earn a small amount of interest × interest THIERRY DOSOGNE—GETTY IMAGES a charge for borrowed money, usually a percentage of the amount borrowed (noun) I paid 5% interest on the loan. but where you won’t lose any of it. (The bank pays interest because it’s borrowing your money.) Once you’ve saved for emergencies, you can invest your money. That means buying stocks, which are small pieces of companies with names you may know, like Nike and Amazon, or mutual funds, which are groups of stocks and other investments. If the investments you buy do well, you’ll make a profit when you sell them. But unlike savings, investments can also lose money. That’s why you should only invest money you don’t need to use for at least five years.

4. Protect your Financial World

Some emergencies and surprises you can save for, but others cost too much. That’s why adults should protect themselves by buying insurance to replace things they can’t replace on their own: homeowners’ insurance for a house, renters’

insurance for the belongings in an apartment, auto insurance for the car, and health insurance in case someone gets sick. Then there’s life insurance. It’s easiest to understand if you think of it as income insurance. If you have dependents × dependent PICHAI PIPATKULDILOK / EYEEM a person who relies on you for food, clothing, and other necessities (noun) The health insurance covers me and my dependents. , like kids, you need to buy life insurance to take care of them in case something happens to you.

5. Give Back

If you want to feel good about your money, the best thing you can do is give some of it—or some of your time—to a cause you believe in. How much? That’s up to you.

Click here to learn important finance terms in Money Talk: Learn the Lingo of Personal Finance.

Click here to read a related article from TIME for Kids.