Before you start investing, you need to understand well the main financial instrument with which you will receive income, that is, with money. It is very important here not to be mistaken with concepts in order to understand what exactly you are dealing with and clearly see your financial goal - the result that you plan to get. So, first things first.
Money.
Money is a kind of universal product, which is at the same time a tool for expressing the value of all other goods and services, a tool for making payments and creating savings. That is, money by itself is not able to turn around or generate income. They perform a number of specific functions, among which four main ones can be distinguished:
Means of circulation. Money is used as a universal medium of exchange with one hundred percent liquidity and simplifying any economic processes. Payment Instrument. The overwhelming majority of payments in all spheres of human life are made in money. A tool for creating savings. A very important function of money, meaning that it can be used to create savings and reserves.
Finance.
Finance is money in motion. In other words, it is the aggregate of cash flows within a designated unit (for example, a state, an enterprise, or an individual).
Cash expenses.
In the aggregate, the personal budget of each person or family is formed from the receipts and expenditures of finance. In it, the balance of the inflow and use of funds must be observed. We can say that, in general, the personal budget is built on the same principle as the state budget or the budget of any enterprise. If his own income is not enough to cover expenses - a person is forced to attract borrowed funds, and if income exceeds expenses - he gets the opportunity to use their free part to create reserves, savings or borrow money to others, invest it, thus forming additional sources of passive income... So we come to the most important concept, which, first of all, should be of interest to every investor.
Capital.
Capital is money that generates income. This is the main tool in the investor's work, the concept with which he should operate. The investor forms capital from personal funds and distributes it to one or several projects that involve making a profit. The formation of investment capital should begin at the moment when cash receipts to the personal budget will consistently prevail over personal expenses, and at the same time a certain cash reserve will already be formed in case of unforeseen circumstances. Loss of investment capital should not affect the financial condition of the investor. It is very dangerous to invest without observing these conditions, because investments are always associated with risks and, in case of mistakes, can deprive the owner of the invested capital.
As you can see, money can be designated in different ways and play completely different roles, based on which side to approach it. The most important task of an investor is to see and understand this difference in order to competently manage personal finances and capital.