10 Financial Terms You Should Know
Hello!
Financial speak is a language all its own. Having been surrounded by it my entire life, I sometimes forget that not everyone understands the lingo. Since we aren’t taught much about it in school, many people have to figure it out on their own. To help with that, I’ve created a list of 10 financial terms everyone should know. This is definitely not comprehensive but is a great little cheat sheet as you begin your financial journey. This information is perfect to pass on to your friends, kids, nieces or nephews, etc.
Asset– Something that gives you positive value that you own in full or in part. A home, cash, business, etc.
Net Worth– your total assets minus any debt you owe. Net worth can include personal belongings, cars, home, cash, retirement accounts, etc.
Inflation– the sustained increase in the price of goods and services. As prices rise due to inflation, you’ll be able to afford less and less.
Liquidity– how accessible your money is. Cash is the most liquid your money can be, because you can access it immediately. Equity in a home is less liquid as it’s not readily available to you.
Bull Market– a stock market that is on the rise. It means that in general the prices of shares in the market are increasing. This is usually a time of prosperity for investors.
Bear Market– the opposite of bull market. In other words, the market is declining. Share prices are decreasing, the economy is in a downfall, and unemployment levels are rising.
Risk Tolerance– how comfortable you are with the swings of bear to bull in the market. Risk tolerance isn’t just emotional; it depends on how much time you have to invest, your future earning potential, and the assets you have that are not invested, such as your home or inheritance.
Asset Allocation and Diversification– where you keep your money depends on your individual needs and goals. The saying, “don’t keep your eggs in one basket” is a wise financial strategy.
Interest
on Savings- Interest means your money is going to work for you. When you put your money in a savings account at a bank, you’re letting that bank borrow your money. Interest is what they pay you to borrow it; it’s a percentage that can go up or down depending on the state of the economy.
Interest on Borrowed Money- When you borrow money from someone such as a credit card company, you pay interest to them for borrowing that money, just like the bank paid you to borrow yours. You’ll keep paying interest until you’ve paid that money back,
Compound Interest– is interest that you earn on a “rolling balance,” and not on the initial principle. As an example, let’s say you put $500 in an account. The account earns 10% interest. Your new account balance is $550. Now your account is earning interest on $550 instead of $500.
Check out my cheat sheet for understanding the types of Retirement Accounts
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Sincerely,
Amanda
*This information is educational only and includes the thoughts and research of the writer. It should not be taken as financial advice. Any personal financial decisions should be made between you and your financial professional.
