Understanding basic financial terms is key to living a healthy financial life. With so many different terms to master, it can be difficult to navigate the best path. Financial jargon can sometimes become overwhelming or misleading.
Basic Financial Terms Explained:
Budget – Shows exactly how much money you have and what it is spent on. It allows a person to find ways in which they can save money and plan for the future.
Credit Report – Outlines details of a person’s financial history.
Credit Score – A number that represents your creditworthiness. Your credit report provides the information for the credit bureaus to generate this number. Credit scores reveal a person’s level of risk when it comes to loan repayment.
Certificate of deposit– A type of savings account for a set period of time with a higher interest rate.
Money market – A type of savings account that pays a higher interest rate, but usually requires a higher balance, and in some instances other restrictions.
We hope this helped make some of those financial terms a little more manageable. See video below for more information on the above.
Understanding a Few More Financial Terms:
The trick is to understand these terms and understand how these may or may not apply to your own set of circumstances.
Here are some more not so commonly used terms:
- IRA – Individual Retirement Account. Anyone, irrespective of employment status, can contribute to an IRA up to $5,000 per year. You are responsible for making all investments. You will pay taxes at the time of withdrawal.
- 401(k) – This is an employer-sponsored retirement plan. Most employers offer a match up to a certain percent. Employees have the ability to contribute up to $18,000 per year. This money is pre-taxed and will not be taxed until withdrawn.
- Net Income – A consumer’s total income after taxes and deductibles.
- Net Worth – Your assets (what you own) minus your liabilities (what you owe).
- Annual Percentage Rate (APR) – Annual percentage rate. This is the interest you pay on a loan such as the interest you pay when settling credit card debt or student loans.
- Compound Interest – Interest that’s calculated on the principal amount as well as the added interest.
- Capital Gains – The difference between the value of something now versus how much it was at the time of purchase.
- Stock Options – Ability to buy your employer’s stock at a pre-set price within a specific time.
- Return on Investment (ROI) – A measurement of a gain or loss. To calculate this you divide the gain or loss by the investment.
- Term Life Insurance – Insurance coverage over a set period of time. If you die within the set term, your beneficiaries receive a payout.
- Umbrella Insurance – Provides additional liability insurance beyond what home or auto insurance can.