Financial terms everyone should know

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Jack216

I am a blogger who writes about passive income and try's to help others to start earning

2 years ago

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Financial terms everyone should know

In today's blog article I'm going to go over some important financial terms everyone should know. It doesn't matter if you are just the average joe/jane working a 9 to 5 just saving money and not investing. Because these terms can help everyone and these terms need to be known by everyone ASAP. So make sure you read the whole article and go through all the terms. Because some of this knowledge may end up helping you so without further holdup let's get into today's important article.

Terms to know

Credit: Credit is a contract agreement in which a lender (typically through banks or credit unions) loans money to a borrower, understanding that the borrower will repay it later. A borrower can demonstrate their trustworthiness in several ways, from paying back their credit/loan in full and on time consistently to spending only a limited amount of their credit. Credit cards are the most common example of buying on credit.

FICO Score: A FICO score also known as a credit score is a three-digit number that measures a person's trustworthiness to pay back loans or debts. Banks, lenders, and other financial institutions calculate credit scores based on factors such as payment history, length of credit history, and debts. The higher the score, the better an individual's chances of getting favorable loans or credit cards.

Loan: A loan is a sum of money or an item that one entity lets another entity borrow. The borrower repays their debt to the lender within a specified period and may have to pay interest on it and potentially extra fees as well. To take out a loan, a person usually needs to provide a reason and some financial information to the lender, such as their credit score and proof of employment/Income. Sometimes lenders require collateral, which means that the lender and borrower agree that if the borrower does not pay back the loan it is known as defaulting. That the lender can seize assets or property instead.

Interest: Interest is the additional money individuals must pay when borrowing money. Lenders that loan money to an entity typically charge interest at a rate that is a percentage of the loan. Interest rates can also vary based on other factors, such as an individual's credit score and how long it takes them to repay the money. Individuals can also earn interest when investing or saving money.

Assets: Assets are items you own that can provide future benefits to your business, such as cash, inventory, real estate, work equipment, Or other commodities that can help.

Asset Allocation: Asset allocation refers to how you choose to spread your money across different investment types, also known as asset classes.

Capital Gain/Losses: A capital gain is an increase in the value of an asset or investment above the price you initially paid for it. If you sell the asset for less than the original purchase price, that would be considered a capital loss.

Cash Flow: Cash flow is a representation of how much money you have coming into your hands. Negative cash flow would mean your losing money while positive cash flow means you have money coming into your hands. Certain debts with high-interest rates can cause negative cash flow Such as car loans. While debt with little to no interest such as an FHA loan can bring in positive cash flow.

Compound Interest: Compound interest is interest on interest. Now when you’re investing or saving, compound interest is earned on the amount you deposited, plus any interest you’ve accumulated over time. Compound Interest can also increase your debt; compound interest is charged on the initial amount you were loaned, as well as the expenses added to your outstanding balance over time.

Equity: Equity represents the amount of money that belongs to the owners of a business after all assets and liabilities have been accounted for. Using the accounting equation, shareholder’s equity can be found by subtracting total liabilities from total assets.

Liabilities: The opposite of assets, liabilities are what you owe to other parties, such as bank debt, wages, and personal loans.

Liquidity: Liquidity describes how quickly your assets can be converted into cash. Because of that, cash is the most liquid asset. The least liquid assets are items like real estate, cars, or land because they can take weeks months, and years possibly to sell.

Net Worth: Net worth is how you calculate what you own. Everything from your assets to your business's monetary value.

Return on Investment (ROI): Return on Investment is a simple calculation used to determine the expected return of an asset or business you're investing into. This measure is often used to evaluate whether a project will be worthwhile for a business to pursue.

Valuation: Valuation is the process of determining the current worth of an asset, company, or liability.

My Final Words

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