If you are someone who has never learned anything about basic financial terms and is bogged down when someone utters some terms that go above your head for some reason. Then this article will be perfect to start your journey toward Financial Literacy starting with the basics. You will get to learn the 61 Best Financial Terms that will be a powerful asset to your knowledge.
Don’t you agree? Financial knowledge to manage and understand the management of your finances is crucial. Especially, in this day and age, it is an essential requirement to sustain a happy & comfortable life in the most effective way possible.
We all come across circ*mstances where we engage with people, systems, businesses, banks, jobs, and many other places where basic finance terms are a part of the conversation & you are expected to know certain common words used in the Financial World. It makes an easy exchange of ideas, suggestions, opinions, and current updates in the most comprehensive way for both parties involved in the conversation.
Unfortunately, everyone is not financially literate, this subject I believe should be compulsory in Schools. Children learning about budgeting, personal finances, taxes, investing, savings, and debt management would be much more of a blessing to society and the individual at the same time. Many times, basic knowledge about such concepts could help in preventing decision-making mistakes when it comes to managing personal finances.
Advantages of Having Basic Financial Literacy
Helps tremendously in making informed financial decisions. Few things in life are already available in the world through professionally researched and established concepts. Having a piece of knowledge about these can save you a lot of bad decisions leading to losses, agony, anger, resentment, loss of self-worth, and self-confidence. Additionally, this requires considerable level of self-discipline to achieve the set goals.
For example, when choosing a bank account or credit card, it is essential to know the interest rate, fees, and charges involved. Without this knowledge, individuals may end up with an account or card that is not suitable for their needs, resulting in unnecessary fees.
Similarly, one must be aware of basic investment necessities for leading a peaceful retirement life. All this would require knowledge of savings, investment, and management of finances.
Allows effective management of budget, to stay within one’s means, and avoid debt, one would need knowledge about creating and managing a good budget throughout life. Keeping aside expenses for current and future goals becomes a priority when it comes to saving. In turn, helping you to have a road map for future spending decisions.
This leads to financial stability as you would optimize your expenditures and decisions for future financial goals. Saving and investing are essential & basic for living a stress-free life in the future. Well-informed decisions help in achieving long-term financial goals, such as buying a house, funding children’s education, funding vacations, trips, or health expenses, and planning for retirement.
Saves you from missing opportunities to grow your wealth and opens your mind to the possibilities of various financial investment options available out there that you would miss otherwise.
This time and age are of information and we live in the risks like scam and fraud, they can lead to significant financial losses. Knowing basic financial terms, how to identify and avoid scams becomes crucial to protecting oneself from dangerous risks. In turn, one would make smart and legitimate investment and saving decisions.
Gives you a sense of power as you set yourself on the right track to being financially independent. Being self-reliant financially and not relying on others’ support is the need of any individual on earth. Achieving financial independence requires an understanding of financial terms and concepts and the ability to manage one’s finances effectively.
61 Best Financial Terms for Basic Financial Literacy
- Budget – A financial plan for how you will allocate your income to cover expenses and savings.
- Income – The money you earn from employment, investments, or other sources.
- Expense – The money you spend on goods or services, things like rent, utilities, groceries, and entertainment.
- Savings – Money that you set aside for future expenses or emergencies.
- Interest – The amount of money paid by a borrower to a lender for the use of money.
- Credit – An agreement in which a borrower receives money or goods with a promise to repay the lender at a later time.
- Debt – Money that is owed to someone else.
- Investment – Money that is used to purchase assets in the hope of generating a return.
- Assets – Anything that has value and can be used to generate income or profits.
- Liabilities – Debts or obligations that must be repaid.
- Equity – The value of an asset minus any liabilities.
- Net worth – The value of your assets minus your liabilities.
- Compound interest – Interest that is calculated on the initial principal and any accumulated interest.
- Inflation – The rate at which the general level of prices for goods and services is rising.
- Deflation – The opposite of inflation, when prices are falling.
- Diversification – The practice of investing in a variety of assets to reduce risk.
- Return on Investment (ROI) – A measure of the profitability of an investment, calculated by dividing the gain from an investment by the cost of the investment. (In simple words: The amount of profit generated by an investment relative to the amount invested.)
- Risk – The possibility of losing money or experiencing negative consequences from an investment.
- Volatility – The amount of fluctuation in the value of an investment over time.
- Capital – The amount of money or assets available for investment or use in a business.
- Liquidity – The ease with which an asset can be converted to cash.
- Portfolio – A collection of investments held by an individual or organization.
- Mutual fund – A professionally managed investment fund that pools money from many investors to purchase a diversified mix of assets.
- Stock – A share in the ownership of a company that entitles the holder to a portion of the company’s profits and assets.
- Bond – A debt instrument in which an investor loans money to an entity (usually a government or corporation) for a specified period, in exchange for interest payments.
- Dividend – A payment made by a company to its shareholders, usually in the form of cash or additional shares.
- Market capitalization – The total value of a company’s outstanding shares of stock, calculated by multiplying the current stock price by the number of shares outstanding.
- P/E ratio – The price-to-earnings ratio is a measure of a company’s stock price relative to its earnings per share.
- Yield – The amount of income generated by an investment, expressed as a percentage of the investment’s value.
- Taxation – The process of imposing a financial charge on income, property, or goods to fund government programs and services.
- Cash flow – The movement of money in and out of a business.
- Balance sheet – A statement of a company’s financial position at a specific point in time.
- Income statement – A report that shows a company’s financial performance over a period of time.
- Gross profit – Revenue minus the cost of goods sold.
- Net profit – Gross profit minus expenses.
- EBITDA – Earnings before interest, taxes, depreciation, and amortization.
- Capital gains – The profit earned from the sale of an asset.
- Interest – The cost of borrowing money or the reward for lending money.
- Principal – The amount of money borrowed or invested.
- Credit score – A numerical rating of a person’s creditworthiness.
- Credit report – A record of a person’s credit history.
- Collateral – Assets pledged as security for a loan.
- Mortgage – A loan used to purchase a home or other property.
- Refinance – Replacing an existing loan with a new loan with different terms.
- Amortization – The gradual reduction of a debt over time through regular payments.
- APR – Annual Percentage Rate, the interest rate charged on a loan or credit card.
- Yield – The income generated by an investment.
- Exchange-traded fund (ETF) – A type of investment fund that trades like a stock on an exchange.
- Derivative – A financial instrument whose value is based on the value of an underlying asset.
- Futures – An agreement to buy or sell an asset at a set price at a specific time in the future.
- Options – A contract that gives the holder the right, but not the obligation, to buy or sell an asset at a set price at a specific time in the future.
- Hedging – Reducing risk by taking a position that offsets another investment.
- Margin – Borrowing money to invest.
- Short selling – Selling an asset that you do not own, hoping to buy it back at a lower price and profit from the difference.
- Market index – A measure of the performance of a specific market or sector, based on the prices of a group of selected stocks.
- Bull market – A period of rising stock prices and investor optimism.
- Bear market – A period of declining stock prices and investor pessimism.
- Retirement – The period of life, where an individual relies on accumulated savings and investments to fund their lifestyles after an individual stops working as an employee at a job.
- Voluntary retirement savings plan (VRSP) – A type of savings plan that allows individuals to save for retirement, typically through payroll deductions.
- Tax-sheltered savings account (TSA) – A savings account that offers tax benefits, often used for retirement savings.
- Individual retirement account (IRA) – A type of retirement account that allows individuals to save for retirement with tax benefits, often through self-directed investments.
Wrap Up
These terms are of value for you to make informed, well-thought financial decisions whether personal or professional.
It is crucial for financial well-being, managing money effectively, planning for future financial goals, avoiding frauds and scams, and ultimately achieving financial independence.
Do you have any other basic financial terms?
What use cases have you found them to be helpful for?
Please share your thoughts in the comments below.
Happy Learning!
Until Next Time. See yaa! 😊
Sources
Content at Blogster Naina is well researched and backed by researched papers, research institutions, reputed organisations and websites.
- Montana State University
- Is Your Net Worth Important?
- Which Of The Following Are On A Balance Sheet Check All That Apply?
- EICOM Institute
- The America Group
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