Top Financial Terminology for Beginners

 

There are important terms you need to know in order to advance yourself in the financial industry. Be careful not to make financial transactions without knowing the details and meanings of these. Now we will be sharing with you the important terms you need to know in this field.

 

1. Asset

The asset is something you own that will save you money in the future!

 

Some common assets include retirement accounts, land, cash, and investment accounts. A “Current Asset” is an asset that you can liquidate fairly quickly. Liquidating a “Fixed Asset” will not be easy or could incur heavy fees if you do. Current and non-current assets fit into “Tangible Asset” An asset that you can see or touch.

 

2. Responsibility

Debt is something you own that will take money from you and not make you money in the future.

 

Some common liabilities include credit card and student loan debt, homes, boats, and caravans. A car quickly depreciates and quickly becomes a liability. A home is often referred to as an asset, but there are many reasons why it is actually a liability!

 

3. Net Value

Net worth is the amount of money you have. As it stands, it is a compilation of your assets and liabilities.

 

Use a free app like Personal Capital to list all your bank accounts and everything you own. Add in all your debts, such as your loans and debts. Your net worth will be either a positive or a negative number.

 

4. Debt

Debt is when you owe someone money.

 

Being in debt means that money was once borrowed and has not been repaid. Debt can be repaid in various ways and in different time periods.

 

5. Freedom Of Debt

Debt freedom is when a person reaches the state of not having any debt on their behalf.

 

This status is popular with Debt Free Communities on social media. Debt freedom is the precursor to financial freedom.

 

6. Financial Freedom

Financial freedom is the state of being able to live without the need to actively generate income.

 

There are many types and stages of financial freedom created by the FIRE community. Achieving financial freedom is the ultimate goal of many on the "financial journey".

 

7. FIRE

FIRE stands for Financial Independence Early Retirement. The abbreviation FI stands for Financial Independence.

 

8. Profit

Profit is money earned exceeding money spent.

 

If you spend $20 but earn $30, your profit will be $10.

 

9. Loss

Loss is money you lose during a business transaction.

 

Example: If you spend $20 but only earn $15, you will not make a profit and lose $5.

 

10. Cash Flow

The concept of cash flow is how money moves in and out each month.

 

There are always things to buy and money you earn. Cash flow is this monthly flow of money in and out.

 

11. Liquidity

Liquidity is how easily your money is available to “withdraw” money.

 

Consider the difference between having an expensive painting and having money in stock. You can sell your stocks quickly to have cash on hand, but it may take some time to sell a painting if you need cash.

 

12. Income

Income is the money you earn.

 

Income may or may not be taxed. There are also many forms of income. Income is essentially an umbrella term for the money you earn.

 

13. Active Income

Active income is money you earn doing a task.

 

Essentially, active income is earned by doing a job and getting paid for that job. You will not be paid in the future for work you do not complete. Most W2 salaried jobs are covered by active income.

 

An example of this is mowing the lawn. If you mow three types of grass, you earn money from those three types of grass. You won't be able to monetize six grass or any money in the future.

 

14. Liability Income

Passive income works by doing a job today and making money from that job in the future.

 

This type of income is very popular with those seeking financial freedom. It allows you to put forth effort but gain years from those efforts.

 

Popular passive income methods include monetizing YouTube, blogging, writing books and selling digital goods.

 

15. Fixed Expenses

Fixed expenses are expenses that do not change each billing cycle.

 

For example, you may belong to Netflix, which has a certain monthly fee. Your home mortgage, gym membership or car payments are also considered fixed expenses.

 

16. Variable Expenses

Variable expenses are expenses that change each billing cycle.

 

An example of this is the cost of your food each month, the cost of clothing each month, or even how much money you spend on Starbucks. Due to the variability of these budget items, it can be difficult to determine the cost.

 

17. Gross Income

The money you earn, whether active or passive, is your initial gross income.

 

The term gross in this context means "general". This money is what you get before tax, as it is, you can't keep all your earned gross income.

 

18. Net Income

After deducting taxes from your gross income, the money you keep is considered your net income.

 

The amount of tax withheld from your paycheck depends on whether you're a salaried W2 employee, self-employed, and how you earn the money.

 

 

19. Loan

A loan is a loan from which the borrower receives some money and must repay it.

 

Typically, there are interest associated with a loan and side effects ranging from high fees to repossession if the loan is not repaid.

 

20. Principal

When taking a loan, the principal is the amount of money originally borrowed.

 

21. Interest Rate

As a result of borrowing money, interest accumulates on a fixed schedule.

 

Loans have an attached interest rate, which is a percentage of the main loan amount. Interest rates vary widely depending on the terms of the loan and what type of loan it is. One of your loans maybe with 2.5% interest and the other with 25% interest.

 

We hope that this blog post will be beneficial for you. We will continue to create useful works in order to get inspired by everyone. We are sure that we will achieve splendid things altogether. Keep on following Finage for the best and more.  

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