Beginner’s Guide to Financial Jargon

Financial TermsIt’s not uncommon to read a news article or blog post discussing retirement, investment options, real estate or another subject heavy in financial jargon. If you’re not a finance professional, you may be asking yourself what exactly terms like net income, bonds or earnings per share actually mean.

There’s a good chance you’re reading that material because you want to learn something new, only to end up more confused than before. If you’re new to the financial realm, here are some of the more common financial terms explained so you can get the most out of your money.

Common Financial Terms to Know 

  • APR (annual percentage rate) refers to how much money you’re paying in interest and fees annually during the life of a loan. The higher the APR, the more money you spend on interest versus the principal.

 

  • Assets are any item that holds, or is expected to hold, monetary value and is owned by an individual or corporation. Your car, home, savings account and rare art collection are all examples of individual, tangible assets. Brand names and patents are examples of intangible assets.

 

  • Liquid Assets can be quickly converted into cash at a fixed value, such as government bonds, stocks, checking and savings accounts and tax refunds. Conversely, jewelry would take more time to sell and the value would fluctuate.

 

  • Bonds are loans given to a company. By purchasing a bond, the buyer is lending a company the amount they paid. The method of bond repayment depends on the conditions under which you purchased the bond.

 

  • Stocks are often referenced with bonds, but they’re not quite the same. When you purchase stock, you’re buying a share of the company. Stock prices vary depending on how much they’re selling for, how much the market deems them worth and how much the buyer is willing to pay.

 

  • Net Income refers to your monthly or annual income minus your expenses, including income tax, rent, car payments, groceries and other everyday purchases – it’s the money left over after paying bills. Your net worth is the amount of money you have minus your liabilities.

 

  • Revenue is how much real income is received by a company during a given time before expenses are considered. An easy way to remember revenue is that it’s essentially the opposite of net income.

 

  • Liability refers to a debt, like student loans, car payments and cell phone bills. They’re referred to as a liability because you’re liable, or legally obligated, to repay them.

 

  • Roth IRAs and traditional IRAs are retirement savings accounts an individual can open through a bank or brokerage. The primary difference – depositing money into a Roth IRA doesn’t come with tax deductions, whereas traditional IRAs do.

 

  • 401(k)s are retirement savings accounts available through some employers. When an employee signs up for a 401(k), they pledge a percentage of each paycheck to be deposited in the account. Some employers match the employee’s contribution to varying extents.

 

  • Annuity is a fixed payment made annually to an individual after retirement. Individuals can set up an annuity by investing funds into a financial institution, which distributes the funds over a fixed period upon annuitization.

 

  • Debt consolidation is a solution for individuals with many high-interest debts. By consolidating them, the individual makes one monthly payment typically at a lower interest rate.

 

  • The Five C’s of Credit refers to the factors lenders evaluate when determining your loan eligibility. They are:
    • Capacity – your ability to repay the loan
    • Conditions – the terms of the loan
    • Collateral – assets used to guarantee repayment
    • Capital – income and other money sources
    • Character – your reputation as a borrower

Need Assistance Navigating Your Finances?

Understanding these financial terms will help you navigate your finances more efficiently, but often the best way to wrap your head around your money is to work with a financial professional. This is especially true when you’re dealing with debt.

American Financial Solutions is a non-profit credit counseling agency that can help you understand your finances and find solutions to overwhelming debts. Our counselors are available Monday through Friday from 6 a.m. to 6 p.m. PST to answer your questions. Call (888) 864-8548 to get in touch with a counselor or visit our website for more information.