Financial Terms You Should Know
- Managing money requires knowledge, including familiarity with common financial terms.
- Creating a budget that tracks your income and expenses and knowing your net worth can help you evaluate your financial situation.
- Making on-time payments and not using all of the credit available to you can help you build a good credit score.
Your college degree came with a lot of great things, including more opportunities in your career. One thing it likely didn’t come with is a pretty important life skill – money management.
Even if you have a finance, math, or business degree, there are always things you can learn about managing money, including some very important financial terms you should know. Let’s take a look at 25 common ones:
- Annual Percentage Rate (APR). APR, which is used to compare different loans, represents the interest rate and fees on a loan.
- Assets. Assets are your financial holdings of value, including cash, money in your checking and savings accounts, stocks, bonds, 401k, and real estate.
- Available credit. Available credit is the money available for you to borrow from a lender.
- Bonds. Bonds are debt securities issued by companies, municipalities, and governments to raise money.
- Budget. A budget is a financial planning tool that helps you determine how you spend your money and if your expenses exceed your income. People often use budgeting apps for this important step.
- Credit score. A credit score is a calculation that lenders use to determine whether to lend you money. Landlords and employers may use it too. It’s based on your payment history and total debt, which could be in the form of credit cards, car loans, mortgages, and your history of making payments. Learn more about credit scores.
- Credit utilization ratio. This is the percentage of the credit available that you actually use. A high credit utilization ratio can lower your credit score, so it’s best not to use all the credit available to you
- Compound interest. Compound interest is the interest a bank pays on your money and the interest you’ve earned on it. It’s essentially earning interest on interest, which helps your money grow faster.
- Debit card. A debit card allows you to make purchases and ATM withdrawals using money from your checking account.
- Debt. Debt is money you owe to a person or institution.
- Debt consolidation. Debt consolidation involves transferring debt from multiple lenders into one loan with one payment. It’s often done to simplify bill paying (you only have to make one payment versus several) and potentially lower your monthly payments and interest costs. Keep in mind that the debt you consolidate is not canceled but simply exchanged for another loan with different terms.
- Emergency fund. An emergency fund is a safety net of savings that you build to help you manage unexpected expenses or circumstances, such as a job loss. Most financial advisors suggest having a minimum of 3-6 months of expenses set aside in your fund.
- Grace period. This is the period of time you have to pay a bill in full before you are charged interest.
- Gross income. Your gross income is the amount of money you earn before taxes and other deductions.
- Inflation. Inflation is the percentage increase in the cost of goods and services over time, which erodes the purchasing power of money.
- Interest rate. An interest rate is the rate charged by a bank or financial services company for a loan. It’s also the amount an institution pays you if you have interest-earning deposits.
- Liabilities. Liabilities represent all the debt you have, including credit cards, auto loans, student loans, and any other outstanding money you owe.
- Mutual funds. A mutual fund is a type of investment that pools money from multiple investors into a portfolio of company stocks. Because your money is spread out over several stocks, investing in mutual funds can be less risky than investing in individual stocks.
- Net income. This is your take-home pay, the amount of money you make after taxes and other deductions.
- Net worth. Your net worth is a calculation that factors in your assets minus your liabilities. If you have more assets than liabilities, you have a positive net worth. In contrast, when your liabilities exceed your assets, you have a negative net worth. Your net worth is a good way to measure your financial situation.
- Repayment.Repayment is the process of paying back the money you borrowed. For example, your student loans may go into repayment after six months after your graduate college.
- Stocks. Stocks are investment vehicles that represent ownership in a company.
- Term. The term of a loan is the amount of time it takes to pay it back. For example, your student loan may have a 10-year term, which means you have 10 years to pay it back.
- Total interest. This is all the interest you have paid on a loan.
- 401k. A 401k is a retirement savings account offered by employers that allows employees to contribute a portion of their income before taxes.
Brazos is here to help you along your financial journey
For more than 40 years, Brazos Higher Education has been helping college students succeed. As a Texas non-profit, we can offer you BIG savings on various student loans and helpful guidance to ensure you build the financial future you deserve. Contact us today!