Financial jargon can be confusing — but we're here to help! Here are 50 common terms you may encounter in the financial world.
Asset: Something valuable you own, like that cool bike or your prized comic book collection.
Liability: Money you owe, like that loan you took out for your bike.
Equity: Your net worth – what’s left of your assets after paying off liabilities. It's like the value of your bike after deducting what you owe on it.
Revenue: The money you make. Think of it as your monthly allowance or paycheck.
Expense: Money you spend, like on snacks, rent, or that new video game.
Profit: What’s left after you subtract your expenses from your revenue. Money you can actually use for fun stuff!
Loss: When your expenses exceed your revenue. It’s like spending more than your allowance.
Budget: A plan for your money, making sure you don’t blow it all on video games in one day.
Savings: Money you keep for future use, like a rainy-day fund for emergencies.
Investment: Using your money to make more money, like buying stocks or that rare comic book you know will increase in value.
Interest: Extra money paid when borrowing or earned when lending. Think of it as a rental fee for money.
Inflation: When prices go up and your money buys less, like how candy bars cost more than they did in the '90s.
Deflation: Opposite of inflation; prices drop and your money buys more.
Stocks: Pieces of a company you can own, like having a tiny share in a giant pizza.
Bonds: Loans you give to companies or governments with the promise of getting paid back with interest. It’s like lending your buddy money with the promise he’ll pay you back extra.
Mutual Funds: Pools of money from many people invested together in stocks, bonds, or other assets.
ETF (Exchange-Traded Fund): Similar to mutual funds but traded like stocks on an exchange.
Dividend: Your share of a company’s profits, paid to you because you own stock.
Capital Gains: The profit you make from selling an investment for more than you paid.
Capital Losses: The loss you take when selling an investment for less than you paid.
401(k): A retirement savings plan sponsored by employers where you can invest money for the future.
IRA (Individual Retirement Account): A personal retirement savings account with tax advantages.
Credit: Borrowed money you agree to pay back later, like using a credit card.
Debit: Money taken directly from your account, like using a debit card.
Credit Score: A number that shows how good you are at borrowing and repaying money. High score means you’re trustworthy!
Loan: Money you borrow with the agreement to pay it back with interest.
Mortgage: A special loan for buying a house. Your house is collateral.
Principal: The original amount of money borrowed or invested, not including interest or gains.
APR (Annual Percentage Rate): The annual rate charged for borrowing or earned through an investment, including fees.
Compound Interest: Interest on both the initial principal and the interest that has been added. It’s like a snowball rolling downhill.
Simple Interest: Interest calculated only on the principal amount.
Liquidity: How easily you can turn assets into cash. Your savings account is liquid; your house is not.
Diversification: Spreading your investments around to reduce risk, like not putting all your eggs in one basket.
Risk: The chance of losing money on an investment.
Return: The money you earn from an investment.
Portfolio: Your collection of investments.
Market: Where stocks, bonds, and other securities are bought and sold.
Bull Market: When prices are rising and the market is doing well.
Bear Market: When prices are falling and the market is struggling.
Volatility: How much investment prices go up and down.
Dividend Yield: A stock’s annual dividend payments divided by its price. Shows how much cash flow you get for your investment.
P/E Ratio (Price-to-Earnings Ratio): A valuation ratio of a company’s current share price compared to its per-share earnings.
ROI (Return on Investment): How much money you make on an investment compared to what you put in.
Net Worth: Your total assets minus your total liabilities. It’s what you’re worth financially.
Depreciation: The decrease in an asset’s value over time.
Appreciation: The increase in an asset’s value over time.
Amortization: Gradually paying off a debt over time through regular payments.
Default: Failure to pay back a loan.
Bankruptcy: Legal status when you can’t pay off your debts.
FICO Score: Another name for your credit score, created by the Fair Isaac Corporation.