Financial terms can be confusing to understand. But, we must invest our time learning the terminology before starting our finance journey. The more equipped we are, the better result we will get.
When I was younger, I would put my money in a small black purse my grandmother had gifted me and shove it inside my bottom drawer to the back. I knew I would need to put my money somewhere else later in life since I would hear adults talk about banks, credit cards, and loans, and I had no idea how they worked. I slowly started to grasp the concept of a bank and how loans or interest worked. Then, later on in life, I started hearing words like 401k and stocks. The more financial terminology words I heard, the least amount of understanding I had when they were thrown down in conversations. Eventually, I understood the definitions, connecting the dots to the whole scheme of things.
Personal finance isn’t just the money you have in hand and how you spend it. It’s how you manage wealth in different sectors of your life. But to manage wealth, we must know the definitions of the terms. Some terms will only appear in specific environments. There were some words that I only heard at work, while there were other vocabularies only in banking.
Financial Terminology in banking
APY (Annual Percentage Yield) – The percentage you earn by having your money in an account. Higher APY, the better. This means you will get more for having your money in the account.
FDIC (Federal Deposit Insurance Corporation) – The agency in charge of protecting your deposits (money) in case the bank goes down. There is a certain amount of money that is protected. Make sure your bank is FDIC insured.
CD (Certificate of account) – A type of account where you keep your money for a certain amount of time for a specific rate.
Financial Terminology at work
401K – Type of retirement account where the money you set aside is not taxed when it goes into the account but gets taxed when you take the money out. Usually, companies will match a percentage you put into a specific rate. If your company does, make sure you match their percentage.
Roth IRA – Type of retirement account where you pay taxes on money going in and don’t get taxed when you take the money out. There is a limit on how much money can be put in per year.
FSA (Flexible Savings Account) – Type of health account where you put money used only for health care costs. The money you put into this account doesn’t get taxed. Some companies contribute to this account if you contribute a minimum.
Year End Bonus – A reward the company gives for the hard work and dedication you put in.
Financial Terminology in Stocks
Stock – Fancy word for “a portion of ownership of a company.” When you buy stocks, you are purchasing pieces of ownership of a company.
Brokerage account – Type of investment account where you can buy and sell different types of investments (stocks, ETFs, etc.).
Dividend – money the company gives to its owners (shareholders).
FAANG Stock – FAANG is an acronym that represents the biggest tech companies. These are Facebook (now Meta), Apple, Amazon, Netflix, and Google (Alphabet). So FAANG stock refers to the stock of these 5.
Financial Terminology in Taxes
Gross Income – The amount of money you have before uncle Sam takes its cut.
Financial Terminology in Real State
HOA (Home Owner Association) – An organization that enforces property rules. Have you seen those pretty-looking neighborhoods and wondered how they keep them so neat? Well, more than likely, they have an HOA.
Due Diligence – A period of time when you are about to buy a house to understand what you are buying before going into contract.
Appraisal – This allows the mortgage lender to see if what you buy is worth the amount of money they lend you.
Of course, the above terminology is only inclusive of some things. But it is a good starting point. We can then build on top of this and expand more. Feel free to dive deep into the sea of words that finance can have. You got this. Being financially aware starts with knowing the definitions. So you are on the right path. Keep reading more; it will help you in your personal growth journey.
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