In a world that is always ever-changing and evolving, one thing that none of us have absolutely any control over is how fast time flies. Remember the days where we spent money as fast as it was made in our early twenties? There wasn’t a thought of sincere savings, financial goals or investment thoughts. Long gone are the days where we only halfway learned the mere concept of these accounting words to ace a quiz or exam – now they’ve become staples and non-negotiables in our financial journeys.
What words do you wish you familiarized yourself within your younger years? No matter your current age, we are never too old or too far removed to learn how to alter the trajectory of our finances. Here’s an introduction or refresher of 14 buzzwords you should have in your financial toolkit before hitting the tender age of 30.
This number is reflective of your personal or businesses’ total value. The key to making sure your net worth remains positive is to continue to reduce personal liabilities. A basic formula used to calculate this is: Assets – Liabilities = Net Worth. Another easy way to find out your net worth is to use Mint! One of the apps more popular features executes this calculation for you so you can quickly know where you’re at.
Anything that is of value and personally owned qualifies as an asset. Cash, various investments and art collectibles are just a few examples. Real estate can also serve as an asset if there is a zero-balance owed to a lender. The more assets that are acquired contributes to the overall creation and preservation of wealth – ultimately benefiting you and your family.
Credit card balances, car, mortgage payments, and outside loans are examples of items that are owed for payment, whether the short or long term can be classified as a liability.
For all aspiring and current entrepreneurs, this term refers to the wealth of a business. Capital can also be classified as tangible and intangible. Physical assets such as vehicles or land are tangible, while intellectual property such as copyrights and patents are non-physical items.
The amount of operating cash through your personal and/or business accounts is known as cash flow. Maintaining a budget and monitoring the constant activity of your accounts is essential to identifying where improvements can be made to increase capital.
Let’s paint a picture here. The car salesman allows you to sign the paperwork and hands over to you a set of nice, shiny keys to a brand-new car. As soon as you jump in the vehicle and pull off of the lot, the car immediately loses the initial value – this is a prime example of depreciation. As this example suggests, the car will continue to decline over time.
How quickly can an asset be turned into cash without compromising its’ value? Cash on hand in a checking, savings account, mutual fund, stock or treasury are examples of things that can be converted into cash fairly quickly.
This number is your golden ticket! Ranging from 300 – 850, this is essentially your credit risk. Lenders and creditors use this information to determine how likely you are to repay them, along with the interest rate attached to the amount owed. The higher your score, the easier it will be to ease the mind of creditors in the future and potentially lessen any interest on the principal borrowed. Here are the factors that determine your score; along with percentages:
Payment History (40%) – How timely are your payments made?
Credit Age and Mix (21%) – How old are all of your borrower accounts?
Credit Utilization (20%) – What is the ratio of your outstanding balances?
Balances (11%) – How much outstanding debt do you have?
Recent Credit Applications (5%) – When was the last time a borrower ran your credit?
Available Credit (3%) – How much available credit do you have?
Ensuring payments are made on time while maintaining low balances will gradually increase the overall health of your score. Curious what your score is? You can check it any time with the Turbo App.
A computed percentage based on the principal amount borrowed from the lender is known as an interest rate. The Federal Reserve, also known as the central banking system for the United States of America is one of the many factors that contribute to a determined interest rate. Your credit score, terms of the loan and loan type are just a few examples of what can decrease or increase this number. When in the market for a car or home, it’s best to shop around to make sure you’re getting the best rate possible.
Ever wonder why many investors are successful? To better understand the power of compound interest, let’s walk through the meaning of simple interest. This is a set percentage of the principal annually. Now, compound interest can be explained as interest on the interest. Let’s say you’ve invested $10,000 at 5% interest. After the initial year, $500 has been added to your account. During the second year and beyond, an additional 5% will be added to your account with the starting balance of $10,500 versus $10,000. The compound interest over time significantly increases your profit.
Secured vs. Unsecured Loan
A car or mortgage loan are common types of secured loans. Anything that is not protected by collateral can be classified as an unsecured loan. Unsecured loans are student loans, credit cards or personal loans. These unsecured loans typically can have higher interest rates.
Line of Credit
An amount of revolving credit extended to a borrower when it’s needed is a line of credit. The main difference between a normal loan is that this type allows borrowers to repay or draw from available funds.
The original amount of money borrowed defines principal. All loans typically include a principal (the initial amount borrowed) and interest payment (percentage of the initial amount).
Becoming very acquainted with the meanings of the terms above can help you make healthy financial decisions, involving less stress and increasing your overall confidence. Whether you’re approaching your thirties, or in your thirties, we all can stand to create a better financial platform for the ones we care for the most. What financial terms do you keep in your arsenal?