20 financial terms you should know

Why is it important to know financial terms?

It will help you not only get familiar with your finances, but manage them better. Knowing this terminology will prevent any surprise charges or issues in the future. Below are 20 terms you may need to know. 

  1. Loan - a sum of money or an item that one entity lets another entity borrow. Loans must be repaid.

  2. Interest – the additional money individuals must pay when borrowing money.

  3. Compound interest – the amount of interest earned on a loan or deposit based on the initial amount plus the interest accumulated over time.

  4. Credit – a contractual agreement in which a lender loans money to a borrower, expecting that the borrower will repay it later. This is different than your “credit score.”

  5. FICO score – a three-digit number that measures an individual’s trustworthiness to pay back loans or debts. (Can also be referred to as a credit score)

  6. Asset – an item with economic value that an entity owns and appears on businesses’ balance sheets.

  7. Fixed Asset – a tangible, long-term asset used for the business and not expected to be sold or otherwise converted into cash during the current or upcoming fiscal year.

  8. Asset Allocation – an organization’s decision about the assets in which it plans to invest.

  9. Liability – a debit or amount of money that an entity owes to another entity.

  10. Net worth – the total value of what an individual or business owns minus the amount owed in debts.

  11. Income – the amount of money an individual or organization earns for work or from investments.

  12. Expenses – the costs of operating a business and are related to generating revenue. 

  13. Investment – an allocation of money with the expectation of a profit or material benefit in return.

  14. Stocks - (also called equities) - portions or shares of ownership in a company.

  15. Bonds – investments in debt, representing a type of fixed-income securities.

  16. Mortgage – a loan used to buy a home and/or property.

  17. Taxes – fees paid by individuals or entities to governments that fund government spending and public programs.

  18. Trust – an arrangement in which a party gives control of his or her property to another party for the benefit of the third party.

  19. Trustee – the party that is given control by another party for the benefit of the third party.

  20. Refinancing – taking out a new loan to pay off an old one.

These 20 terms are a great start for having a basic knowledge of your finances.