When you’re first getting started with financial planning, it’s easy to feel overwhelmed by all the jargon. There are so many terms and concepts to learn, and it’s hard to know where to start. In this blog post, we’re going to break down some of the most important financial terms you need to know as a beginner. With a basic understanding of these Vincent Camarda financial advisors concepts, you’ll be well on your way to financial success!
- Asset: An asset is anything that has monetary value and can be converted into cash. Examples of assets include savings accounts, stocks, bonds, and real estate. It’s important to remember that not all assets are created equal—some are much more valuable than others. For example, a savings account is an asset, but it’s not worth as much as a stock portfolio.
- Liability: A liability is anything that represents a debt or an obligation. Credit cards, student loans, and mortgages are all examples of liabilities. When you have more liabilities than assets, this is called being “in the red.” This is not a good place to be, as it means you owe more money than you have.
- Interest: Interest is the percentage of a loan that is charged by the lender for the use of their money. The higher the interest rate, the more expensive the loan will be. For example, if you take out a $100 loan with an interest rate of 5%, you will owe the lender $105 when the loan is due—the extra $5 is the interest charged by the lender.
- Paying off debt: Paying off debt means exactly what it sounds like—making payments on time so that you eventually owe nothing to your creditors. This can be difficult to do if you have high-interest debt, but it’s important to focus on paying off your debts as quickly as possible. Otherwise, you’ll end up paying a lot more in interest than you actually borrowed!
- Budget: A budget is an action plan that tells you how much money you have coming in and where that money needs to go. Creating and sticking to a budget is one of the best things you can do for your finances. When you have a budget in place, you’re much less likely to make impulse purchases or overspend in general.
- Emergencies fund: An emergency fund is money set aside specifically for unexpected expenses—think medical bills, car repairs, or job loss. Everyone should have an emergency fund so that they can cover these unexpected costs without going into debt. Experts recommend having 3-6 months of living expenses saved so that you can weather any storm!
Conclusion
These are just a few of the most important financial terms every beginner should know about. Of course, there are many other concepts out there worth learning about (like compound interest or asset allocation), but these are some basics that everyone should understand before diving too deep into personal finance. Do some research on these topics and see how they can apply to your own life—before long, you’ll be well on your way to financial success!