25 Financial Terms in Plain English
Have you ever been reading a blog post, article, bank document, or text book and thought “what the hell is going on”? Yes, me too.
It’s quite ridiculous that people tell you how important personal finance is and why you should be educating yourself – but they leave out important details like:
1) It is like trying to translate Shakespeare to a 5 year old
2) The amount of terminology is vastly overwhelming
3) It is completely terrifying that no one told you any of this until now
When I first started to do research surrounding personal finance, debt consolidation, investing, and mortgages I was extremely frustrated by the word usage. For a blogging world that is so large and inviting, why haven’t we created a simplified dictionary that breaks down terms that no one really understands upon first glance? We have slang for everything else in the world – so why not PF? (personal finance). Be prepared for acronym city.
Now although there are upwards of 2,000 terms used in the financial industry, I have randomly chosen some for you to grasp hold of before I go terrorizing your memory.
Here are 25 Personal Finance terms broken down into plain English:
1. Nestegg – a pile of money you sit on, like a bird does an egg, saved for the future.
2. Pension – money that was invested during your working like a dog days, to help support you during your old man retirement days.
3. GIC – stands for Guaranteed Investment Certificate, which is an investment that guarantees you make a certain rate over a certain period of time. This is great for the timid investor because it’s super low risk.
4. TFSA – stands for Tax Free Savings Account, which is an account where you can scurry away all your money and use it to invest/save for long or short term goals. This money can be taken out at any time with no penalty.
5. RRSP – stands for Registered Retirement Savings Plan, which is an account for retired people, and new homebuyers. Most organizations help you set this up if you’re employed there. If you take money out – you’ll be penalized because that’s life and your money isn’t really your money? Don’t you love these definitions?
6. RESP – stands for Registered Education Savings Plan, which is a great savings account for parents to put money away for their children’s post-secondary education.
7. Interest Rate – if you use a loan or a credit card, this is the portion of the payment that you must pay back in interest. Sometimes it’s annual, sometimes it’s not. High = bad.
8. Principal – this would be the initial amount of money invested or lent. Not the guy who suspends you for too many absences.
9. Variable Interest Rate – so depending on the above definition of interest rate, these can be changed based on market conditions, payments made, etc.
10. Fixed Interest Rate – these ones obviously cannot be changed. Lucky you.
11. Mutual Funds – this is another investment term which is managed by a professional. I.e.) not me. It’s funded by shareholders and is traded in stock markets. Did I get that right? I hope so.
12. Line of Credit – I’m sure your bank tells you how important this is for you to build credit, right? It’s also another term for “money you do not actually have and will come back to bite you if you’re not careful”. I recommend you avoid.
13. Mortgage – this is how people are charged to own property. It is a form of security to prove that you will pay your debt back in full by a certain time.
14. Closing Costs – when you sell something, you’ve got to take care of all extra fees, including taxes, registration…etc.
15. Amortization – this is a fixed schedule for people to pay back their debts owed. Eliminating your debts is as cool as this word.
16. Banking Fees – for those of you who don’t know, banks like to add small charges for things like taking money out of an ATM too many times, having a savings account with them, breathing over 20 times a month. Catching on? Make sure you are aware of all these fees because they add up quicker than most of us can do our mad minutes.
17. Credit Score – you know when we were in high school and we’d rate people’s looks on a scale of 1-10? Banks do it too, but based on our credit cards. The scores range from 300-900 and it’s recommended you check yours out once a year.
18. Investment Portfolio – this is a cute little place where people store all of their cash, stocks, bonds, and a few other words that aren’t on this list. Oops.
19. Appreciation – much like you love your mother, monetary things can increase too.
20. Depreciation – much like you hate rush hour, monetary things can decrease too.
21. Asset Allocation – this is how people who invest organize where their money goes. Maybe I’ll put 18% into Canadian companies, 12% into European companies, and 5% into Oil. Plz don’t actually do that.
22. Beneficiary – when you die, this person gets all your money! Don’t worry, you get to choose who this person is.
23. Refinancing – say you owe a lot of money, this is a good opportunity for you to discuss a lower interest rate and start hammering away at your debts without only being able to pay the minimum.
24. Consolidation – for many people in debt, this is a great option in which you combine a bunch of small payments into one large payment and then make strides without worrying about paying multiple bills.
25. Tax Bracket – depending on your annual salary, you’re in a different tax bracket in which you’re taxed more or less.
Well, I hope you learned at least one thing you didn’t know or I made you smile at something you already did know. Personal finance isn’t all serious faces and boring math. Take it from someone who was awful at everything that had to do with numbers, this is worth it. These numbers are important to your future self.
What are some financial terms you wish you knew more about? Let me know in the comments!