Understanding Financial Jargon for Non-Experts

What are financial jargons and why do you need to know about them? Breaking down financial jargons is a way for citizens to better understand financial concepts and terminology. A quick guide of financial jargons to non-experts is helpful to come up with better financial decisions in life. 

Everyday, ordinary people are making financial decisions. Some of these everyday financial decisions include food cost and transportation to work. You are responsible for spending and budgeting your finances.  With our guidance and through your research and further reading, you can understand complex financial terms. Time will come that daunting financial jargons will turn into simple, everyday language for you. 

Understanding the Basics

Before financial experts became who they are, they started as beginners too. Experts who now understand complicated financial vocabulary started learning simple terms. 

Here are simple terms you should get yourself familiarized with: 

• Asset: This is a resource or something owned by a person, an organization or a country. Whoever owns an asset holds something of value. People own assets as it is providing or will provide some benefit in the future. There are different types of assets.
  • Current Assets – These are resources which can be exchanged for money at least within 12 months. The types of assets can be:
    • Cash 
    • Cash equivalent 
    • Supplies
    • Inventory
    • Account receivable 
    • Marketable securities 
    • Pre-paid expenses
    • Short-term deposits
    • Office Supplies 
  • Fixed assets/ Non Current Assets – This is the opposite of current assets as it takes time for these assets to be converted into cash. Thus, this is also referred to as long-term assets or hard assets. The types of fixed assets are:
    • Land
    • Vehicles 
    • Machinery and equipments 
    • Trademarks and patents
    • Buildings 
    • Furnitures and Fixtures 
• Liability: A liability is anything that you need to pay for. You are liable , such as a mortgage, loan, or credit card debt. Some types of liabilities include:
  • Credit card 
  • Loans
  • Salary and wages 
  • Mortgage 
  • Account payables 
  • Income tax payable 
• Equity: Equity refers to the value of an asset minus any liabilities. This is your share of ownership within an asset. Some types of equity includes:
  • Preferred stocks
  • Common stocks
  • Dividends 
  • Retained Earnings 
  • Treasury Stock 
• Interest: Interest is the cost of borrowing money or the payment you receive for lending it. The three types of interest are:
  • Simple interest
  • Accrued interest
  • Compounding interest 
• Return on Investment (ROI): To compute the return of investment, divide the profit earned by investment cost. ROI could either show a profit or a loss. 

Understanding Investment Terms

If you are keen on starting your investment journey, familiarize yourself with these words. 

• Compound Interest – This refers to an interest earned from an interest. To put simply, if you have a 10% interest earned every year on a $100 deposit, you’ll get $110 on year 1. In the following year, you will make $121. By the fifth year, $161.05. 
• Dividend – It means that a company you invest in, shares the profit with you and the rest of the stockholders. Some companies share their dividends on a quarterly basis while others are annually. 
• Index Fund – This financial investment mirrors other indexes such as S & P500 and Nasdaq. It basically pools or collects the money from different investors and puts it together into bonds or stocks. 
• Portfolio – This pertains to an investors’ stock or funds. It is a collection of assets of a particular investor or entity. Financial portfolio basically means financial assets. 
• Financial security  –  According to Daniel Fishel of Investopedia, this is described as instruments in finances which hold financial value. 
• Stock Market – Simply put, a stock market is an avenue where shares of listed companies are publicly traded. This is a platform for investors to trade in. 
• Risk Tolerance – Also dubbed at times as risk appetite. This pertains to an investor’s level of acceptance of the outcome of their financial investments. 
• Financial adviser – These are professionals who are going to help you make financial strategies and guide you with your financial decisions. They can also give financial advice and help you manage your investment portfolios.

Understanding Retirement Terms

At some point in our lives, we will finally retire from our work. In preparation for that, why not get yourself accustomed to retirement terms. It will provide you with a better understanding of what’s ahead of you in terms of your financial status. 

Here are some common retirement terms and what they mean:

• 401(k): A 401(k) is a type of retirement savings plan offered by many employers. You can contribute a portion of your income to the plan and your employer may match a portion of your contributions.
• IRA: An IRA, or Individual Retirement Account, is a type of retirement savings account that an individual can open and leverage on its tax-advantage benefit. There are different types of IRAs such as:
  • Traditional IRAs
  • Roth IRAs
  • Simplified Employee Pension (SEP)
  • Savings Incentive Match Plan for Employees 
• Social Security: Social Security is a government-run program designed to provide assistance for those who have already retired from work, have disability, and survivor benefits to eligible Americans.
• Pension: A pension is a retirement plan offered by some employers. The employer commits to allocate a set amount of money each month in retirement in exchange for a lifetime of work with the company.

By understanding these key financial terms, you’ll be able to make informed decisions about your finances and plan for a secure financial future. Don’t be afraid to ask questions or seek help from a financial advisor if you need it. Your financial future is worth the effort.