Introduction

Navigating the world of money and its associated jargon can be daunting, especially for those at the beginning of their financial journey. This guide demystifies five essential financial terms, aiming to provide clarity and boost your financial literacy.

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Money Term 1 – Interest Rate

• Explanation: Interest rates represent the percentage a lender charges for borrowing money or the percentage a bank rewards you for savings. For instance, if you have a credit card balance of $100 with a minimum payment of $25, you might expect to owe $75 after making that payment. However, interest complicates this. Part of your payment goes towards the interest you owe before the balance, so you might find yourself paying down only $21 of the principal amount, leaving you with a $79 balance.

Money Term 2 – Credit Score:

• Explanation: A credit score quantifies your creditworthiness, reflecting your credit history and repayment habits. A higher score typically results in better loan terms and lower interest rates. Although enhancing a credit score might seem complex, understanding the score itself is fairly easy. A higher number is better.

Money Term 3 – Income vs Expenses

• Explanation: Income refers to the money you earn, while expenses denote what you spend. Familiarizing yourself with these foundational terms is crucial, as they recur frequently in personal finance discussions.

Money Term 4 – Budget:

• Explanation: The term “Budget” often evokes images of exhaustive spreadsheets. However, a budget is fundamentally about understanding and managing your money. It’s about conscious spending, ensuring every dollar serves a purpose, and of course, engaging with your finances.
• If you want to read our 5 budgeting tips for beginners, click here!

Money Term 5 – Retirement Savings:

• Explanation: Retirement savings are funds set aside during your working years to sustain your post-retirement life. While many methods exist, employer-sponsored plans like 401(k)s and personal accounts like IRAs are popular choices. A deep dive into retirement accounts will follow in our upcoming posts.

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