Being a millennial fighting the financial world today, knowing most common financial terminology may come in handy anytime. On an everyday basis, we are coming across different acronyms or terms that might not sound familiar to you.
From how much you need to retire all the way to handling your credit cards, you need to work on your financial bases regularly.
In this article, I’ll give you a breakdown of most commonly used terminology that might be useful to every millennial at some point.
Assets
Assets in financial world may refer to a wide variety of things that belong to the same individual.
Basically, assets are everything you own that can be sold for or converted into money. That includes an array of material things (like flats, cars, laptop..) as well as non-material ones (if you maybe own a brand yourself).
This, however, doesn’t mean that your collection of stamps may be considered assets, except if they are very rare and are valued high enough on the market.
Liability
This is directly opposite to assets. With that being said, every loan you may need to repay in the future falls into this category.
Having a liability means having to pay something to someone (or to some institution), and that loan probably has some interest associated also.
Checking Account vs. Savings Account
There is a common misconception between this two types of accounts. While both of them require you to put some of your money in the bank (you’re basically lending your own money to the bank at this point), they work slightly different.
Checking accounts have no interest rate associated with them, ie., you are not accumulating interest when your money stays in your checking account. Think of it as a contemporary piggy bank. You have access to quick cash and you’re able to withdraw your money at any point in time.
On the other hand, putting your funds into a savings account is a bit different. What you’re actually doing here is taking advantage of an interest rate the bank is giving you for the sake of lending your funds to the bank. In other words, you can make money out of your savings account.
There are 2 dominant types of savings accounts: basic savings account and certificate of deposit.
Basic account has no set time frame that you need to restrain from requesting a withdrawal of your money from the bank. It usually has lower interest rate associated with it, but the interest is accumulating as time passes (and your money is longer in possession of the bank).
On the contrary, certificate of deposit asks from you not to withdraw your money for a certain amount of time. And since it’s making bank’s secure that they can do with your money whatever they want to during that period of time, there is a higher interest rate associated with this option (you can walk out richer at the end of the defined period).
However, withdrawing money from your CD account is also a possibility, but there are penalties and bank fees associated if you opt for that.
Credit Score
This is something that you’re probably already familiar with, especially if you had to deal with debt.
Having a higher credit score can help you settle for a loan easier. This could benefit you if you are planning for big expenditures in the future, like buying a new car for example.
One neat trick to having a good credit rating without having to pay off chunks of money to the bank is to apply for a credit card and to service its fees regularly.
Not expensive, yet valuable.
