As we wrap up another year of financial learning and growth, we’re unwrapping some of the most important terms from our Finance Flipcards series on socials. Every Friday, Sqwire brings you essential financial terminology to help build your knowledge and confidence. It’s truly a gift that keeps on giving!
Why Financial Vocabulary Matters
While financial terminology may not be a good icebreaker at holiday parties, it is crucial in your journey to financial wellness. The concept is simple: When you understand the language of money, you’re better equipped to make informed decisions about your own money. It’s like learning any new language. At first, the terms might seem foreign, but with practice they become part of your everyday vocabulary.
Your Financial Dictionary: Essential Terms to Know
Let’s review some of the key terms we’ll cover in our Finance Flipcards series that every financially savvy individual should know:
Refinancing
When you have a loan, let’s say a home loan, there might come a time when you need to lower the payment. Refinancing is when you replace your current loan with a new one. Depending on the type of loan you have, you might need to wait a specific period of time before you’re eligible for refinancing.
401k
One of the perks of full-time employment is the opportunity to save for retirement. Many employers offer a 401k, which is a type of retirement savings account in which you can contribute part of your paycheck to savings, often with your employer matching the amount.
Capital Gains
Having investments is one way to build future wealth. The term “capital gains” applies when you sell an investment, like stock or real estate. A capital gain is the profit you earn from the sale of those investments beyond the price you paid for them.
Deductible
When you have an insurance policy, whether it’s health, home, auto, etc., you’ll have a deductible. This is the amount of money you have to pay out of pocket for services before your insurance kicks in.
Compound Interest
Think of compound interest as a snowball rolling down a hill, getting bigger and bigger. It’s not just interest on your initial investment — it’s interest on your interest. In other words, it’s how your money earns you money. This is how small, consistent savings can turn into significant wealth over time.
Emergency Fund
This is your financial safety net in the event of unexpected costs due to natural disasters, illness, injury, etc. An emergency fund should typically cover 3-6 months of essential expenses. Think of it as your personal insurance policy against life’s surprises.
Net Worth
The big picture of your financial health. Calculate it by subtracting what you owe (liabilities) from what you own (assets). It’s like taking a financial selfie — a snapshot of your current financial position.
Debt-to-Income Ratio
This crucial number helps lenders determine your creditworthiness. Calculate it by dividing your monthly debt payments by your gross monthly income. Like your holiday budget, keeping this ratio in check is essential for financial health.
Dollar-Cost Averaging
Instead of trying to time the market (which is like trying to predict exactly when it will snow), this investment strategy involves investing fixed amounts regularly, regardless of market conditions. It’s the “slow and steady wins the race” approach to investing.
Risk Tolerance
Your financial comfort zone. How much market volatility can you handle without losing sleep? Understanding your risk tolerance is crucial for building an investment portfolio that matches your personal goals and comfort level.
Making Financial Terms Work for You
Understanding these terms is just the beginning. Here’s how to put this knowledge into action:
Start Small: Focus on mastering one term at a time. Follow Sqwire’s weekly Finance Flipcards on social media for bite-sized learning opportunities.
Apply What You Learn: Each time you learn a new term, think about how it applies to your personal financial situation. Knowledge without application is like a present that never gets unwrapped.
Track Your Progress: As you learn new terms, notice how your financial confidence grows. You might find yourself making more informed decisions about your money.
Share Your Knowledge: As you grow in knowledge, look for opportunities to share what you’ve learned in everyday conversation with family or friends. Also turn them on to our Finance Flipcards series so they can grow their own financial literacy!
Beyond the Flipcards
Financial literacy is a long game. Whether you’re just getting started or you’re a certifiable finance nerd, there’s always something to learn and someone you can share it with. At Sqwire, we believe in making financial education accessible and engaging. Our Finance Flipcards series is just one way we’re working to demystify the world of personal finance.
Watch for our posts every Friday on our social media channels. Each post breaks down an essential financial term into a brief definition, helping you build your financial vocabulary one term at a time.
The gift of financial literacy is one that keeps giving long after the holiday season ends. By understanding these key terms and concepts, you’re better equipped to make informed decisions about your money and your future.
Happy learning, and here’s to building your financial confidence, one flipcard at a time!
Sqwire is on a mission to help people take control of their financial future. We partner with businesses, organizations, and solopreneurs to provide our SqwireLife platform to employees and customers. Let’s talk about how you can provide them with FREE access to 70+ lessons on personal finance topics, from insurance to investing to retirement and more!
Image by Frauke Riether from Pixabay