The Essential Business Finance Terms
If you want to understand much about finance, it is a good idea to take some time to familiarize with the common financial terms. Understanding the terms is vital as they will guide you in making the right decisions. For instance, they can help you make financial decisions ranging from stock investing, home buying and preparing your income taxes. Knowing the financial terms entails understanding what they mean. If you want to learn much about the common financial terms, you are in the right place.
When you are learning finance, you need to know about compound interest. It refers to the interests on the amount of money you have deposited or borrowed. For people who are investing or saving, compound interest is earned on the amount they have deposited including any interest that has accumulated over time. On the other hand, for people who are borrowing, compound interest is charged on the original amount one was leaned and the interest charges that are added to the outstanding balance over time.
In addition to compound interest, it is a good idea to also know about net worth. It refers to the difference between your assets and liabilities. People who want to know their net worth need to add up all of the money or investment they have, their current market value of their homes and cars, as well as their balances in savings, checking and other investment accounts. Once you have the sum, you need to deduct all of your debt, which includes your mortgage balance, loans, obligations, and credit card balances.
Another vital financial term you need to know about is capital gains. This is the difference between how much an asset is worth now against how much it was originally purchased for. It is however worth noting that the gain is only on paper until the investment is actually sold. The other side of capital gain is capital loss which refers to the decrease in the asset’s value ever since it was bought.
When learning about finance, you need to know about asset allocation. Asset allocation is where you choose to put your money. Assets can be categorized into stocks, bonds and cash. When determining the assets, it is worth noting that every asset reacts differently to the conditions in the market and the economy, therefore, it is a good idea to select the one that is in line with your personal goals. By knowing the financial terms discussed in this post, you will understand the financial concept.