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Know Thy Finance: Seven Crucial Financial Terms That Everyone Should Know

Perhaps the only industry that has more confusing terms than the financial world is the medicare department, which is why you’ll need to get used to the financial terms that you’ll be coming across in the upcoming years. Financial terms might look pretty confusing when you hear them for the first time, but even people who talk about finances a lot might not be fully familiar with the basics. It pays off to go over such terms a single time so that you’re never confused about what someone else is talking about when you try to discuss your own financial future. Luckily for you, you don’t really need to be an expert in finances to know every term that’s going to matter to you in the long term. All you need right now is some handy terms that you can put in your back pocket and rely on every once in a while, and the following are the most common terms that you’re bound to face sooner or later:


You’ll often hear people talking about how their employers have offered a 401(k)  plan to them and how they’re beginning to be, or are, financially secure for the future. A 401(k), is simply a retirement program for workers that is a pretty great deal for anyone that has the opportunity to participate. The worker’s company helps them set money on the side for their retirement every year, and the best thing is that this money is tax deferred, which means you won’t face any losses through this method. Your company will also give money to your savings every year, which means you’ll be receiving free money through the program, which is always worth it. Basically, with a 401(k) you decide how much money to put aside from each paycheck and your employer then matches that amount. Here’s to supportive employers!

Net Income

There’s nothing confusing about your net income, and knowing what it is can be highly beneficial when you’re setting a monthly budget on your spending. Your net income is simply your monthly income after you’ve deducted your taxes and anything else that you need to deal with first. The money you’re left with is your net income, and you should make sure that it matches your monthly spending after you’ve deposited a certain amount into your savings. If your spending is greater than your net income, it’s time to reduce and make some changes.


Anything of value that you own is an asset. This includes any major properties that you might have that are worth a certain value, like your car, any houses you might own, and even your savings accounts. Your assets are what are used to determine your overall net worth.


A liability is something that you owe, that is to say, any debts that you may have procured over time. You’re meant to pay them every month, otherwise you’ll end up in further debt that could mean bankruptcy sooner or later, so it’s always a good idea to pay up your liabilities on time. These could be pretty much anything, from your student loans to the money you’re paying monthly for your car.

Net Worth

Once the value of your assets is determined, simply subtract this value with the amount you owe in debts. What’ll remain is your net worth, which is why it’s often a good idea to have as little debt as you possibly can so that you can boost your net worth in order to have a financially secure future.


A Keogh might sounds like something from out of this world, but it’s simply a fancy word to describe a savings account that anyone who’s self employed could have for themselves. Keogh accounts are aimed at retirement savings.


If you are ever in a position where you owe more than you can possibly pay off, you’re going to have to declare bankruptcy. All your assets are taken by the bank but it can alleviate you from all the money that you’ve owed – however, this should only be used when you have no other option because bankruptcy remains on your record for a decade.

These terms aren’t half as confusing once you’ve gone over them even once. However, knowing them could help you decide what you want to do with your personal finances more precisely and will also help you out when there’s a discussion going on about finances – you won’t be left looking like you haven’t got a clue about what’s going on.

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