All of us have to start somewhere when it comes to finance. After all, we aren’t born with a head for figures and economics; it is something that we have to learn over time. Whether you are a newbie investor or a green entrepreneur, one of the most difficult things to get your head around at first is all the jargon that comes with financial matters. If you don’t know all the lingo of money, how on earth are you going to get buy?!
We know that learning a new language can be very difficult, and getting to grips with all this new financial jargon can be just like trying to learn Spanish vocabulary! So, to make it easier for you, here is our comprehensive guide to financial jargon. Consider all those tricky words and phrases well and truly busted!
Asset – Ok, let’s start with a very easy to understand term. You will no doubt have heard of “asset” used in a variety of different situations. It basically means something that you own. So, if you own your own home, then that is an asset. If you have your own business, then anything that the business owns is a business asset. For instance, if you own a taxi firm, then all of the cabs are assets. Investments such as stocks and shares are also classed as assets because they are worth money.
Inflation – Even though inflation is regularly spoken about in the media and in political manifestos, it can be quite tricky for people to understand. That’s because it is a bit of an abstract concept. Put in simple terms, inflation is the amount by which the price of goods and services rises by each year. Generally speaking, it is best if inflation only slightly fluctuates. If it rises or falls significantly, it is a sign that all is not well with the economy.
Debt – A slightly easier term for newcomers to finance to understand, debt simply means the amount of money that you borrow. For instance, if you take out a loan worth $5,000, then you are $5,000 in debt. People find that the more loans they take out, the more they struggle to pay them back. If this sounds like you, though, don’t worry as you could always consolidate your debt to make repayment easier. But if things get really out of hand, there are a few government organizations that can offer you advice and help you and your business through this rough patch.
Dividend – If you buy shares, you own a small percentage of the company in which you have bought your shares. As a way of thanking their shareholders for supporting them, companies pay out dividends to all shareholders on an annual basis. This is often expressed as a percentage of the amount that they have invested into the company. Normally, dividends are paid out in cash, but today more and more businesses are looking at unique and unusual ways to reward their customers. For instance, if you hold shares in a chain of restaurants, you might get paid in meal or drink vouchers.
GDP – GDP is an acronym that stands for “gross domestic product”. It means the total value of all the goods and services that the country offers. This is often expressed as a figure and is very important to help economists judge how well a country is doing and how healthy their economy and markets are.
Funds – If you are interested in investing some of your money, you may have already heard a lot about funds. These are a collective investment. People who invest in them pool all of their money together, and this large sum of money is then looked after by a fund manager. The fund manager splits the big pool of money up so that he or she can invest it in different sectors and assets. By splitting the money up into different assets, it reduces the risk involved and also increases the chance of returning a good profit for investors. When you are looking for a fund, you will be able to choose from different kinds, such as mutual funds and hedge funds.
Diversification – In the above point I mentioned about splitting up money to invest in different assets. This method of investing is known as “diversification”. You will usually hear this term in the phrase “diversify your portfolio”. More often than not, investors invest in different types of investments, from funds and shares to property and other physical assets. This is often a good way to invest your money, as different markets fluctuate differently. So, for instance, if you invest in both property and shares, and the stock market crashes, you shouldn’t lose too much money, as the property market could still perform very well. Because of this, many people see diversification as a safety net.
Online Investment Platforms – Not too sure how you could go about investing your money in the first place? No problem; you can make it easy for yourself by using an online investment platform. These are websites which give you the opportunity to invest your money without needing to go through a financial advisor. Many people find that using an online investment platform is very beneficial as it gives them somewhere to hold different assets together on one platform. They can then get a good overview of their current financial situation without jumping from site to site.
Pension – Many people believe that a pension is the best way to save up for retirement. It is just a long-term savings plan that you can tap into once you reach retirement age. Once you are old enough, you will be able to withdraw it completely as a lump sum or can choose to take monthly withdrawals. For many people, their pensions savings will come out of their salary on a monthly basis. However, some people like to take out a private pension plan as well to ensure that they have plenty of money to live off during retirement.
Buy-To-Let – Many people who invest in property choose to buy to let. This means that, rather than buy a property to live in themselves, they buy with the intention of renting it out. They could find a long-term renter or buy a holiday home to rent out to people on a short-term basis. Many people choose to do this as it provides them with a second monthly income. They could use this to increase their spending or invest it. Plus, the value of the property could increase over time, which will also see their investment grow.
Stock Index – There are various ways economists tell whether a market is doing well or not. One of these is the stock index. This refers to a few shares that are used to judge the current state of the market or sector in question. More often than not, it is the top performing shares in the market or sector that are used for the stock index, but this can vary.
Trading Floor – Ever wondered where all the magic of the stock exchange takes place? It’s down on the trading floor! This is the area of a company’s offices where all the hard work takes place. Have you ever seen the movies that show all the businessmen shouting “Buy! Buy! Buy! Sell! Sell! Sell!” Well, that is a portrayal of the trading floor! Sometimes, you might hear this referred to as the “trading pit”.
Volatility – Ever wondered what it means when traders and investors talk about market volatility? It’s all to do with the statistical likelihood that a market will make returns in the short term. Usually, the standard deviation of a market is used to work out the current market volatility. Sometimes, however, the market index is used. But, more often than not, a high market volatility means that it is currently quite risky to invest in the market in question.
Interest – Even though interest is a commonly used term, it is another one that can be quite difficult to grasp the true meaning of. Put into an easy sense, this term is simply the charge that comes with borrowing money. So, when you take out a loan, you normally don’t have to pay to do so. However, there will be interested added onto your monthly repayments, which are paid instead of a one-off charge. The amount of interested that is added on is usually a set percentage of the amount that you borrowed. There are different types of interest that can be added onto loans, so it is a good idea to double check with the loan company so that you fully understand how much you will need to repay.
As with most aspects of life, there is a lot of unique and niche vocabulary that goes hand in hand with economics and finances. But you shouldn’t let this put you off. Try and see learning all these new words as a way of increasing your financial knowledge. You never know, it might also help you improve your decision making, which could help your money grow even further!