Do you freeze, get confused or dazed, when you hear about interest, debit, or investment? Do these money terms wear you out and make you tune out when you hear them? Youâre not alone.
Many people tend to get confused or scared when they hear money terms like the above but these terms shouldnât be feared neither should they cause you to lose interest. Money terms may sometimes sound like a foreign language, but if understood well, can pretty much save your life financially. Hence, this compilation of common a scary money terms and an attempt to simplify them below with the hope that you'll understand them. Hopefully, this will in turn, help you make smarter financial choices.
Warren Buffett defines investing as the process of laying out money now to receive more money in the future. The goal of investing, thus, is to put your money into something with the hope of growing your money over time.
You can set aside money either by investing in a business, stock, company, etc., while you focus on other things while your money grows. Some Investments are usually done through the purchase of bonds, stocks, real estate property or putting one's money into the production of goods required to produce other goods. Other investment options can also mean anything you do to generate further income.
A loan is the lending of money from one individual or organization to another individual or organization. A loan can either be secured, unsecured, concessional, demanded, or subsidized. For example, mortgages or car loans are secured loans, because they are secured by collateral. Unsecured loans are not backed by collateral and usually have higher interest rates than secured loans, because they are riskier for the lender.
Investopedia a leading source of financial content and financial education website says loans can also be described as revolving or term. Revolving refers to a loan that can be spent, repaid and spent again, while term refers to a loan paid off in equal monthly installments over a set period called a term. A credit card is an unsecured, revolving loan, while a home equity line of credit is a secured, revolving loan. In contrast, a car loan is a secured, term loan, and a signature loan is an unsecured, term loan.â
Loans usually come with interests, which are decided by the type of loan it is. For example, a concessional loan, usually made by the foreign government to developing countries, is granted on more generous terms than market loans either through below-market interest rates, âgrace periodsâ or a combination of both.
This is another money term that is common but sometimes gets people going, huh?â
Compound Interest is the result of reinvesting interest. How do you get compound interest? When you loan money or make a deposit, the interest you receive on the money loaned or deposited is reinvested such that in the nextinterest period, interest is earned on the principal sum â the initial money loaned or deposited â plus previously-accumulated interest.
You can think about it like this: interest on interest.
Your asset is any tangible or intangible thing that you own which you can use to produce or represent a value that a company or organization can hold and use to produce economic value.
Think of it as an economic resource. You have it, and if you give it to a company or an organization, either as collateral or anything, it is valuable and can be used to generate financial value. Everyone has at least, one valuable asset.
Debit and credit
Let's stick to bank debit and credit for this one. Many people now know what a debit and/or credit alert is, thankfully, but there are some who still do not know. Before now, it used to be confusing and sometimes, panic-inducing. You get a debit alert from your bank and you're in shock, thinking,"This bank na thief!" There are times you also get a credit alert (#5 to #10, ha ha!) from your bank and you're wondering if it's a mistake.
Here's how it works, Ladies.
Debit- deducted FROM your account as charges for services such as SMS notifications from your bank, ATM card maintenance, etc.
Credit- money put IN your account by someone or your bank. Sometimes, your bank does give you a few naira!
Hopefully, these explanations have helped familiarize you with the seemingly hard money terms. This is hoping that henceforth, you won't be afraid to explore them and put them to good use in your daily life.
Now, if there is any other common money terms you want us to talk about, do let us know. We're here to help.