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Money Terms Worth Knowing To Make Smarter Financial Decisions

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Ehmm, we do not pretend to not know how much you cringe, freeze or get confused when you hear some seemingly annoying financial/money terms. Terms like ‘interest’, ‘debit’, or ‘investment’? Do they wear you out and make you tune out when you hear them? You’re not alone, some of us ran away from ‘commercial class’ because of terms like this.

Many people tend to get confused or scared when they hear money terms like the above but these shouldn’t be feared neither should they cause you to lose interest. Money terms may sometimes sound like foreign language, but if understood well, can pretty much save your life financially.

Hence, this compilation of common ‘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. Thank you FirstGem.

Investment

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.

Investments are usually done through the purchase of bonds, stocks, real estate property, putting one’s money into the production of goods required to produce other goods etc. Other investment options can also mean anything you do to generate further income.

Loans

“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, so they 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. Term, however, 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.”

Compound Interest

This is another money term that is common but sometimes gets people going, “huh?”

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 next ‘interest period’, interest is earned on the principal sum – the initial money loaned or deposited – plus previously-accumulated interest.

You can think about it like this: interest on interest. Interesting right?

Asset

Your asset is any tangible or intangible thing that you own. You can use your asset to produce or represent 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, 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.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 don come again, thief!” There are times you also get a credit alert (5 to 10 naira, ha ha!) from your bank and you’re wondering if it’s a mistake.

Here’s how it works, TopNaijarians:

Debit – deducted FROM your account as charges for services. Examples are SMS notifications from your bank (arghhhh), ATM card maintenance, etc.

Credit – money put IN your account by someone or your bank. Sometimes, your bank does give you a few naira (or should we say kobos)!

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 term’ you want us to talk about, do let us know. We’re here to help.

Image: Shutterstock

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