20 Financial Terms Everyone Should Know

Posted on Dec 4 2020 - 2:34pm by Editorial Staff

Whether you are involved in the financial industry or not, there are certain terms you should know. As a homeowner, as a loan consumer, as a business owner, you need to know these terms to guide you through your decisions. 

Equity Financing

Equity financing is a type of financing used to raise capital by selling shares. There are a variety of different types of equity financing, which include initial public offering, small business investments, angel investors, venture capital, and quite crowdfunding.

Principal

The principal is a commonly used financial term, which refers to borrowed money. The principal is the original amount borrowed or loaned.

Trust

A trust offers a wide array of benefits which is typically used to reduce estate taxes. A trust is an agreement that appoints a third-party, which is referred to as “the trustee.” The trustee holds the assets and represents the beneficiaries.

There are a variety of different types of trusts, which include testamentary trusts, charitable trusts, and living trusts. If you’re asking yourself,” What is a living trust?” here’s what you need to know. A living trust is the most common type of trust, which grants the trustee possession of any assets or properties designated in the trust agreement.

Tax Lien

A tax lien is a federally enforced legal claim, which is imposed if you fail to pay a tax debt. A tax lien is typically imposed by the IRS, which can then liquidate or seize your property if the debt is not paid.

Asset

In terms of finance, an asset is anything that has value, which can be either tangible or intangible.

Premium

The premium is a financial term, which is often related to insurance. The premium is the payment made to an insurance company, which can be paid monthly, quarterly, or annually. A premium can also be a sum of money paid in addition to the regular price.

Income Statement

If you have a bank account, then you more than likely know what an income statement is. An income statement is a paper or digital statement, which shows all reported revenue earned, along with your company’s or individual net gains of losses.

Debt Consolidation

Debt consolidation isn’t easy to define but to put it simply, it’s debt used to pay a series of outstanding debts. It’s a debt that is refinanced to pay back creditors. Debt consolidation is often used to reduce interest rates and lower monthly payments.

Net Worth

A person’s net worth is calculated by adding up all of their money and investments, which includes savings and retirement. You must also subtract any outstanding debts, loans, and balances.

Annual Percentage Rate

An annual percentage rate (APR) is a financial term, which is typically related to loans. The annual percentage rate is the interest charged to borrowers. Borrowers tend to choose loans with a lower APR, which means the borrower will pay less.

Deductions

When it comes to financial terms, deductions usually relate to taxes, which reduce the amount you claim on your income taxes. Common examples of income tax deductions include medical expenses, charitable contributions, and school loans.

Compound Interest

Compound interest is interest on top of interest, which is the earned interest on a loan or deposit, plus any additional interest accumulated.

FICO Score

A FICO score is the most widely used type of credit score, which has five active generations of scoring models. Your FICO credit is grouped into five categories which include payment history, amounts owed, new credit, credit mix, and length of credit history.

Accruals

Any type of incurred revenue, which impacts a company’s net income is referred to as “accruals.” An accrual is a recorded record of revenue, which doesn’t entail any exchange of cash.

Liability

Liability is the action taken if a person is found to be held liable, which is a legally enforced obligation to repay a debt.

Accounts Receivable and Payable

Accounts receivable is a term used in small businesses that represent the money they receive for services rendered. Accounts payable is the debts to their lenders and suppliers.

Balance Sheet

A balance sheet is a financial report, which relates to the financial health of a business. The balance sheet will contain vital information including company assets, liabilities, and equity.

Withholding

Withholding is a financial term that relates to annual wages set aside which are paid directly to the state and federal government taxes.

IRA

IRA stands for an individual retirement account, which is an account set up in advance designed to help you save money for when you retire. If you are unsure about the terms shown above, start doing some studying. It will improve your understanding of financial matters and help you to be able to discuss your own financial needs with a professional.

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Editorial Staff

Editorial Staff at I2Mag is a team of subject experts.