Financial terms can very confusing sometimes. In fact, most people try so much to avoid it all the time. However, we cannot do without these financial terms. At one point in time, we all need to make use of these terms.
Alfred got into a fight with his employer the other day. It was just a simple thing that caused the rift one would think but it was way more than that. Money was at stake here and you will agree that nobody loves being cheated. “You can’t cheat me like that, it’s not right. You are going against our agreement” Alfred yelled at his boss. Well, it took the accountant to calm the situation.
“What’s wrong?” the concerned accountant asked “I received Ninety thousand naira instead of the proposed One hundred Thousand naira on my offer letter.”
“May I see your offer letter?” the accountant asked
The accountant went through the offer letter and let out a loud laugh. “What the heck! You mean you don’t understand the terms in your offer letter?”
“What do you mean?” Alfred asked in defense. What Alfred didn’t understand is the difference between gross and net. On his offer letter, he was offered One hundred thousand gross payment. However, his net payment was stated on the later part of the letter but he didn’t pay attention to it. A misunderstood financial term had caused an unnecessary argument.
Many people consent to things which have huge financial implication without properly understanding it.
Financial terms: 10 vital ones you should know.
- Gross- this refers to an income or amount without deductions like tax, NHF, and other things. Just like Alfred was offered a hundred thousand naira gross salary, gross payment comes without deduction.
- Net – Net refers to the value left after all expenses have been removed. These expenses can be tax or other expenses.
- Compound Interest is the interest calculated on both the principal amount and the accumulated interest from previous periods. Instead of the principal element alone earning interest, every interest the principal has earned already also earns interest.
- Mortgage – Mortgage is a loan used for the purchase of a property. In Mortgage, the collateral is the property purchased. To know more or apply for a mortgage, you can visit here
- A credit card allows you to pay merchants for goods and services with a cash advance provided by the card issuer. Credit cards are mostly used in advanced countries.
- Working capital is the difference between your current assets (assets you can turn to cash within a year) and current liabilities (debts that will be due within a year). It’s the measurement of your liquidity
- Emergency fund is money set aside to take care of unplanned expenses and situations like job losses, sickness, etc.
- An investment is an asset purchased because of its ability to increase in value and/or generate income
- Nest egg is a sum of money that has been saved up for a particular purpose. The term is mostly used to refer to money someone saves for retirement
- Risk tolerance is the measure of how much risk an investor is willing to take. There are risk-averse, risk-neutral, and risk-seeking investors.
- HMO (Health Maintenance Organization) is an organization or network that provides health insurance where access to healthcare is limited to healthcare providers within that network
You can find other financial terms here
Have a splendid weekend!