15 FINANCIAL TERMS TO CHANGE YOUR LIFE
As immigrants, we all want to be financially independent and make the most out of our salaries to support our families back home. Nevertheless, it is tough to reach this goal without basic knowledge of how the financial industry works in Canada. Especially when there are so many financial terms and complicated jargon.
Keep calm! We all start from zero. Today, we are explaining in a very friendly manner 15 basic financial terms you should know to help you reach your financial goals.
Let’s get started!
15 Financial Terms Everyone Should Know
1. Asset: an item or property one possesses that can be used to pay for debts. This could be a house, cash, cars, or bonds.
2. Capital: Money and other assets that may be used for investing.
3. Bankruptcy: this term is used in the legal system to declare a person or a firm unable to pay for their commitments (Usually debt). This state may also be referred to as insolvency or destitution.
4. Credit: Refers to money one does not have but can use due to a pool of funds made available to you as a loan. For instance, when using a credit card, the issuing bank is loaning one the money expecting it to be returned at the end of the month.
5. Credit score: It helps banks and other institutions determine if a customer is responsible for their debt. Among the factors, they take into consideration are the following:
- How long one takes to pay off loans
- Whether one is consistent with their payments.
6. Emergency fund: Money in a savings account destined to be used in case of an emergency.
7. Interest: Money charged for providing a loan, usually paid as an added percentage. In other words, if one takes out a $100,000 loan for house repairs, a bank may charge you an extra 4% for lending you the money upfront, bringing your total up to $104,000.
8. Compound interest: One can also benefit from interests. For instance, using a savings account is common for this reason. If one leaves $4,000 in a savings account, the financial institution could offer a 0.5% interest in keeping the money in the account. Compound interest happens when a constant increase in the base money builds up. If the first year one puts in $4,000 and gained 0.5% in interest, the next year you will have $4,200 and earn another 0.5% on that the following year.
9. Need vs. want: Refers to the difference between things you need and things you want. You may want a sports car, but you may only need public transport.
10. ROI: Stands for “return on investment,” it refers to the profit you earn from an investment. Mostly used in the business world to justify expenses, but it is valuable for personal finances too. Have you ever wondered what the ROI of your new gaming console is? Entertainment and relaxation can be desirable returns if one values them highly.
11. Defined contribution plan: A retirement plan in which the employee and the employer make contributions.
12. Collateral: An asset promised to a lender, in case the borrower cannot complete their payments. Any financial institutions ask for collateral.
13. Equity: The value of a property or business once all debts are subtracted.
14. Annual interest rate: Also referred to as the base rate, it is the standard percentage of interest to be paid every year. This rate will not reflect compound interest or fees.
15. Debt-to-income ratio: The percentage of your monthly salary is used to pay off debts. At LUMENWIRE, we hope you have learned useful information while understanding these 15 financial terms. Comment below if you have any questions!
Are you looking to save some extra money to put on your savings account?
You have come to the right place, at LUMENWIRE we have the most cost-efficient money transfer service you can use to send money to Iran from Canada. Register now and see how much money you could save in a matter of 4 years. Let us know your findings down below in the comments