Back in April, we launched a brand new series in celebration of #FinancialLiteracyMonth that aims to promote financial inclusion and literacy by explaining some of the most popular jargon within the financial community.
And with Part Two covering everything from credit scores, financial goals and financial literacy, today we're breaking down the meaning of:
📈Compound Interest
💰Net Worth
🧾 Payslips
💎 and Financial Assets!
Whether you've just embarked on your journey towards better finances or consider yourself an expert, we believe that it's never too late to learn something new - so, regardless of where you are on your financial journey, we hope this series provides some valuable information and inspires you to learn more!
1) A "Financial Asset"
Official definition:
Noun: a liquid asset that gets its value from a contractual right or ownership claim. Cash, stocks, bonds, mutual funds, and bank deposits are all examples of financial assets.
Our definition:
An asset is something you own, of value, that has the potential to generate future income.
Assets can include personal possessions such as expensive jewellery, the car you drive, your house (if you own it) and also your savings, investments and cash. Your financial assets can be used to determine your overall net worth, and are, essentially, things you can sell later down the line to make a bit of extra cash if you need it.
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2) Your "Net Worth"
Official definition:
Noun: the value of assets an individual or corporation owns minus the liabilities they owe. It's an important metric to gauge a company's health, providing a useful snapshot of its current financial position. -Investopedia
Our definition:
Whilst the term 'net worth' gets thrown around more when it comes to business and stocks, did you know we all have a net worth?
That's right - a person's net worth refers to their total value from their assets, and is calculated by essentially subtracting what you owe (liabilities, e.g. debts) from what you own (assets).
Want to work out your total net worth? All you need to do is add up your total assets, then subtract anything you owe (like loan and credit card debt). Or, follow this link for a handy Net Worth calculator!
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3) "Compound Interest"
Official definition:
Noun: interest accumulated from a principal sum and previously accumulated interest.
-Wikipedia
Our definition:
Put simply, interest is the price you pay to borrow money (for example, from a loan) or the return you've earned on investments or savings.
Interest rates increase over time and the rates vary by provider. For example, one bank may offer 5.4% interest on their savings account, while another offers only 3%. And if you've ever felt the sting of interest rates with a credit card, you'll know exactly what we're talking about!
Simple and compound interest are two ways of calculating interest: simple interest is calculated on the original (principal) amount, whereas compound interest is calculated on the original amount and on the interest already accumulated on it.
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4) A "Payslip"
Official definition:
Noun: a note given to an employee when they have been paid, detailing the amount of pay given, and the tax and insurance deducted.
Our definition:
If you've ever worked part-time or full-time for a business, you'll have received a payslip (in paper or digital format) that essentially breaks down your hours worked, the amount they will be paying you, and any deductions for things like income tax, employer pension scheme, and national insurance.
If you're in paid employment, it's essential to make a habit out of checking your payslip every month for any errors (for example, your employer not paying you correctly or being on the wrong tax code). Mistakes can happen and it's best to alert your employer quickly if something doesn't look right!
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What money jargon would you like to see us break down next?
Join the conversation over on our Instagram and stay tuned for Part Four coming soon!
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