Personal Finance Vocabulary

Here are some common terms used in personal finance:

Budgeting and Saving

• Budget: A financial plan that outlines income and expenses.
• Income: Money earned from work, investments, or other sources.
• Expenses: Costs incurred for goods or services.
• Savings: Money set aside for future use.
• Emergency fund: Savings specifically set aside for unexpected expenses.

Debt and Credit

• Debt: Money owed to another person or entity.
• Credit: The ability to borrow money.
• Credit score: A numerical representation of one's creditworthiness.
• Interest rate: The cost of borrowing money.
• Debt-to-income ratio: The ratio of debt payments to income.

Investing

• Investment: Putting money into something with the expectation of a return.
• Stock: A share of ownership in a company.
• Bond: A debt security issued by a government or corporation.
• Mutual fund: A pool of money invested in a variety of securities.
• Diversification: Spreading investments across different asset classes to reduce risk.

Financial Planning

• Financial planning: The process of creating a plan to achieve financial goals.
• Retirement planning: Planning for financial security in retirement.
• Estate planning: Planning for the distribution of assets after death.
• Insurance: A financial product that protects against loss.

Other Terms

• Net worth: The total value of assets minus liabilities.
• Compound interest: Interest earned on both the principal and accumulated interest.
• Inflation: The increase in the general price level of goods and services.
• Liquidity: The ability to convert assets into cash quickly.

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By Jerry Ramonyai