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50 Finance Terms Explained

Navigating the world of finance can feel overwhelming. Here’s a breakdown of 50 key terms to help you better understand your financial landscape.

Assets: Resources owned by a person or company with future economic value.
Liabilities: Debts or obligations owed to others.
Equity: The value of an asset less the value of all liabilities. (Assets – Liabilities = Equity)
Income: Money earned through work, investments, or other sources.
Expenses: Costs incurred in day-to-day living or business operations.
Budget: A plan for managing income and expenses.
Savings: Money set aside for future use.
Investment: Putting money into something with the expectation of future profit.
Stock: A share of ownership in a company.
Bond: A debt instrument issued by a corporation or government.
Mutual Fund: A portfolio of stocks, bonds, or other assets managed by a professional.
ETF (Exchange-Traded Fund): Similar to a mutual fund but traded on a stock exchange.
Diversification: Spreading investments across different asset classes to reduce risk.
Risk Tolerance: An individual’s ability to withstand potential investment losses.
Inflation: A general increase in prices and a decrease in the purchasing value of money.
Interest Rate: The cost of borrowing money or the return on savings.
Compound Interest: Interest earned on the principal amount plus accumulated interest.
APR (Annual Percentage Rate): The annual cost of borrowing money, including interest and fees.
Credit Score: A numerical representation of a person’s creditworthiness.
Debt: Money owed to another party.
Mortgage: A loan secured by real estate.
Loan: An amount of money borrowed from a lender.
Collateral: An asset pledged as security for a loan.
Bankruptcy: A legal process for individuals or businesses unable to repay their debts.
Retirement Account: A savings plan designed for retirement, often with tax advantages.
401(k): A retirement savings plan sponsored by an employer.
IRA (Individual Retirement Account): A retirement savings plan that individuals can set up on their own.
Pension: A retirement plan funded by an employer or union.
Estate Planning: Preparing for the management and distribution of your assets after death.
Will: A legal document outlining how your assets should be distributed after death.
Trust: A legal arrangement where assets are held and managed by a trustee for the benefit of another.
Tax: A mandatory contribution to state revenue, levied by the government.
Deduction: An expense that can be subtracted from taxable income.
Credit (Tax): An amount that can be subtracted directly from your tax liability.
Gross Income: Total income before taxes and deductions.
Net Income: Income after taxes and deductions (take-home pay).
Financial Statement: A report summarizing a company’s financial performance and position.
Balance Sheet: A financial statement showing a company’s assets, liabilities, and equity at a specific point in time.
Income Statement: A financial statement showing a company’s revenues, expenses, and profits over a period of time.
Cash Flow Statement: A financial statement showing the movement of cash in and out of a company over a period of time.
ROI (Return on Investment): A measure of the profitability of an investment.
ROI (Return on Investment): A measure of the profitability of an investment.
Net Worth: The difference between your assets and liabilities.
Liquidity: The ease with which an asset can be converted into cash.
Volatility: The degree to which an investment’s price fluctuates.
Bear Market: A prolonged period of declining stock prices.
Bull Market: A prolonged period of rising stock prices.
Index Fund: A type of mutual fund or ETF designed to track a specific market index.
Hedge Fund: A private investment fund that uses sophisticated strategies to generate returns.
Deflation: A general decrease in prices.