Money plays a vital role in our daily lives, so it’s important that we deeply understand how it works to manage it well. Learning about money begins by having a good grasp of the basic terms that can guide us in our pursuit of financial freedom.
Broaden your financial vocabulary. We made 19 common financial terms easy to understand to help millennials like you widen your knowledge in basic personal finance and investment.
1. Monitor and check your salary deductions and where it goes with a payslip. It is where you can see the detailed breakdown of your pay.
2. Bank Certificate. To prove that you have an existing account at a specific bank branch, you would need a bank certificate. Details in the bank certificate vary per bank, but it usually includes the type of your account and when you opened it.
3. Bank Statement. Official transactions such as visa processing requires a bank statement, also known as an account statement. This contains a summary of your account transactions that have occurred over a given period.
4. Passbook/Bank Book. If you want to keep records of your bank transactions on your deposit account, always bring along your passbook when depositing money into your account.
5. If you need some quick cash, you can let a pawnshop hold onto one of your valuable items for a short period in exchange of money to help you get you through the rough time.
Note: Pawning is not meant to be a long-term financial solution, as it comes with interests. Manage your loans appropriately so they would not go out of hand.
6. Anything you own that can be sold for value or converted into cash are considered an asset. Items with direct and clear values are known as tangible assets, which you can get a very realistic estimate should you wish to convert it directly into cash. On the other hand, intangible assets are not physical in nature like trademarks, copyrights, and corporate intellectual properties.
7. A claim against the assets or legal obligations of a person or organization that arises out of the past or current transactions is called a liability. Liabilities may be classified as current and long-term liabilities depending on the basis of the time period within which the liability is expected to be settled. Loans are an example of a liability, where you have to pay back the sum of the loan plus its interest.
8. Net worth. Your asset minus your liabilities equals your net worth. A negative net worth means that your liability is greater than the value of your assets. Net worth could also refer to an individual’s net economic position or your value if you were to sell all your assets and pay off all your debts.
9. Annual Percentage Rate (APR). The rate of charge or interest on credit cards is called APR. It is usually applied to late payments, purchases, and cash advances. Before applying for a credit card, know which rate you are selecting for it will affect the price you have to pay.
10. Credit score. If you’re applying for a loan, lenders check your credit score before they make a decision because it determines your capability to pay back. The higher your credit score, the higher chances of getting your loan approved. Build a high credit score by paying your balances on time.
11. Credit Report. Your credit history, loan paying history, and the status of your credit accounts are being recorded in a credit report. It includes your personal data and the details of any accounts turned over to a credit agency. The information in your credit report is also used to generate credit scores.
12. A loan may be specific, a one-time amount, or available up to a specific limit. These are the sum of money which individuals, corporations, and financial institutions are expected to pay back with interest. There are different types and kinds of loans such as installment loan, car loan, housing loan, pawn loan, personal loan, and more.
13. If you are paying off debt with a fixed repayment schedule over a period in regular installments or a plan, that’s amortization.
14. This is an insurance product that pays income to the owner. Sometimes, it is used as part of a retirement strategy. Purchasing an annuity means making an investment in it which you will enjoy in future dates on a monthly, quarterly, or annual basis.
15. Stocks/Shares. These are units of equity or ownership stake in a company, where the value of a company is the total value of all outstanding stock of the company. The two main kinds of stocks are common stock and preferred stock.
The common stock entitles owners to vote at shareholder meetings and receive dividends, while preferred stockholders do not have voting rights but can receive dividend payments. Preferred stockholders also have the privilege over common stockholders should the company declare bankruptcy and have their assets liquidated.
16. When an investor loans money to an organization borrowing funds for a defined period with a fixed interest rate, this is called a bond. It is simply defined as loans made to an organization in a form of a debt investment.
17. Mutual Funds. It’s an investment program comprised of a pool of funds coming from different investors with the purpose of investing in securities such as bonds, stocks, and similar assets handled by a fund manager.
18. Unit Investment Trust Fund (UITF). An open-ended pooled trust fund denominated in peso or any acceptable currency. Open-ended pooled funds are investments where people put their money with an investment manager handling the investments. If the funds you’ve invested will be needed in the immediate future, this might not be a suitable investment vehicle.
19. Personal Equity and Retirement Account (PERA). Philippines’ version of 401(k); a voluntary and personal savings account program that encourages individuals to save and plan for their retirement while enjoying tax incentives both from the amount contributed and the income from investments.
It is established by and for the exclusive benefit of the contributor for the purpose of being invested solely in PERA investment products. Any individual of legal age who is employed in the Philippines or overseas with a Philippine Tax Identification Number (TIN) is eligible to open a PERA account.
By understanding basic financial terms, you can make the most informed choices about your fiscal path.
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