- Annual interest rate
The annual interest rate, or APR, is the annual interest rate charged on borrowed money. The rate is expressed as a percentage and indicates how much interest the borrower will pay during the year.
An asset is any resource (tangible or intangible, owned or controlled) that has value. In other words, assets contain value that can be converted into money. An individual, company, or country may own or control assets, including cash, investments, art, technology, real estate, and intellectual property.
Bankruptcy is a legal status that a person or entity can enter when they are unable to pay their debts. Bankruptcy protects borrowers from debt collection but requires them to sell their assets to pay off the money they owe. Bankruptcy has serious financial consequences.
A budget is a plan for using income to meet financial obligations. It tracks how much income a person or company is earning and details how that money will be used to pay expenses, accumulate savings, and achieve financial goals.
- Shopping comparison
Shopping comparison is a strategy that consumers can use to save on their purchases. It consists of comparing the prices of similar products to determine which one is cheaper.
A loan is a financial arrangement in which money is borrowed for purchase and paid back later. This allows consumers to make purchases that they would not be able to afford if they had to pay full price in one payment. By spreading value over time, credit allows borrowers to make high-value purchases such as houses and cars. Common forms of credit include loans and credit cards.
- Credit report
A credit report is a record of a borrower’s credit history. It is created by credit bureaus and usually consists of four sections: personal information, financial account history, loan application history, and public records. The information in a credit report is used to calculate a consumer’s credit score, which is one of the main factors lenders consider when evaluating a loan application.
- Credit rating
This is a three-digit number that indicates how likely the borrower is to repay the debt. It is calculated based on the information in the borrower’s credit report and ranges from 300 to 850. Borrowers with higher scores are considered to be more repayable and thus more likely to be approved for a loan and receive lower interest rates.
Creditworthiness is a term that refers to the degree of confidence a lender has in a borrower’s ability to repay a loan. Creditworthiness is primarily determined by how well the borrower has managed previous debt obligations.
- Debit card.
Unlike a credit card, a debit card immediately withdraws funds from the user’s bank account. Debit cards are less likely to contribute to excessive debt than credit cards, but users face fees if they exceed their account size.
Debt is money that a borrower owes to a lender. It can be obtained through any form of borrowing – credit cards, mortgages, personal loans, and auto loans, among others.
A default occurs when a borrower fails to meet an obligation to repay a debt. Default is the second and more serious stage of non-payment, following the stage of delinquency. After a loan defaults, the lender usually informs the credit bureau and sells the debt to a collection agency.
The basic principle of investing is diversification – to distribute investments among different assets with different risk potential. Diversification is a strategy to reduce the overall risk of loss.
- Reserve fund
A reserve fund is money set aside for large, unexpected expenses, such as the loss of a job or large medical bills. It provides a financial buffer against the accumulation of unwanted debt.
Income is money received from sources such as employment, investments, or business transactions. There are two ways to measure income: gross income and net income. Gross income is the total amount received before expenses, taxes and other expenses are deducted. Net profit is what remains after deducting these expenses.
Interest is a percentage of the principal amount of a loan that lenders charge borrowers. There are two main types of interest: simple interest and compound interest. Simple interest is calculated solely on the original amount of money borrowed, while compound interest is calculated on the principal amount of the loan plus interest that accumulates over each period.
- Need vs Desire
One of the most basic concepts in personal finance is the ability to distinguish between needs and wants. “Need” is defined as basic expenses such as food or housing. “Want” is an expense that would be nice to have, but not a must, for example on designer clothes.
- Pay yourself first
Pay yourself first, or PYF, is a strategy that prioritizes savings and is a significant expense in the budget. Typically in PYF, a certain percentage of income is deposited into a savings account each month. As with other “needs” such as rent and food, savings are also important, and only after these “needs” are covered can the money be used for “necessary” purchases.
- Time value of money
The time value of money or TVM is the concept that money available now will be worth more than an identical amount in the future. This is because the money invested has the potential to grow and the longer it is invested, the more it will be valued. Money acquired later has less time to grow through investment and is therefore considered less valuable.