Money Terms You Need to Know

by Marie on September 23, 2013 · 2 comments

When I started my last job, one of the first things I had to do was to attend a project meeting. The room was full of experienced technical people and I was the project leader. Even though I had worked in the field for a decade, when folks in that meeting started talking, I didn’t understand the conversation.

It went something like this:

“DR170UP blew up last night because WRP85 exceeded a table maximum and blew up.” PA2000 and PB2000 missed their nightly service levels because of it.”

When you start an endeavor, you do much better if you learn the language of the trade, even the specific language of your specific department in your specific company!  Once I understood thatDR170UP was a  computer job running in the nightly job cycle, and that WRP85 was a comupter program and that P2000 and PB2000 were milestone computer batch nightly jobs written into the client contracts as having to finish each night by a certain time – I was better equipped to deal with the issue at hand.

When you start down the road to wealth, you do much better if you learn the language of money.  You are better equipped to deal with wealth building tasks.

I’m planning my annual Grandma Rie’s Money Camp and am including money terms in the things I will teach. It seems there are standards set out now about what children should know by which grade level on money terms. It made me think that there are probably different levels for adults as well.

Here are the three levels at which I think adults function in using money terms.

Basic money terms.

Most of us learn basic money terms as a result of school, home environments and television. We know what a bank is; we have accounts; we understand that a marketplace is where a buyer and seller meet to trade; and we can even explain what interest is.

Intermediate money terms.

Some of us go on to get familiar with other money terms – because of experiences we have in life.

If we open a credit card, we become familiar with terms and acronyms associated with it – such as credit score, annual percentage rate (APR), credit utilization, minimum payment, revolving credit, credit limit and etc.

If we take on a mortgage to buy a house, we get familiar with even more. These may include words and terms such as: good faith estimate; fixed or adjustable rate mortgage; points; title insurance; closing costs; down payment; balloon payment; home equity line of credit (HELOC); 2nd mortgage and more.

Some of us have learned some pretty unsavory home mortgage terms in the recent downturn. Terms I have in mind include those such as under water, short sale, charge off, negative amortization, foreclosure and etc.

If you prepare and file your own income taxes, you will learn other new money terms. Adjusted gross income, alternative minimum tax, credit (vs. deduction) are a few of them and these are the simple ones.

Advanced money terms.

If you manage to build wealth, you will start hearing a slew of new money terms. Terms such as alternative investment, hedge fund, volatility, quantitative easing, bear market, bull market, balance sheet, exchange traded fund, fund of funds, VIX, American Depository Receipt, futures, shorts, longs, calls, puts and more will start creeping into your vocabulary.

After a long life and accumulation of an estate, you will hear other money terms dealing with passing along your estate after you die. Terms will include those such as probate court; executor; irrevocable trust; will; second to die life insurance; estate taxes; charitable remainder trust; and more.

Although it helps to understand money discussions if you know the vocabulary, don’t panic if you don’t know all of it. I think that if you master just a few terms (along with the concepts behind them) you will do well in life.

Keep it simple, the main terms you need to know – in my opinion.

Here are the terms with which I think anyone trying to build wealth should become intimate:

  • Delayed gratification – the ability to wait to buy something until you have the money in hand (or figure out you don’t really want that thing after all!).
  • No thanks – words you say to that person selling an impulse purchase or that item you really can’t afford.
  • I’ll pay cash – words you say to stay out of debt.
  • Savings – living below your means – don’t spend everything you make, save it and invest it instead and you eventually build wealth.
  • Emergency fund – money in the bank to use when Murphy’s law strikes.
  • Cash flow – the monies coming and going from your income and to your expenses – track yours to make sure you don’t step into debt.
  • Net Worth – all assets minus all liabilities – know what yours is and whether it is growing or not!
  • Multiple income streams – opening the money floodgates in your life across multiple channels. It’s risky to depend on salary alone!
  • Invest – Put money to work for you (note that this is much different than spending – a lot of people seem to use the term invest when they really are just spending – such as “I invested in a new suit”).
  • Risk tolerance – the amount of risk with which you are comfortable and which you are able to handle.

Do you struggle with money or financial terms? Which ones do you think are important in building wealth?  

{ 2 comments… read them below or add one }

1 Crystal @ Prairie Ecothrifter September 29, 2013 at 12:09 am

Love this! “No thanks” and “Net worth” are the ones that pop up for me the most often. Although “Risk tolerance” is a close third…

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2 Marie at Family Money Values September 30, 2013 at 10:49 am

Risk tolerance is one to discuss with your spouse or partner for sure. If you don’t have the same kind of tolerance, it can cause marital strive for sure.

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