This week, we’ve teamed up with guest contributor Judy Brent to explain some basic financial terms you need to know to help improve your financial literacy.
When it comes to money, you might think of it merely in terms of numbers. However, language plays an important role in your finances. Having a basic knowledge of financial concepts helps you manage your money better and communicate with others — whether it’s with your family, business partners, or potential creditors. Indeed, as we’ve previously shared in an article on how ‘Your financial literacy may be the problem’, your financial success is strongly dependent on your grasp of financial concepts.
Moreover, your financial status is directly correlated with your wellbeing. After all, being in debt or not having enough savings can cause great amounts of stress. To improve both your financial literacy and security, here are some key financial terms you need to know
Calculated as a percentage, interest is the amount you’ll pay for the privilege of borrowing money from a lender. This charge is typically quoted yearly as an annual percentage rate (APR), but some lenders request to be paid back in less than a year. There are two types of interest: simple and compound. The former is a fixed rate that’s computed on the principal amount of the loan, while the latter is computed with both the principal and the interest earned over time.
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A credit report is a detailed summary of your credit history, which contains information regarding the history of your credit cards and personal loans. While it helps future lenders decide your creditworthiness and your likelihood of defaulting on credit obligations, it isn’t the same as your credit score.
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In 2018, Global News reported that credit scores among Canadians dropped across almost all age groups. A good credit score can make all the difference for your financial health, as banks use it to determine the terms for your next loan or credit card. The better your score, the better the loan conditions will be. Your credit score is calculated by factors found in your credit report. This includes payment history, the length of credit history, and debt incurred. With scores ranging from 300 to 900, 650 is considered to be the base number for a good credit score.
One of the most common forms of investment, stocks represent having partial ownership in a public company. Purchasing stocks means you’re a shareholder in the company, therefore allowing you a share in its earnings. Companies put out stocks in an effort to gather more capital for their business to grow.
Return on Investment
Return on Investment (ROI) is a key metric for investing. It helps assess the profitability of an investment made by measuring its gains or losses. An important concept for weighing investment decisions, FXCM explains that ROI is computed by dividing net profit or loss by the cost of investment. By doing so, one can have a better understanding of whether or not an investment is worth making, or how it compares to other investment options. Whether it’s for personal or business purposes, knowing the ROI gives you a greater chance of making the right financial choices.
Net worth is the sum of the wealth belonging to an individual or institution. To measure your net worth, add up the value of all of your assets, from financial (through bank statements and investments) to non-financial (through value estimates of your house or car). Then, deduct the amount of your outstanding liabilities or debts from this sum. Knowing your net worth gives you a clear understanding of where you stand financially.
Registered Retirement Savings Plan
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Did you know that over 32% of Canadians nearing their golden years haven’t saved any money for retirement? This is why it’s essential to have a retirement savings plan to ensure that you’re financially secure for the future. The most popular one is the Registered Retirement Savings Plan (RRSP), where employees can deposit savings in a financial account. Even better, the money you store is tax-deductible, and your RRSP can become regular payments once you’ve retired.
Looking to better understand these terms in theory and practice? Marble Financial can help: Follow our weekly blog posts for a better grasp on income, spending, debt management, and investments.
About Marble Financial Inc. dba Marble Financial (CSE: MRBL; OTCQB: MRBLF) we are a group of forward-thinking financial technology experts that understand the benefits and drawbacks of credit in Canada. Marble helps Canadians rebuild their credit to gain access to prime lending, through our industry-leading proprietary technology solutions Fast-Track Loan, Score-Up, and Credit-Meds. Our proven strategy guides our customers back to a meaningful credit score, 50% quicker than traditional methods. Since 2016, Marble is proud to have empowered thousands of Canadians to a positive financial future. We continue to establish ourselves as leaders in financial wellness.
This week’s blog is written by our guest contributor, Judy Brent.