Novice investors and savers are often confounded by the network of finance related terms that come up in the course of even the most simplistic conversation or learning opportunity dealing with personal finance queries. Financial terms can quickly become muddy for those new to the game. Nevertheless, it’s incredibly important to make yourself acquainted with these concepts so that you can take full advantage of the financial opportunities that will present themselves to you throughout life.
Perhaps the simplest and most powerful item on any list of finance terms is an interest rate. Interest is the accrued capital that a balance generates throughout its existence. What’s important here is that an interest rate can work for or against you as an investor or borrower, respectively. When you invest in an asset, the generated cash adds to your bottom line. This principal continues to increase for as long as you own the asset, and its value continues to increase, of course.
However, loans also come with attached interest rates that deteriorate your purchasing power over time. Rather than adding to your cash assets, an interest rate on borrowed money from a lender adds to the total amount of the loan that you owe back to the creditor that extended the cash to you in the first place.
Bankruptcy is a claim of depleted financial assets. Filing for bankruptcy in Kentucky, if you live in the Bluegrass State, is something that all debtors have access to as a last recourse for administering their debts to creditors. Debtors who have been treading water for months or years can file for bankruptcy with the help of legal experts in order to negotiate a settlement on their debts. They are granted bankruptcy protection and have the opportunity to reduce some of this burden in return for ownership of property or lump sum payments upfront. Bankruptcy courts exist all over the United States in order to help debtors who find themselves in a heap of trouble with their lenders.
The stock market is a place for investors to congregate and create wealth that will carry them through retirement. While most home buyers borrow from a lender in order to purchase their first home or to add on an extension in their middle years, older Americans hope to create enough wealth with their investment portfolio so that they can purchase a future home, car, or other major expense with cash rather than on credit from a lender. The ability to pay with cash creates a unique financial strength that younger investors are simply unable to match.
These savers are considered retail investors. A retail investor is a run of the mill stock trader, unlike the suits that you might find on Wall Street or at investment banking firms all over the United States. Retail investors are just like you—typical Americans looking to energize their savings portfolio with stock buys rather than traditional savings accounts that pay out an abysmal one percent interest rate (if you’re lucky). The stock market is the place for retail investors to create and build upon their long term wealth.
Your credit history is an accounting of your reliability as a debtor. Credit scoring is a mixture of repayment history, revolving balance percentages, and number and blend of accounts with lenders and creditors. In order to foster the best possible credit score it’s important to create access to a large reservoir of capital, and decline to use it for purchasing. An excellent credit score can help you save thousands, or even tens of thousands on large purchases like a home buying opportunity.
Learning the ropes of financial terminology is important for debtors, individual investors, and real estate owners alike. The financial markets are rife with opportunity for those who understand how to leverage their knowledge as an investor.