These Are The 10 Money Terms You Should Know In Your 20s
From what I’ve gathered, becoming an adult is kind of a package deal, and a few things are certain: booking your own doctor’s appointments, feelings of inadequacy in fancy settings and an increasing number of chats regarding money.
With these chats come moments of uncertainty. You get the gist of what’s being said but don’t truly understand and you definitely don’t feel comfortable asking what it is they mean in risk of compromising your status as ‘grown-up’. You could always opt for a stealthy web search, but is it worth the risk of being caught out?
We’ve all been there. We’ve got your back (as always) to break down ten of the money terms you should know in your 20s.
Let’s start with an easy one. A budget is an estimate of income and expenditure for a set period of time, which allows you to allocate funds to certain expenses in your life and put some money aside for savings.
Sounds easy in theory, but can certainly prove difficult at times – so check out some of our tips on budgeting so you’re guaranteed to nail it.
#2 Emergency fund
An account used to set aside funds needed in the event of a personal financial dilemma, like getting the sack, getting sick or any other unexpected expenses that may arise.
Remember, it’s an account to use in case of an emergency – another round of drinks at the pub is not an emergency. Setting one up shouldn’t be scary: read our tips.
#3 Net worth
It’s the amount by which assets exceed liabilities. Basically, the value of everything you own, minus all your debts.
Net worth is important because it provides a snapshot of your financial situation at any point in time, which financial institutions might look at if they’re thinking of giving you a loan.
#4 Stocks or shares
These words probably conjure up images of old sweaty old dudes in suits sitting in some Wall Street office yelling words at their phones – just me?
A stock is a share in the ownership of a company, representing a claim on the company’s assets and earnings. If you acquire more stock, you own more of the company.
The share market can understandably be confusing for beginners – mug up with our beginner’s guide.
This is money you make from stocks. Dividends are the sum of money paid regularly (sometimes quarterly, sometimes annually; depends on the institution) by a company to its shareholders out of its profits.
It’s important to note that dividends aren’t certain, and only reflect on the company’s profit – if they go bust, or aren’t making any money it’s going to influence the return on your investment.
#6 Credit Score
Your credit score is a number between 300 and 850, which ultimately determines your worth as human being (just kidding). No, it’s just a tool lenders use to help determine your suitability for a loan, according to your likelihood of defaulting.
Things like not paying your bills on time negatively impact your score.
If you’d like to find out yours (yes, you have one) you can visit Get Credit Score. Be warned, you’ll either start using it as a humble brag around the office or hide all evidence that you ever checked.
There are ways of fixing your credit score, if it ain’t too pretty.
#7 Interest rates
Want to get a loan or a credit card? Then don’t forget about interest rates though, because they will ultimately determine the price you’ll be paying.
Interest rates are a fee paid to the lender. They’re expressed as a percentage of the amount you owe. For example, lets say you borrow $1000 at a 6% annual interest rate for 8 months. This means you’d owe $40 total in interest (1000 x 6% x 8/12).
This sounds an awful lot like maths (because it is), and sure the financial institution will sort it out for you, but it pays to be clued up with this sort of thing.
#8 Fixed and variable rates
Continuing on with interest chat, there are two types you should get your head around – fixed and variable.
Fixed-rate financing means the interest rate on your loan will never change over its life. You can see your payment for each month and calculate the amount you will pay over the entire loan.
Variable-rate financing is where the interest rate on your loan can change based on external factors like inflation. Because this rate fluctuates, it means your potential repayments could go up or down.
In your 20s superannuation is probably the last thing on your mind, but it pays to get on top of it, early. If you’re working for somebody else, chances are your employer is regularly making payments into a fund, which goes toward a future retirement fund (9.5% of your salary).
It’s important to note however, that if you’re self employed – say a freelancer or business owner – it’s up to you to pay yourself super.
Savings are that elusive (and sometimes non-existent) sum of money we should all have in the bank. We all know this, but it can be bloody hard at times. If you can’t save money, no matter how hard you try, find out why.
Now that you’re all clued up, start dropping those bad boys into your daily vocab now and watch jaws drop at the next dinner party you attend.