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Credello Shares 9 Must-Have Terms for Your Financial Dictionary

NEW YORK - October 16, 2021 - (Newswire.com)

Being successful in an economically developed country like the United States requires at least some knowledge of how the financial system works. You don't need to go to school for accounting or finance, but there are a few basic concepts you might want to familiarize yourself with. We've compiled a "Top 9" list of financial terms to help you out with that.   

  1. FICO Score: You don't necessarily need good credit to be successful, but it helps. A FICO Score is a number between 300 and 850 that banks use to determine your credit eligibility. It's calculated using several variables, including the amounts you owe to creditors and your payment history. You can read more on this at MyFICO.com.   
     
  2. Debt Snowball: You are going to accumulate debt. That's how America works. Once you have it, you'll want to get rid of it. The debt snowball method is one of the best ways to do that. It's a system where you pay minimum monthly payments on all debt accounts and add an extra payment to the smallest balance until it's paid. Rinse and repeat.  
     
  3. Debt Avalanche: Take everything we just told you about debt snowball and substitute "account with highest interest rate" in place of "smallest account." The debt avalanche is a debt payoff system where you eliminate your highest interest accounts first. In the long run, your total payout will be less than it would be with the debt snowball.  
     
  4. Compound Interest: This is a term you'll want to read more than a few sentences about. Simple interest is just charging you a flat percentage on your principal. Compound interest is added to your principal, then you're charged interest the following month on the new balance. It's tough on the borrower, but good for the lender or the investor.    
     
  5. Net Worth: Add up the values of everything you own and the amount of money you have in the bank, and then subtract your debts. That's your net worth. With a home, only the equity portion counts towards net worth. The remainder is still owned by the mortgage issuer.  
     
  6. Asset Allocation: Asset allocation is a term used to describe the mix of different accounts in an investment portfolio. Stocks are typically grouped by sectors. Bonds have their own category, as do cryptocurrencies and cash. Financial advisors and individual investors strive to have a balanced asset allocation to protect themselves from market volatility.  
     
  7. Market Volatility: The stock market is constantly moving like waves in the ocean. Small waves mean there's little volatility. Big waves cause portfolio values to go up and down drastically. Don't try to predict them. Leave that to the professionals. Understanding what volatility is, however, will help you grasp other financial concepts.  
     
  8. Capital Gains: If you buy a stock for $10 and its value goes up to $12, the $2 difference is your capital gain. If you don't sell the stock, it's an "unrealized" gain. If you sell it and take the profit, that's a "realized" gain that the government will tax you on. If the stock is going up, let it be. Wealth building is a long-term exercise.   
     
  9. Tax-Loss Harvesting: We can't talk about capital gains without also discussing tax-loss harvesting. Let's say that $10 stock you bought above went down to $8 a share. You can sell it and take the loss, which offsets any taxable gains you might already have. Most advisors do this at the end of the year.  

Add these financial terms to your personal dictionary and you'll be better equipped to manage your money and stay on top of financial news.  




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Original Source: Credello Shares 9 Must-Have Terms for Your Financial Dictionary
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