Impress Your Friends at the Bar!

Don’t you hate when you go out to the bar and everyone is talking about their investment portfolios? Okay that never happens but imagine it did... You’d want to be able to contribute to the conversation. The same holds true when having this conversation with yourself. A strong fundamental understanding of money is an important part of becoming financially independent.

If you feel intimidated or just want to learn more about investing, here are some valuable terms you should know. Think of today’s newsletter as your own personal money dictionary. Enjoy!

21 Simple Money Terms Everyone Should Know

Personal Finance Terms:

1. Income: Money earned by an individual. Ex. Job, investments, services

2. Credit: Open ended amount of borrowed money to use today with plans to pay it back at a later date.

3. Debt: Fixed amount of borrowed money a business or individual will need to pay back at some point with interest

4. Interest: Additional charge on borrowed money. If you borrow $1,000 from the bank, they will charge interest at say 6% per year. If you pay the money back in 1 year, the total repayment will be $1,000 for the principal and $60 for the interest ($1060)

5. Credit Score: 3-digit number from 300-850 used as a representation of how risky an induvial is to lend money to. Higher scores mean lower risk.

6. Asset: Anything of value that is able to be owned and create wealth

7. Liability: Debts or other payments you owe to other people or businesses.

8. Net Worth: The amount someone is financially “worth” when taking the difference between their assets and liabilities.

9. 401K: Retirement account that is offered by most employers which allows employees to invest a portion of their paycheck.

10. IRA: Retirement account that holds tax advantages that can be opened without an employer

Stock Terms:

1. Share of Stock: an ownership unit of a company

2. EPS (Earning Per Share): The profit in dollars a company earns per share. Ex. If ABC corp. earns $1 million and they have 1 million shares, their EPS would be $1.00

3. Revenue: The money a company generates from their products or services

4. P/E: Price to earnings ratio. The ratio of the stock price vs their EPS. Ex. $10 per share and $2 EPS would be a 5 PE. (Avg. PE is 15-20)

5. Dividend: A payout/distribution of a company's earnings to a shareholder. This is the amount, per share, a company will pay you to own their company.

6. Yield: Often represented as a %, it is the % you have returned on your investment per year. Ex. If a company pays you a $1 dividend per year, and their stock cost $100 per share, your yield is 1% since 1/100 = 1

7. Shares Outstanding: Total amount of a company’s shares which are held by shareholders. (The total amount of slices of pizza that exist in the pizza/company)

8. Bear Market: A market where stocks are decreasing in value/price and a "bear" is someone who is expecting the market to go down.

9. Bull Market: The opposite of a bear market where stocks are going up and values are increasing. A "Bull" is someone who feels the market is going to move upward.

10. Dow Jones Industrial Average: An index of 30 top companies which are publicly traded on the NYSE acting as a "barometer" of the entire US market.

11. S&P 500: An index of the top 500 largest companies on the US stock exchanges. Considered the gold standard when determining the average return of an investor over a given amount of time. "Beating the S&P 500" return is considered the ultimate goal for investors each year.

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