Being financially literate is not only the job of the finance professionals – being financially literate has a lot of benefits, and everyone out there should at least have a basic idea of the financial world. You don’t need to know it all extensively – having an idea of the terms and then slowly increasing the level of your financial literacy is the best way. To get you started, here are a few terms which you get well-versed with:
Anything that you own is your asset. It may be your home, car, furniture – that is completely own comes under the category of assets. It has to be of some value so that it fetches you something if you sell it. Assets are generally used to clear off debts as they carry value. Assets are broadly classified into two – fixed and current. Fixed are immovable and cannot be liquefied, on the other hand, the current assets are movable and can be liquefied time.
Any debts or obligations that you owe to any other person, entity or financial institution is a liability. There are many categories of liabilities too – each varies on the kind of asset at stake and the duration for which you sign up for it.
3. Capital gains/loss
This is one term which you come across often in your day-to-day life. Whenever you sell any fixed asset for higher than it’s value, it’s a capital gain. And when you sell it lower than it’s value, it’s a capital loss. Basically, it is the profit or loss which you earn upon the sale of any capital asset.
4. Compound interest
The savings in your bank account are credited with interest that is calculated based on compounding. The basic idea of compounding can be easily explained with an example – suppose you’ve invested $100 at the interest rate of 8% per annum, it will amount to $108 at the end of the year. For the next interest calculation cycle, $108 would be considered, not $100. That’s what compounding is!
Another word you come across occasionally – a dividend is basically the reward you get for investing in shares. Whether you choose to keep it as it is (reinvest) or withdraw is totally upon you. But one thing is sure – this is one of the highest reaping investments you can make.