Personal finance can be complicated, but it doesn’t have to be. Sometimes, the complicated terminology is what trips us up the most. In this podcast we help you make sense of some common financial terms.
Welcome to another edition of our CredAbility [now Clearpoint Credit Counseling Solutions] podcast. Along with your host, Mechel Glass, here’s Steve Moore with a look into the glossary of common financial terms you should know.
Steve Moore: Well we find that one of the things that often makes it difficult and confusing to talk about finances, is some of the terminology is hard to understand and Mechel, today; you’ve got a list of some common financial terms that I should know about right?
Mechel Glass: Yes well there’s just a few that I want to go through.
Steve Moore: All right.
Mechel Glass: Assets, what are assets? Assets are anything of value that you personally own yourself and that could be your house, your car, your investments, anything that’s in your bank account, the cash that you have. Those are considered your assets.
Steve Moore: All right.
Mechel Glass: Then your liabilities. Liabilities are your debts. The things that you owe on. So if you have a car and you still are paying on that, that’s a liability or if you have a mortgage and your mortgage, it’s not been paid off, that’s a liability.
Steve Moore: Uh huh.
Mechel Glass: Another financial term that you need to know is secured debt. And I think the best way for me to describe this is to give you an example. Let’s say that you have a car and you’re still making payments on that car, well that means you don’t have the title. Maybe the bank has the title.
Steve Moore: Uh huh.
Mechel Glass: Once you pay it off, that’s when the bank will issue the title to you and then you will have paid off the debt. But it’s a secured debt in that if you don’t make the payments on the car, the person who owns that title has the capability of taking that asset from you, if you don’t pay. Then unsecured debt is a debt where there is no title. That’s something that’s not guaranteed and I’ll give you another great example of that, credit card debt. And with credit card debt, there is no asset that a creditor can take in order to make themselves whole in case of default.
Steve Moore: Okay.
Mechel Glass: Next, let’s talk about gross income. This is something else that people get confused with net income. Those are two different things.
Steve Moore: Uh huh.
Mechel Glass: Gross income is the money that you have before your taxes are taken out, but your net income is after-tax income or the take home pay. Your net worth, what is your net worth? Many people don’t even know what their net worth is. How much am I worth right now on paper?
Steve Moore: Uh huh.
Mechel Glass: If you look at your assets, subtract your liabilities, then you’ll get what your net worth actually is.
Steve Moore: So net worth is all the things I have, all the things I own, minus all the things I owe?
Mechel Glass: Absolutely right.
Steve Moore: Okay all right.
Mechel Glass: Perfect definition and then liquid assets, that’s something that you have to have in case of an unexpected emergency. So liquid assets would be things like your savings account or your money market account. Things you can get to quickly in case there’s an emergency.
Steve Moore: Uh huh, things that can be turned into cash, if it’s not actually cash itself.
Mechel Glass: Yeah, even if you have like a CD and you need to turn that into cash. Hopefully it’s not locked in long-term where you can’t get to it so again, you’ve got to make sure you put your things in the right vehicle for whatever you need them for.
Steve Moore: Well Mechel, unfortunately we’re out of time here but the bottom line is, you really need to understand what’s being said and talked about in regard to your finances in the same way that you’d want to know your doctor is saying prior to surgery. So if you don’t know, ask. Don’t be ashamed.
Mechel Glass: That’s exactly right. It’s very important for you to do your research, to understand the terms and to listen to a variety of other resources out there like radio shows and watch T.V. programs that talk about these types of terms so that you get comfortable with the information.
Steve Moore: And right now, you can listen to a few more of our podcasts.
Mechel Glass: That’s exactly right.
Steve Moore: Thanks, Michele.
Mechel Glass: Thank you.