6 Terms to Master the Language of Money

While many educational professionals will testify that coding is the language of the future, there are very few professionals, educational or otherwise, who are focusing on the language of the present: Money.

Here are the 6 terms that need to be mastered in order to begin to understand how to speak the Language of Money.

It's absolutely mind-boggling that despite how much of everyday life money affects, there is a sizable segment of the population that struggles with speaking as well as understanding money.

As with learning any new language, fluency doesn't come immediately. It takes hard work and consistent application of the terms and principles. So it is with the Language of Money. There are keys terms and principles that need to be understood in order to master it's fluency.

Apex Living > 6 Terms to Master the Language of Money

Debt
Debt is defined as, "Something, typically money, that is owed or due."

In regards to personal finance, debt is a 4-letter word that can be leveraged to purchase assets or a liability that eats away at your future earnings.

Most people don't understand debt until it's too late and they find themselves already in a hole.

Credit
Credit is the other side of coin from debt. Credit is a way to rank an individual's likelihood of repaying an outstanding debt. In lieu of personally knowing each person who applies for a loan, a lender will evaluate a person's credit file and determine if they will be approved for the loan, and if approved, how much it will cost for them to pay back.

A credit score can rank from 300 to 850. Borrowers with scores above 700 are generally considered "Prime" and receive the best interest rates when they borrow.

Factors that impact a credit score include:

• Payment history

• Credit utilization

• Length of credit history, and

• Credit mix

Understanding how to manage and leverage your credit wisely is critical to building strong money habits.

Budget
When it comes to managing money, a Budget is an absolute necessity. The saying goes, "If you don't have a plan for your money, someone else will."

And while 79% of Americans believe having one is important, only 41% actually create and consistently follow a budget.

When starting your financial literacy journey, a budget is the first step to getting your personal finances on track.

A good budget will account for your expenses, income, savings and investments.

Compound Interest
Albert Einstein once said this about Compound Interest, "Compound Interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it."

Simply defined, compound interest is when your money earns interest on the original principle as well as previously accumulated interest. Over time, it can be a powerful tool for building wealth as your money grows exponentially.

The more time, and the higher the rate of interest on an investment, the more your money grows.

Leveraged properly, compound interest is an amazing wealth building tool.

Leveraged poorly, compound interest is a poverty sentence.

Passive Income
One of Warren Buffet's most famous quotes says, "If you don't find a way to make money while you sleep, you will work until you die."

Passive income is money earned with minimal effort. The power of passive income is that it can be earned even while you sleep. In essence, passive income puts your money to work, even when you aren't.

Leveraged properly, passive income can help to supplement, and even replace active income earned through labor.

Time Value of Money
The simple way to understand the Time Value of Money is that, "A dollar today is worth more than a dollar tomorrow due to it's potential earning ability."

This concept is important because it is the basis of the concept of interest earned on investments, as well as interest paid on debts.

If you can understand this principle, combined with compound interest, you are on your way to figuring out how to put your money to work for you.

There are a lot more words that you will need to understand to to become a personal finance guru, but a deeper understanding of these 6 terms will put you on the path to Mahogany Money Mastery.