Stocks, forex, bullish, bearish, FDs and unit trust are all part of the vocabulary of finance. Being financially aware does not require knowledge of the industry jargon, though it may help.
The key to sounding knowledgeable is understanding these words and how to use them, and the purpose of becoming financially savvy is not just to impress the boss. It is a skill that will have benefits for decades to come.
In the world of finance, no detail can be ignored, no matter how small. This list will help broaden one’s knowledge of finance and increase the ability to discuss it.
Here are the top four everyday words that can help one appear financially savvy.
1. Budget
The first word on the list is budget. The most straightforward definition of budget is an organised financial plan.
Budget may be one of the most important terms in finance because it outlines the exact amount of money available and how much of it can be spent in the most efficient manner.
Individuals or companies that do not follow a budget are destined for failure.
Saying, “This is out of my budget” should not be embarrassing, in fact, it shows financial responsibility. Budget can be inserted into everyday language quite easily.
“I’ve set a budget for this project and I want to stick to it” or “Let’s stay within budget” are perfect ways to outline what funds are available.
The word budget is also related to a company’s overheads. “Our company needs to stay financially viable. This budget is too high and raises our overheads.”
The word budget should be used often to convey the importance of financial responsibility.
2. Discount
The second word is discount. Discount is usually associated with sales and references a lowered price for goods or services.
“We can offer a discount on this particular product” is often heard in conversation. It means the price of the product someone is interested in can be lowered because of a special circumstance.
Oftentimes the discount is seasonal, such as a holiday or time of year. But other times discounts are unique and offered to a well-liked client or company.
Discounts are not always offered and knowing when to ask for one is important.
If a price has already been lowered or the seller is giving special access to a product, asking for a discount is inappropriate. It would be more appropriate when purchasing something in a large quantity or one has something else to offer.
It is important to be subtle and polite. “Would it be possible to offer any kind of discount?” sounds much better than “give me a discount”. Most of the time, it is not a bad idea to simply ask for a discount before taking out the wallet or cheque book.
3. Receipt
The word receipt is often ignored. Receipts themselves are often ignored and thrown out. But they are a crucially important aspect of finance, in particular on the accounting side. A receipt is a written record of a financial transaction and is required by law for certain transactions and payments.
People often ask for a receipt and if a vendor refuses, they may be operating illegally or dishonestly, which should raise flags. Keeping an organised record of all payments is vital to track spending.
Receipts offer insight into exactly how much is being spent and where. “I have been looking at our receipts. Are we over budget?” is something most people do not want to hear, but they need to at times.
4. EAR (Effective Annual Rate)
The Effective Annual Rate, or EAR, of any investment is a crucial piece of data.
EAR is used to work out the actual interest rate on an investment or loan. It takes into account the compounding periods over the year.
If a 10% interest rate on an investment is compounded more than once a year, the EAR will be higher than 10%.
The most common example is when telemarketers call to offer a loan and mention a very attractive, low interest rate. Always ask them what the EAR is. If they don’t know, they are not competent to sell financial products.
Calculating the EAR is an important aspect of investing. To gauge the best way to invest money, one must know the EAR, and every investor should know how to calculate it for a maximum return on investment.
Use these four powerful words
By learning these words and using them a person can become much more financially savvy.
They offer deep insights into the detail and planning of finances. Using them will also aid in thinking with a more focused and detailed financial mindset.
This article first appeared in kclau.com
KC Lau is a personal finance author and trainer.
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