Understanding Financial Jargon

Hi. I’m Connie. As a serial “Grandmapreneur®”, I speak to retirees or soon-to-be retirees on the benefits of pursuing entrepreneurship in retirement. This blog post will help entrepreneurs understand financial jargon, which you will need as you consider starting a business.

7 Financial Jargon Every Retiree Must Know

If you want to enjoy your retirement without financial struggles, you should understand financial jargon.  Here are the financial terms you must know:

1. FICO score

Fair Isaac Corporation (FICO) is the organization behind the formula for computing one’s credit score. Hence the term “FICO score” is a financial jargon for credit score.

Your credit score is determined by several factors, including how much you owe, your payment history, and the length of your credit history.

2. Cash Flow Statement

A cash flow statement refers to a kind of financial statement made to give an extensive breakdown of what happened to an individual’s or company’s cash during a specific period.

This document summarizes the cash flows involved in investments, operations, and financing throughout the reporting period. It demonstrates how someone or a business gained and used cash.

3. Asset Allocation

Asset allocation refers to how you decide to invest your money.

There are three main asset types (also called cash equivalents): bonds, stocks, and cash.

When you allocate your assets, make sure to choose those that are most compatible with your risk tolerance and individual goals. These factors respond differently to market and economic situations, so choose wisely.

4. Net Worth

Contrary to popular belief, your net worth doesn’t refer to your money in the bank. It’s the difference between your obligations and assets.

You can calculate your net worth by adding up all of your assets, including the value of your car and house in today’s market. You must also include the balances in your savings, checking, retirement, and other investment accounts.

Then, deduct all of your debt, including the balance on your credit cards, outstanding loans, and mortgage.

After this, you’ll get an idea of your general financial well-being by figuring out your net worth. This helps you make the right choices as you manage your finances during retirement.

5. Balance Sheet

A balance sheet features a tally of an individual’s or organization’s assets, liabilities, and shareholders’ equity for a certain period. It’s an essential financial statement that shows an individual’s or organization’s worth or “book value.”

In a gist, a balance sheet totals your liabilities (what you owe), assets (what you own), and net worth (assets minus liabilities). If your personal balance sheet looks poor, consider downsizing to cut back on your expenses.

6. Rebalancing

Any financial portfolio should be regularly rebalanced.

Rebalancing refers to returning your bond and stock percentages to where you want them.

For instance, your target allocation is 50% equities, 20% bonds, and 30% cash. Over time, the allocation may have changed to 60% equities, 10% bonds, and 40% cash.

You can buy more bonds and sell stocks if the market permits you to rebalance your portfolio. By doing this, you restore your portfolio to its previous balance.

7. Compound Interest

Compound interest refers to the amount you earn after investing or saving.

In particular, it’s the interest you earn on interest.

For example, you have $1,000 that makes 5% each year. By the end of the first year, you’ll have $1,050; by the end of the second year, you’ll have $1,102.50.

Conclusion

Financial terms may be intimidating for retirees. But you don’t want to have to be afraid of them. By understanding financial jargon, you can enjoy financial freedom.

Do you want to be a second-act entrepreneur? My book might just be the answer. It’ll show you that it’s never too late to start your dream business. Check it out now!