Five Financial Terms Every Millennial Should Know

Five Financial Terms Every Millennial Should Know 

 

Formal education can only take you so far in 2015, that’s just my humble opinion. Personally, many of the lessons I needed to learn to survive I learned outside of the school walls out of a thirst for knowledge and out of necessity. The information I learned in regards to financial terms I figured was worth sharing because these are terms every young adult is going to have to get familiar with and face in some point in their life so being knowledgeable of these terms will definitely be an advantage.

 

 

1-Asset
It is a misconception that the rich are the rich simply because they earn a bigger salary. The rich get rich by having more cash flowing assets. An asset is a business, product, service or resource that puts money into your pocket. When the income from cash flowing assets exceeds expenses then financial freedom begins.
2-Liability
Liability is the opposite of an asset, it takes money out of your pocket regularly. Most people have more liabilities than assets therefore they end up spending more than they make. Tracking your expenses can help avoid this pitfall.
3- MER

This stands for management expense ratio. When dealing with many investments involving paper assets like mutual funds, you will have a cost you pay from your earnings to have a fund manager manage your investments. This expense can vary from investment to investment and is generally lowest with a low cost index fund. The lower your MER, the more of your profit you keep. Know your MER when engaging in any sort of investment.

4-IRD

This stands for  interest rate differential. It is what is used in some cases to calculate the cost of the penalty of breaking a mortgage early. Many people choose a 5 yr. fixed rate mortgage with the bank and end up getting surprised with a big penalty after they decide to move after only 38 months (on avg) and are penalized using the posted rate instead of discounted rate. Brokers usually arrange loans that use the posted/discounted rate to calculate the IRD, but banks don’t, and it makes a difference.  As I have mentioned in other articles, knowing this can save you thousands upon thousands in penalties.
5-Beneficiary
If you have an insurance policy to protect your family, the beneficiary is who receives the payout should anything happen to you. It’s that simple. Know this when it comes time for you to get that insurance policy.
I hope clarifying these terms was helpful. These are terms I wish I knew much sooner. As the bible says, people often perish for lack of knowledge, arming yourself with the need to know’s of finance is something your future self and family will thank you for. Thanks for reading. Peace

 




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