In my personal experience, there’s nothing so isolating as trying to have a conversation with someone when you have no idea what they’re talking about. If you are uninformed on the topic that’s up for discussion, it can feel like they’re speaking a foreign language. Conversations about money used to give me the worst flashbacks to my high school physics class, when I would blankly stare at my teacher as he went over test answers, futilely trying to help me see where I’d gone wrong.
To be frank, that’s still my relationship with a lot of things in the large scope of the finance world. I am certainly still not an expert, and even though I work for a personal finance website, I doubt I ever will be. That being said, I feel relatively comfortable that I am on the way to being an expert on my own finances, thanks to several post-college years of being not-great with money, and finally having worked my way up to being relatively-okay with money. This has been mostly due to a self-imposed financial education — one that I’m still in the middle of, and probably will be for most of my life. The biggest thing I’ve learned about money is that in order to not worry about my financial situation, I have to be paying attention to it on a daily basis. This means tracking my day-to-day spending habits, as well as thinking about goals I want to accomplish in the long term.
Of course, learning about money, for me, meant going back to some very, very basics. I used to be scared of simply looking at my bank account on a day that wasn’t payday, because I had no idea how I’d been spending my money. I got a credit card in college because my parents told me I needed one, but frankly, I didn’t understand why, or how to use it. I ended up putting all the “extra” money I earned each month towards my credit card payment, and then I wouldn’t curb my spending enough to be able to start putting more in savings, so the cycle kept repeating.
There were so many issues I had with money, because I was too afraid of it to actually confront my issues with it. It took time to get to a place where the options I have concerning what to do with my money are exciting, rather than daunting enough to simply ignore them altogether. Here are some — but certainly not all — of the finance terms that used to scare me, but don’t anymore, because I now at least I know what they mean.
1. Emergency fund. I’ve known about the importance of having emergency savings for a long time, thanks to my mom’s love for Atlanta talk radio, and Clark Howard in particular. However, what I’d always heard was the importance of having at least six months of expenses put away in a savings account. This is a great goal, but it has always been so far away from what I’ve been able to save at one time. So for a long time, trying to build up any sort of savings was too daunting a task to even attempt. I’m nowhere near where I want to be in terms of emergency savings, but I now understand that putting even a little bit away each week or month is worth it.
2. Investment. One of my classmate’s parents, who was a stockbroker, came into one of my seventh grade classes one time to try to explain the stock market to us. I was so confused that I ended up wanting nothing to do with stocks and investments, ever. Now, I am still a total newbie on investing, but I at least have a retirement account established, and am making a point to learn a little more every day.
3. Credit. I remember one of my middle school teachers — one teaching history, mind you, and not anything math-related — telling us about the dangers of credit cards, and that we should steer clear of them at all costs. I didn’t learn that they can actually be very beneficial when used correctly, and that not having a credit history is actually a bad situation to be in.
4. Balance. “Carrying a balance” just sounded like some complicated gymnastics maneuver that I would forever be too scared to think about. Now I know that it means I owe money to something, and it’s best to carry balances as infrequently as possible. But it also means that the money I spend is completely trackable — I have control over where it goes, and not carrying debt means I have more freedom with what to do with it.
5. APR. An annual percentage rate is, of course, not something you want to have to deal with. But before I knew what it was, I didn’t know how to interpret different credit card terms when I was researching which cards to apply for.
6. Write-off. The idea of keeping track of every single thing you have to deduct from your taxes is still super exhausting to me. I never saw the point, because I only saw taxes as a thing you get the hell over with — until I started paying self-employment tax, of course. Now, it’s still a pain, but tax write-offs, from keeping detailed lists of the clothes I give away to the computer I’m writing this from, are entirely worth keeping track of.
7. Cash back. I still find this term incredibly misleading, as it sounds like you’re going to get an envelope of cash in the mail after you spend X amount on a credit card. I didn’t realize that cash back terms often mean you can spend what you normally would, but charge it on a credit card instead of paying in cash or using your debit card, and you essentially get free money back. Of course, you have to use it in some way — you can’t simply invest credit card points — but you can use them responsibly, to pay for things you would have had to pay for, anyway.
8. Net worth. My AP Macroeconomics class in high school was where I learned the terms “net” and “gross,” and guess what? I got a score of 2 on my AP exam. (Perhaps my school should have revisited the curriculum before deciding to ignore the idea of offering microeconomics altogether, but, you know…bygones.) Now I know that there are many factors to take into account when determining your financial worth — something important when applying for a loan or lease — that extend far beyond what’s in your checking account.
9. Balance transfer. The idea of accruing any sort of balance on a credit card was so terrifying to me that having to deal with it was a whole other ordeal. Once I learned what a balance transfer card was, I was able to start overcoming some credit card debt.
10. IRA. I have yet to ever be presented with the option of a 401k as part of a salaried position, and that was the only retirement account my parents told me about growing up. I still immediately think of the Irish Republican Army rather than individual retirement account. But I have one, and I know for sure that when it comes time for me to retire, I’ll be very glad I started contributing to it at 24.
11. Pension. I used to think this was just something you would receive if you were laid off from a salaried job after being there for a certain amount of time. However, some companies offer pensions for retirement for simply working at the company a certain amount of time — an excellent (if increasingly rare) perk to consider if you find yourself in the fortunate position of deciding between job offers.
12. Insurance. I got renter’s insurance because, again, my parents told me that I needed to. But after hearing of a college classmate losing almost all her belongings to a fire, I know that it’s important to have this sort of thing in place in case the unthinkable happens. I’ve also heard many horror stories (and I’m sure you have, too) of people not being covered the way they thought they would be by their health insurance plans, which is terrifying, but not having health insurance is even more dangerous. I have a little more than a year before I turn 26 and am off my parents’ plan, so I’m going to be researching and procuring a new policy well before that happens.
13. Loan. I always pictured that adulthood meant you have money to pay for things all the time. I didn’t give much thought to how people managed spending large amounts — I think I assumed most people just walked onto a dealer’s lot and paid for a car in cash. Now I know that loans are almost inevitable, if I ever move somewhere where I need a car or want to own property, and that there should be plenty of research involved before deciding to sign on something as big as a loan.
14. Asset. Other than seeing this word used time and again in cover letter templates, I had no idea what “asset” meant in regards to one’s finances. Now I know that there are simply many (creative!) things you can do with your money to (responsibly!) earn more money, and even if I don’t personally do such things yet, I have goals in place to get there.
15. Budget. Finally, I thought budgets were just something you needed if you were suddenly in a really bad financial situation. I only associated them with restraining yourself from spending, rather than the freedom they allow you to spend on what’s important to you.
Holly is the Managing Editor of The Financial Diet. Follow her on Twitter here, or send her your ideas at firstname.lastname@example.org!
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