Being in control of your finances means you’re very money-conscious and know precisely how much you spend each month, how much comes in, and how much you save.
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Financial Terms You Need To Know Before You’re 40
Ideally, it would be best to focus on becoming financially stable from a young age. By turning 40, you should have a full-time job and the foundations of a financially secure life.
However, there’s no denying that the years until you turn 40 are filled with many different decisions.
As a result, you’ll undoubtedly encounter so many different financial terms as you grow older and try your hand at different things. Whether you aim to make or save money, it pays to know some of the words used in the financial world. By doing this, you will make more educated decisions, and everything won’t feel so complicated and tricky!
Bearing that in mind, here are some of the most significant financial terms I believe you should know before you’re 40. If you’re passed that age already, then read through the list and see how many terms you actually know! Anyway, here they are:
What are Interest Rates?
I’ll start with interest rates, probably the most prominent term in the financial world. You see it everywhere, and it’s very significant. An interest rate is a percentage charge fixed on any money borrowed by anyone. It ends up adding up to the cost of borrowing the money.
Most people will encounter this term as they apply for mortgages or credit cards. In either scenario, you’re given money to borrow, and the interest rate is displayed to show you how much it will cost you. More often than not, the interest is shown as the APR – which stands for Annual Percentage Rate.
This is another term you need to know, and it refers to how much the loan will cost per year. It’s a good way of figuring out how much you’ll owe in interest payments when you’re comparing mortgages, loans, or credit cards.
What are the Types of Interest Rates?
It’s also crucial to know there are different types of interest rates; fixed or variable. Fixed rates stay the same throughout the lending period. Variable ones may be fixed for an initial period. Then they can move up or down depending on market conditions.
Savings Accounts and Interest Rates
Finally, if you open a savings account, you’ll also have an interest rate. Here, the rate refers to how much money you gain on top of the money in your account. This is because banks are technically borrowing the money from you when you deposit it.
Ideally, you want a high APR when opening a savings account, and the lowest one possible when borrowing money!
If you want to own a house, then you need to know about mortgages. Source
After that long one, it’s time for a much quicker term to run through; mortgages. If you don’t already know, a mortgage is basically a home loan. You borrow a large sum of money to help pay for a home.
You usually get these from banks, and you must meet stringent requirements when applying. Many mortgages also require a deposit, which can be a percentage of the overall loan.
This is a long-term loan where you make regular repayments in accordance with your payment plan. It’s seen as one of the best ways to buy a home.
This is a term you’ll see/hear in numerous different scenarios. Most commonly, all these scenarios are loosely based on debt. Essentially, a guarantor is someone who legally becomes responsible for someone else’s debt.
For example, you may have a guarantor during your early 20’s to help you pay rent on your first apartment. Or, you need one to help secure a large loan.
A guarantor acts as an insurance policy for the person you owe money. Landlords often ask for one when you sign tenancy agreements so your guarantor will cover rent if you fail to do so.
The same goes for a lot of financial institutions offering loans; it’s becoming more and more popular for guarantors to be required if you need to borrow money. So, if you ever see this term on an application for anything, just know that it means you have to find someone who’s willing to be responsible for your payments if you ever get into a position where you can’t make them.
What is No Guarantor?
On the flip side, you may also see things that say ‘no guarantor.’ In the lending world – which means you can apply for one without needing the insurance of a guarantor. The same goes for some tenancy agreements, so watch out for this term when applying for anything.
Some people prefer to enter contracts with a guarantor written into them, while others like ones where a guarantor isn’t required.
Credit Score/Credit Rating
Everyone needs to know what a credit score/rating is. These terms are interchangeable, but the strict definition is that they refer to how ‘creditworthy’ you are. What does this mean?
It tells financial institutions how trustworthy you are and how responsible you are with your finances. From this, they decide whether or not they’ll accept your application – usually to borrow money in some way.
When you apply for a credit card – or any type of loan – you will usually undergo a credit check. This is where your credit score is checked to see how high/low it is. The higher your score, the better.
Many places will reject applicants with bad credit ratings, as they can’t trust that you’ll repay their money on time, and it’s not worth the hassle. You may also have a credit check when making significant purchases, like signing a contract for a smartphone.
Your credit score won’t stay the same, it can be improved or made worse depending on your financial actions. Generally speaking – and this is extremely general – if you make all your payments on time and avoid debt to many people, you’ll have a positive credit rating.
Right away, your brain associates this term with old people. However, this is a term you must know before you’re 40. Primarily, it refers to a long-term savings plan that’s focused on your retirement.
With pensions, you put money away for many years until you retire. When you retire, you can withdraw a lump sum of your savings, or receive regular income payments from your pension fund weekly.
There are multiple pension schemes that you can set up privately, but you also could get one from your employer. The idea is that you save some of your income, and then the scheme provider also puts some money into the pension.
Then, you have State Pensions, which are handled by the government and give you a set amount of money every week when you retire.
It pays to learn about pensions when you’re as young as possible so you can start saving for your retirement early on. This helps you save more money, leaving you financially stable in your golden years.
Investments are a great way to make money without doing much work. This is something you need to be aware of before you’re 40, and I believe everyone should have some form of investment under their belt.
The definition of an investment is something you spend money on to grow the funds you spent. Typical examples include investing in the stock market, buying a property, and investing in gold.
Going back to the topic of retirement, investments are often seen as a great long-term saving method as well. Property investment is probably the big one to think about while you’re young.
By owning a house, you have an asset that will only get more valuable as time goes on. The property market generally moves in an upward curve, so you should think about investing in it if you want to earn a lot of money from a future sale.
Well, that brings us to the end of this piece. I appreciate it’s a bit of an eyeful, but I do believe you will benefit from knowing all these terms. It just means that you aren’t surprised or confused when they eventually come up.
No matter what you do, you’ll meet some of these terms if you’re taking control of your finances. The more knowledge you have, the more educated you’ll be, and the better decisions you’ll make!
Greg is a Chartered Financial Analyst (CFA) with 22+ years experience in Financial Services. He has held numerous FINRA Securities licenses (series 7, 63, 65, and 66), and is an expert on Investment Products and Financial Planning. Greg has 22+ years experience as a real estate investor and degrees in Psychology and Philosophy.
Greg has been quoted/interviewed in Yahoo Money, Yahoo Finance, USA Today, Authority Magazine, Realtor.com, Business Insider, and others.
Greg is an avid runner, and the father to identical twin girls and their awesome brother. His love of budgeting and his kids led him to join The Great Resignation in 2021.
Disclaimer: Any Financial Tips on ChaChingQueen are general and informational. Speak with a professional about your specific situation.