In my previous posts, we discussed the importance of financial literacy on the path to becoming a rising investor. We then dove into the phenomena that money isn’t something that is often discussed openly. So now that the problem and dynamics around it are established, let’s dig into what we should be talking about first. It’s the basics. The fundamentals, so to speak. They are always the first steps when learning something new.
For example, to compete in basketball, you must learn how to dribble before you can make a layup.
As a rising investor, it’s key to understand the fundamentals of financial literacy. So here they are.
There are seven key terms to understand to help you become more financially literate:
3. Credit Score.
My primary reference to establish this list was (opploans.com). The better you understand these terms, the better you will be able to manage your finances and investments. Let me provide some detail on each term.
APR stands for annual percentage rate. It’s the yearly interest rate charged on borrowed money. APR is displayed as a percentage and is typically found on credit cards and loans. Here is a great article from Investopedia (investopedia.com). It can help you understand better what APR is, what the different types are, and what to look for in APR. This is a great, concise article, and I highly recommend it.
Assets in finance are resources with economic value that can provide future benefits. Assets can be owned by individuals, companies, and even countries. Assets can be stocks, real estate, cryptocurrency, and much more. If you want to learn more about financial assets, I strongly recommend you visit The Balance (thebalance.com). This article provides accurate detail on the basics of financial assets.
A credit score is a numerical rating that essentially determines how well a person may repay their debt. The better the credit score you have, the more opportunities you get. I have two great articles to further explain credit scores. The first is from Capital One (capitalone.com). This is a solid article that explains what a better credit score means. The second is from Experian (experian.com). This article is about ten minutes long and explains the basics of credit score.
Financial debt is what you owe to another person or company. It can be created from credit cards, mortgages, personal loans, and more. However, there is more than that to debt. I found a great article from Investopedia (investopedia.com). This article covers the basics of debt, including the different types of debt. It’s a very helpful article to expand your understanding and questions about debt.
Diversification is a core principle when investing. Diversification is when you spread your investments over different assets. It typically reduces the risk of overall loss. Here is a reliable article I encountered from Fidelity Investments (fidelity.com). It helpfully explains how to diversify your portfolio and the best ways to do this. It’s a quick and organized read.
Financial Interest is the percentage of a loan that lenders will charge to borrowers. However, there is more than one type of interest rate. For example, there is compound and simple interest. This article from Investopedia is a reliable resource for further learning about financial interest (investopedia.com). It’s a shorter read but will be very helpful.
Financial principal is the amount of money you owe on a loan pre-interest. So, essentially the principal is the amount of money you agree to pay back. Interest is the money you pay for borrowing the principal in the first place. This is a helpful article I found from the Corporate Finance Institute (corporatefinanceinstitute.com). It explains the basics of principal and provides examples of principal in investments and in debt. It’s simple and gets straight to the point.
As a rising investor, it’s important to understand the fundamentals of financial literacy. The terms I discussed are essential to know, but there are many more. So, I would like to provide you with one final article from the University of West Florida (uwf.com). It simply explains a ton of great terms to know. Like I said earlier, to succeed at anything, it’s crucial to know the fundamentals.