Thursday, February 21, 2013

10 Personal Finance Gobbledygook Terms Explained

Do you know what a bond is? Do you know what an annuity is? Have you even heard of these terms before?

The finance world is filled to the brim of complex, confusing terminology. The vocabulary that is used by companies working in the sector can often be unclear and hard to understand. But did you know that this could be costing you money?

By not fully knowing what certain financial terms mean, you could in fact be losing out.
So what do you do? Do you put your head down and crawl back into your cave, or do you tackle the jargon head-on, to learn what the gobbledygook really means?

BBC News set a challenge
The firm asked its readers to define five words and phrases that were related to personal finance. These included negative equity, trivial communication, an annuity, a bond, and Individual Savings Account. Nobody was able to describe all of them. 

One person even went as far as saying this;

What is a bond?

Does it really matter if you don’t know?
Well to put it bluntly, yes. A survey by the Consumer Financial Education Body (CFEB) revealed that 70% of mortgage holders don’t know what type of interest rate they are paying on their mortgage.

If there is anything you don’t understand you need to learn what it is, to comprehend how it affects you and your loved ones.

So here are 10 key terms of personal finance debunked

  • Lifestyling- this is when investments are switched towards less risky areas, as the policy holder approaches their retirement. 
  • Annuity- a guaranteed income paid to someone yearly, in exchange for investing a fixed lump sum of money. 
  • Self- assessment tax return- completed by individuals, usually those who have tax to pay on income, because they have earned additional monies that need to be declared to HMRC. 
  • Interest- a charge for borrowing money, or a reward for saving money. 
  • Buffer zone- a small amount of credit that a bank may give you, so you can get money from a cash machine even if you don’t have enough money in your account. 
  • Annual percentage rate of charge (APR) - this shows the average yearly cost of having a credit card, including the fees and interest rate charged. 
  • Credit check- this is a search of your borrowing record, but it most commonly known as a credit history. It examines all your finance exchanges that have ever occurred, and is used to determine whether or not a bank or lender should lend you money. 
  • Loan shark- this is an unlicensed lender. They lend money to people on low incomes or with poor credit histories; and their rates are very high- so much so that the person will find it difficult to keep up with the repayments.  
  • Individual Savings Account (ISA) - this is a tax-efficient way of saving or investing money however, there are limitations on exactly how much you can save each tax year. 
  • Home or household insurance- this is the common name for buildings and contents insurance when they are bought together.

All official terms have been taken from the Money Advice Service as well as the Nixon Williams website.

If you are work for yourself, you need to know all the ins and outs of financial jargon. If there is anything that you explaining, seek expert help today.

This article was written by Lauren Grice on behalf of Nixon Williams, the leading specialists in freelancer accountancy. Visit to seek expert help for managing your taxes and books. 

Read my disclosure located here


Karen Glatt said...Best Blogger Tips[Reply to comment]Best Blogger Templates

The explanation of an annuity really helped explain what it is. I did not know what it was until now. These other terms I pretty much knew but it is a great idea to refresh my memory about these personal finance terms.

Pam said...Best Blogger Tips[Reply to comment]Best Blogger Templates

Thanks for explaining these. I am a dunce when it comes to financial terms.

Daisy B said...Best Blogger Tips[Reply to comment]Best Blogger Templates

Great explanations!

Grace Hodgin said...Best Blogger Tips[Reply to comment]Best Blogger Templates

You are correct in that everyone should know about financial terms and the differences. I enjoyed your post.

Post a Comment