5 Personal Finance Terms You Need to Know

You must be aware of personal finance and its importance, but what about the terminology? Many people understand the basics of personal finance without understanding its terms correctly. You need to know the standard personal finance terms in order to understand financial decisions made and thus manage your money more efficiently.

Personal Finance Terms You Need To Know

• Credit score

Every financial transaction you carry out has an implication. It reflects on your credit score. You add to your credit score when you take a loan and repay it. The way and pace at which you repay your loans, affect your credit score. When you take a loan, you repay it in EMIs.

If you pay the EMIs regularly and on time, your credit score increases. The same holds for other large payments, such as your credit card bills. On the other hand, your credit score dips down if you fail to repay your loans on time. Every time you apply for a new loan, your credit score is scrutinised, and this is why you need to have a high and healthy credit score.

• Net worth

Net worth is the difference between your assets and liabilities. If you have more assets than liabilities, you will have a higher net worth and vice versa. The gap between the two determines the volume of your net worth.

• Term insurance

As an individual, you must have term insurance. Term insurance is a form of life insurance where you get a pure life cover at an affordable rate. It helps you stay covered within a budget and create a financial cushion for your loved ones. Your nominees will receive a pre-decided assured sum if you pass away within the policy period.

• TDS

TDS, or tax deducted at source, is a type of tax that your employer or vendor deducts before paying you. It is a form of collecting the income tax in advance. So, when you file your taxes at the end of the financial year, the TDS already paid is deducted from your tax liability.

Tip: You need only the balance amount as per your tax slab when filing your ITR. However, the tax amount will be refunded if you do not fall in that particular tax bracket.

• Liabilities

Last but not least, liabilities is a term referring to your financial duties. Whether it is your rent, EMIs or expenses on parents’ health care, bills, etc., they are all your financial liabilities. These become your regular expenses.

Tip: You need to make a budget so that you get to save and invest some money each month even after your liabilities are taken care of. Now that you know about the standard terms related to personal finance, you should be able to handle your money in a better and more confident manner.