Finance 101: Key Terms Everyone Should Know

When it comes to money, a lot of people feel like they’re speaking a different language. Words like assets, liabilities, and net worth get thrown around, but not everyone has a clear picture of what they mean. The good news? You don’t need a finance degree to understand the basics. Learning a few key financial terms will help you make smarter money decisions, whether you’re budgeting, saving, or planning for retirement.

Below, we’ll cover some of the most important financial terms everyone should know to help set the baseline for future posts.

1. Income

Your income is the money you earn. It can come from wages, salary, business profits, investments, or side hustles. Understanding your income isn’t just about the number on your paycheck — it’s about knowing how much money is coming in versus how much is going out.

2. Expenses

Expenses are the costs of living your life — things like rent, groceries, utilities, subscriptions, and debt payments. For businesses, things like cost of materials, supplies, labor, and taxes. Tracking your expenses helps you see where your money is going and can highlight areas where you might cut back.

3. Assets

An asset is anything you own that has value. This can include cash, property, investments, or even your car. Assets can grow your wealth over time, especially if they increase in value or produce income (like stocks or rental property).

4. Liabilities

Liabilities are what you owe. This includes debts like credit cards, student loans, mortgages, or car loans. Understanding your liabilities is key to knowing your overall financial health.

5. Net Worth

Your net worth is a simple equation:
Assets – Liabilities = Net Worth.
It’s a snapshot of your financial position. A positive net worth means you own more than you owe, while a negative one means debts outweigh assets.

6. Budget

A budget is your spending plan. It helps you decide how to use your income to cover expenses, save, and invest. Budgets give you control over your money instead of letting your money control you.

7. Emergency Fund

An emergency fund is money set aside for unexpected expenses, like car repairs or medical bills. It keeps you from going into debt when life throws you a curveball. (We’ll be covering this in detail in the Emergency Fund series!)

8. Credit Score

Your credit score is a number that shows how trustworthy you are with borrowing money. Lenders use it to decide if they’ll approve you for loans or credit cards — and at what interest rate. A higher score usually means better borrowing options.

9. Interest

Interest is the cost of borrowing money — or the reward for saving and investing it. When you take out a loan, you pay interest. When you save or invest, you can earn interest. Over time, interest plays a huge role in both debt repayment and wealth building.

10. Inflation

Inflation is the gradual increase in prices over time. It means your money buys less than it used to. For example, what cost $1 in 2000 might cost $1.60 or more today. Understanding inflation is important for long-term financial planning.

11. Investing

Investing means putting your money into assets (like stocks, bonds, or real estate) with the goal of growing it over time. Investing involves risk, but it’s one of the most powerful ways to build wealth.

12. Retirement Accounts

Retirement accounts, such as a 401(k) or IRA, are special savings accounts designed to help you build money for the future. They often come with tax advantages, making them one of the smartest ways to prepare for life after work.

Wrapping It Up

Money doesn’t have to feel like a foreign language. By understanding these key financial terms, you’ll have the foundation to make better choices, plan for the future, and avoid costly mistakes.

Think of this as a starter toolkit — and as we cover more topics, you can reference this guide if you need a refresher.

– Brendan Tiedeman, CPA