Here you’ll find explanations for some commonly used financial terms (many are found in the blog) that sound smart but can be difficult to understand. I’ll be adding to this list wherever possible! Use the magnifying glass at the top right to search.
Let me know if you have any financial words or phrases you’d like explained here and I will add to this list.
Good Debt – Debt that will help you make more money in the future. For example, a mortgage enables you to buy a home, which will likely be worth more in the future. Or, a student loan which enables you to command a higher salary.
Law of Compensation – The Law of Compensation is another restatement of the Law of Sowing and Reaping. It says that you will always be compensated for your efforts and for your contribution, whatever it is, however much or however little.
Return on Investment – A calculation to compare investment options and identify the one that creates the most money for every dollar invested. For example, if you invest $1 (the “investment”) and it produces $0.15 in income (the “return”), your return on investment is 15% (calculated as $0.15/$1). Typically people think of “returns” as generating income, but you can also create returns by paying down debt. Paying less interest creates the same result as earning more money – in both cases, you end up with more cash in your hands!
Windfall – A bunch of money that you didn’t plan to receive, such as lottery winnings, a birthday gift or an extra bonus at work.