Let us explain: sexiness is about confidence, and nothing boosts your confidence like knowing your stuff and taking care of business. To have financial confidence is to be financially literate; you owe it to yourself to know where your money is going and what it all means (if you don’t believe us, read this article on making your finances a daily thing).
We asked Laurie Girsky and Cindy Golub of G Squared Advisory, a financial planning firm especially for women, to put together a list of ten financial terms that every woman should know. You’ll feel confident and capable as you become familiar with these concepts–and we dare say, with your financial empowerment, that you’ll feel sexier too!
Knowing these ten financial terms will make you feel sexy
- Debt: This is the amount of money you owe. Credit card balances, student loans, medical bills, the other three payments of $39.99 you owe thanks to an infomercial and a sudden certainty that you wanted to subsist on juiced vegetables–all of these things add up to your total debt. Mortgages are sometimes counted here, too.
- Interest Rate: This is a percentage of total money owed that is paid to the lender. If you borrowed $100 at an annual interest rate of 10%, at the end of the year you’d owe $110. Some checking or savings accounts will pay you a small interest rate on their respective balances.
- Credit Score: Your credit score is a measure of your credit worthiness that’s used to determine your cost of borrowing. It’s how credit card companies decide your interest rate and banks set your mortgage rate.
- Stocks: These are ownership shares in a corporation. Usually to raise money, a company will sell a percentage of the business split into shares. As an investor, you purchase shares hoping that the value of the company will go up. Then (hopefully!) you sell the stocks at a higher price than what you paid for them.
- Bonds: Bonds are debt that is owed to you by a corporation or government. Basically, you agree to lend money for a fixed amount of time at a fixed interest rate, and the company or Treasury Department promises to pay you back, on time and with interest.
- 401(k): This is a retirement account through your employer that’s self-managed, often involving pre-tax income.
- Roth IRA: Although similar to a 401(k), this retirement account takes after-tax contributions. (For more on retirement, read this article: Tales from a Modern Girl: Setting Up a Retirement Fund.)
- Net Worth: To calculate your net worth, add up everything you own, and subtract everything you owe. Omit the actual money in your bank account, but add up stocks, bonds, and the money in your retirement account. If you counted your mortgage in the debt column, you can count your equity here, too.
- Cash Flow: This is the amount of money that you have to spend to sustain a basic lifestyle. In a given time period, you receive a certain amount of money (such as from a salary or interest). You also have certain recurring expenses like rent and groceries. Unlike your net worth, you only count money you can spend now, not the value of your retirement accounts or things you could potentially pawn for cash.
- Estate Planning: This is about making sure that you have a will and a health care proxy. Whether to take care of your kids or to ensure your medical preferences are honored, estate planning is an important element of financial literacy. (For more on estate planning, read these articles: Trusts Aren’t Just for Rich Kids and The Easy Breezy Guide to Estate Planning.)