When you realize no one taught you how the financial world works, but it still expects you to play along. Money doesn’t knock politely. It barges in with its entourage credit cards, EMIs, mutual funds, insurance plans, loan rejections and demands answers. But the catch? If you don’t understand the language of money, you can’t negotiate with it. And this language isn’t just about numbers. It’s made of terms. Terms that get thrown around like confetti but land like bricks if you don’t know what they mean.
So let’s fix that.
Not with fluff. Not with long lectures. But with plain talk. Direct. Sharp. Essential.
Here are 10 financial terms you must understand before life starts charging you interest.
1. Net Worth
Not your Insta followers. Not your gym PR. Your real net worth is what you own minus what you owe.
Formula: Net Worth = Assets – Liabilities
Own a bike worth ₹1 lakh but have a ₹70,000 student loan? Your net worth is ₹30,000.
Net worth is a score about your financial performance, and not about you are rich or poor.
Pro tip: If you start early, you can play better.
2. Credit Score
Imagine walking into a bank. They smile at you, hand you coffee, and whisper behind the counter, “What’s their CIBIL?”
A credit score can tell your lenders whether you're trustworthy or not with simple 3 digit number. Think like it is your certificate of financial character.
It ranges from 300 to 900. If it is above 750 then you're Golden cow or if it is below 600 then you should prepare for the rejection, high interest rates or worst judgy bank emails.
So, you shouldn't ignore the credit score, where a good score is the key to unlock the loans, better credit cards etc.,. If you find you messed it up, then just fix it.
3. Compound Interest
Ah, the silent hero or the vicious villain.
Einstein allegedly called it the eighth wonder of the world. Whether or not that’s true, here’s what is: compound interest is the interest on your interest.
You invest ₹10,000 at 10% interest per year. After the first year, you get ₹1,000. Leave it in? Next year, you earn 10% on ₹11,000 not just the original ₹10,000 and so it grows.
Early investors don’t just have more money. They have more time for compounding to work its magic.
Do you want the trick? Start now, even with small amounts.
4. Inflation
You know how your parents brag about buying samosas for 50 paise? That’s inflation at work.
Inflation is the gradual increase in prices and the fall in the purchasing power of money. Today’s ₹100 might only buy you what ₹70 did five years ago. It’s invisible, but it eats your savings. So saving isn’t enough. You need to invest in options that beat inflation. Or you’re just hoarding slowly dying cash.
5. Mutual Fund
Have you ever heard this jingle "Mutual funds are sahi hai", but only if you understand what they are and how they function. A mutual fund is nothing but a pool of money collected from many investors to invest in stocks, bonds, or other assets which is managed by some professionals.
It is like a financial potluck where everyone chips in and the fund manager cooks up returns.
Pro tip: It is good for beginners. You need to check the fund's objective, past performance, and fees.
Note: Not every "sahi" is right for you.
6. EMI (Equated Monthly Installment)
EMI, some call it as Easy Monthly installments which sounds harmless, but if you stack with too many of these, and you’re literally a walking loan repayment machine. EMI is the monthly payment you make to repay loans for home, car, education, or that phone you couldn't afford but "bought on easy installments." Banks love offering EMIs. Why?
Because you end up paying more than the product’s price. Understanding the interest rate, the loan term, and your total payable before saying yes is vey important.
Remember: "Affordable Monthly Payment" is a smart decision but not always.
7. Asset Allocation
This is the one that separates gamblers from investors.
Asset allocation is how you divide your money across different types of investments like stocks, bonds, real estate, gold and cash.
Why?
Because putting everything in one basket is stupid. Even if it’s a shiny crypto basket.
Your age, income, and risk appetite will decide your mix. If you are 25 years old and earning? Here u can take more risk. If you are nearing to your retirement? Then playing safe is important. One-size-fits-all kind of advices doesn’t work here.
8. Income Tax Slabs
Taxation is one of the exciting subjects. You know taxes are real, and so is the fine if you mess them up.
Here in India, follows a slab system where higher income means higher tax percentage. We can also avail deductions, exemptions, and two tax regimes to choose from.
Confusing? Yes.
Avoidable? No.
For simple, you can start with the basics. Learn what income counts, what you can claim (like 80C, 80D, HRA), and how to file on time. Yes it’s your money but the government takes a cut, it's sure. All you can do is to decide how cleanly that cut is made.
For official rates and updates, always refer to the Income Tax India website only.
9. Liquidity
Can you access your money when ever you need it?
That’s liquidity.
- Cash? Highly liquid.
- Gold? Reasonably liquid.
- Real estate? Forget it, it could take months to sell.
Always keep a portion of your savings in liquid assets. Emergencies don’t wait for buyer agreements or stock recoveries. They arrive uninvited and impatient.
The smart ones survive because they can access their money when it matters.
10. Insurance (Term vs. Investment)
To answer straight, Insurance is not an investment.
Your term insurance won’t give returns, but it protects your family if something happens to you and that’s worth more than any mutual fund. ULIPs, endowment plans, and money-back schemes promise both cover and returns but often give neither well. If you want to invest, invest or if you want protection, get pure term insurance. But don’t mix them up.
Insurance is about planning for uncertainties, so get your own and don't rely on your employer's group insurance.
Finally, you are at the end of this article.
All I want to suggest is about "Start".
- Start learning.
- Start asking questions.
- Start tracking your spending.
- Start understanding your payslip.
- Start reading those policy documents.
It’s boring, yes. But so is being broke and clueless.
You don’t need to become a stock market wizard by 25. But you do need to know what EMI, CIBIL, and inflation means. You need to spot a bad insurance pitch when you hear one. You need to say no when someone offers you a credit card when you don’t need.
You should realize that money management is about being ready, not rich.
If this made you think, good.
Now, take a deep breath. Open your bank app. Review your budget. Google a mutual fund and promise yourself this: You’ll never be financially illiterate again.
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