Managing money may not be the sexiest—or most fun—topic, but since it doesn’t appear that we’re going to switch over to a bartering system anytime soon, it continues to be an important skill. That said, finance-speak can be harder to translate than Dothraki. To help break it down, we enlisted the help of Merrill Edge executive Anna Colton. Here, seven financial terms every woman should know.
Must-Know Finance Terms
"Financial freedom is the amount of money or income needed to live your desired lifestyle. In fact, the majority of millennials are saving for financial freedom instead of long-term financial goals based on findings from our most recent Merrill Edge Report. This means they are prioritizing things like dining out with friends, attending workout classes and working their dream job—whether it's their full-time career or a side hustle that fulfills this dream—over saving for long-term financial goals like retiring or buying a house."
"If you're just starting out on your own or are looking to save money, a budget may increase your chances of reaching certain financial goals. To make a budget work, you'll want to estimate your monthly income and expenses and strive to earn and spend close to what you projected. In addition to setting a budget, consider setting other financial goals and estimate how much money you will need to meet them. This not only makes the process of saving and investing easier but can make it more rewarding. As you budget and save, set benchmarks along the way to increase your confidence as you pursue your long-term goals, such as retirement, and short-term goals, like a vacation."
"An emergency fund is a strategic use of your cash and can potentially provide backup money to draw upon if you become unemployed or receive an unanticipated expense, like an expensive medical bill or a repair in your home or apartment, without having to tap into your savings. As you create an emergency plan, aim to maintain at least six months’ worth of living expenses in an easy-to-access checking or savings account."
"A 401(k) account is typically an employer-sponsored retirement plan. If your employer offers a 401(k) plan and will match your contributions, consider contributing enough to take advantage of the match. As you get older, consider job changes, salary increases and lifestyle changes as an opportunities to evaluate your savings plan and how much you're contributing to your retirement. If you don't have access to a 401(k) plan, you may want to think about investing in a Roth IRA. A Roth IRA, which is an individual retirement account, may be appropriate if you're further from retirement because the longer your earnings have the opportunity to grow, the more potential income you may have that will never be taxed."
"Your credit score, typically a number between 300 and 850, is the number lenders use to determine how likely you are to repay debts on time. It comes from information compiled in your credit report, which includes your payment history and if you pay debts on time, the type of debts you carry, the amount of money you owe compared to the amount of credit available to you and the length of your credit history. The higher your score, the lower your perceived risk is to lenders. Maintaining a strong credit score is important, especially in the event you need to apply for a loan or credit card. With a lower score, you may have to pay a higher interest rate than someone with a higher score."
"A financial solutions advisor is someone who helps answer your most important investing questions and assists in making financial decisions. If you ever need help determining your long-term financial goals or while you're pursuing them, think about involving a financial solutions advisor who can help you outline your goals and determine the best strategy for your lifestyle and financial aspirations, no matter your age."
"Online investment platforms—sometimes called robo-advisors—are online wealth management services that allow consumers to create affordable investment portfolios. These kinds of platforms give you the ability to automate your savings and investments, giving you, as an investor, the opportunity to work toward your goals on an ongoing basis without thinking about it and spending a lot of time. There are many online investment platforms to choose from. The majority use technology to make automatic, computer-driven portfolio adjustments, based on mathematical rules or algorithms, but the platform Merrill Edge offers, Merrill Edge Guided Investing, is different, as it combines expert insight with the ease and flexibility of online management to help you pursue your goals—whether you have a little or a lot to invest."