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5 Basic Financial Terms Every Grown-Up Should Know

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In case you haven’t heard, adulting is hard. From work to exercise to cooking, cleaning, running errands, managing relationships and my 6-month-old baby and husband (the big baby) — adult life is tough. But the common thread here is money, specifically personal finance!

Even after going to college and taking finance classes, you may still feel uncertain about what all those financial terms (and there’s a lot of them) actually mean. Unfortunately, this uncertainty could mean missing out on the potential to grow your money or even worse, falling into debt. *Insert scream emoji here.*

To make things a little easier, we can start by breaking down the 5 financial terms you should know! Don’t worry — you don’t need to know everything to be successful with your money — just the basics and we’re here to help.

Verified Income

The first time I ever had to verify my income had nothing to do with a loan application. I was sitting in a real estate office trying to rent my first apartment in New York City when I had to learn about verified income asap. So what exactly is it? Well, it’s essentially what the name implies: a lender (or landlord) is able to verify exactly how much you earn. This can be done in several ways, depending on the lender. Your best financial life starts with knowing your income and expenses. Income is a critical component when it comes to lending decisions and how much you can borrow.

Credit Score

Your credit score can make or break plenty of things: from credit card approval, to even your ability to rent an apartment. But what is a credit score exactly? Your credit score helps lenders understand how well you manage different forms of credit, like loans, credit cards, and mortgages. Your credit score is determined by various factors such as payment history aka whether or not you pay your bills on time, age of credit, credit utilization ratio, total balances and debt and more.

Debt-to-Income Ratio 

Of the three key numbers that determine your financial health—verified income, credit score, and debt-to-income ratio—debt-to-income ratio (DTI) is probably the least commonly discussed so you might be wondering what even is debt-to-income ratio? It’s a key indicator of whether you’re living within your means, and something you should consider before applying for a loan.

Here’s a pro tip: Use the Turbo app to view your credit & loan details, all in one place, so you know where you stand and how lenders may view you.

Roth IRA

An important financial lesson that many fail to understand: It’s never too early to begin investing in yourself and your retirement. If you’re early in your career, a Roth IRA might be a good option for you. You pay taxes on your contributions now so you can enjoy the tax break later when it’s time to retire.

Roth 401(k)

Like a Roth IRA, this retirement account is funded after-tax dollars and grows tax-free, but is sponsored by your employer who often matches a percentage of your contribution.

Net Worth

This is the difference between your assets and liabilities. You can calculate your net worth by adding up all of the money or investments you have (including the current market value of your home and car), as well as the balances in any checking, savings, retirement or other investment accounts. After you have this number,  subtract all of your debt, including your credit card balances, mortgage balance, and any other loans. The resulting number is your net worth number.

So there you have it! Whether you want to improve your credit score, pay down debt, or make an important purchase, learning these financial terms can give you the knowledge to better understand your financial situation, and move forward with confidence. Now that you have familiarized yourself with these processes, tell us where you are on your path to financial health. Drop a comment below!

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