4 Commonly Misunderstood Financial Concepts
There’s an old maxim that says: “The older I get, the smarter my dad gets.”
We’re not sure who said it, but it rings true for most people… especially when it comes to understanding how money works.
We’re hoping as a LevelUp subscriber your quote sounds more like this: “The more I read the LevelUp, the smarter I get… especially when it comes to money”.
Today we’ve put together a quick list of commonly misunderstood financial concepts-a personal finance directory if you will- to get you one step closer to becoming a money genius.
Balloon Payment
A balloon payment is a large, lump-sum payment that is due at the end of a loan. This payment is typically referred to as the principal amount of the loan as opposed to interest payments which are paid overtime as a cost of borrowing money.
APR
APR stands for ‘annual percentage rate’ or the amount of interest you will pay on a loan each year. This rate can be though of as the cost of a loan- the higher the APR, the more expensive the loan.
FICO Score
The same thing as a credit score. The higher your FICO score, the more trustworthy you appear to lenders and the more likely you’ll qualify for a loan.
FICO scores below 500 are considered poor with credibility increasing as your score goes up as high as 850.
Equity
Equity is the value of an investment that you own. If you bought a house with a mortgage loan, your home equity is the property value minus the dollar amount you still have to pay on your mortgage.
These terms are just the tip of the financial iceberg, but they represent an important lesson in personal finance; just like anything else, you need to learn the basics before you can move on the fun stuff.
If you feel like you’re ready for more advanced plans like starting a business or building a charity donation fund, we’re here to help! Our goal is to support you at any level of financial experience.
One product we’ve been promoting for all of our subscribers is Magnifi, a great tool for learning the ins and outs of personal finance with added layers for more experienced users.
Try it for free today, and you’ll get a good sense of where you’re at in your journey towards financial mastery.
