Hi! I’m Ryan from Go Natural English, and today, I’m talking about financial vocabulary! Finance is basically the management of money, which plays a powerful role in many parts of life, and whether you’re frugal…or an impulsive spender, having an understanding of some of the fundamental words associated with money can help you make better Financial Vocab decisions!
In 2016 and 2017 I spent many months backpacking around South America and Europe…and it was my understanding of words like credit, interest, and net that helped me stay on track with my money, and continue my travels and adventures! So I’ve gathered these, and others, and created a list of essential Financial Vocab for today’s lesson. Hopefully, they’ll be helpful for you on your English journey, just like they were for me 🙂
And stick around to the end of the post where I’ll share a funny travel story using one of the words we learn today!
Alright, let’s get after it!
Today’s first word is gross. You might already know this word to mean disgusting, but in finance, ‘gross’ is the amount of money BEFORE taxes and other deductions are taken out. For example:
“My gross salary is 80k, but after taxes, I only have 50k.” Which reminds me of an old saying in English: the only certainties in life are death and taxes!
But there is actually a word for the amount of money left AFTER all the expenses are removed, and that word is net! So using the previous example, I could say: “My gross salary is 80K, but my net salary is only 50k.” You will find both of these words are most useful when talking about salaries, or money earned from a business operation.
Less Taxes. Yes Please!
#3 & #4) Deduction & Exemption
There are some cases in which you will pay less taxes: these are called deductions, and other times where you won’t pay any tax: these are called exemptions! Did you know American citizens and Green Card holders are required to pay taxes no matter where in the world they live!? So I live in Germany, but I am still required to report my income to the US government. Lucky for me, I’m a student, and I don’t earn enough to pay taxes…so I am tax-exempt!
In addition to these two, there are things called ‘loop-holes,’ which are little tricks that allow something to happen that shouldn’t happen. Usually, they involve legal things like tax. So you might say: “Amazon pays very little tax thanks to loop-holes!”
Our sixth word today as Principal! And even though it is spelled the same, I am not talking about the leader of a school! In Financial Vocab, the principal amount is the original sum of money from a loan or investment! I invested a principal amount of 1000 USD. Now it is worth 1200 USD!! Wouldn’t that be wonderful…
When I say balance, what do you think of?
Maybe a scale, or walking on a rope, but in Financial Vocab, the balance refers to the current amount of money in an account. So using the previous example, I could say: “I invested a principal amount of 1000usd. Now my balance is 1200 USD!” Likewise, if I borrowed money I might say, “I owed a principal amount of 1000 USD, but now my balance is 600 USD.” You should try to avoid having a balance on your credit card, otherwise, you’re losing your money!
#8 & #9) Interest & Interest-rate
And speaking of borrowing money, we come to number 8: interest! It is one of the worst, and most important things to know when it comes to borrowing money! Interest is the fee for borrowing money. This is calculated according to the interest rate: the percentage of the balance you owe each year. Let’s look at an example:
If I borrow 1000 USD with a 10% interest rate, that means after one year I will owe 1100usd! 1000 USD from the principal, plus 100 dollars of interest (10% of 1000).
So I’ve told you a lot of words about money today, but I want to end with a word that means you have no money! Broke! Broke is somewhat of a slang term used between friends or colleagues. If my friend William asks me to meet for lunch, I can say: “I can’t man, I’m broke!”
Quick Travel Story!
I mentioned I would tell a fun travel story using one of the words! See if you can hear it 🙂 A few years ago I flew to Sweden. I took a night bus from Stockholm to Gothenburg. After I got off the bus I realized I had lost my wallet!? All my money, all my cards, gone! I was broke and had no way to replace any of those things. I sat down at the bus station. I was there all by myself. I sat there shocked, confused, and really sad. I was there for an hour, with no idea what I was going to do. Eventually, I stood up and noticed something under my foot…it was a 100 dollar bill! I was shocked again, but there was no one around me, no one for me to return this money. I took it as a sign from the universe! And used this money for the next week to pay for things until I reached a friend who lent me some money (with no interest!)
So there you have it! A fun story and list of Financial Vocab in English that you can use next time you’re dealing with money! Do you have any interesting finance stories?? Let me know in the comments below!
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I hope you enjoyed today’s lesson! If you’d like to continue on your English journey, you should check out this lesson! I’ll see you next time!