Demystifying the Language of Money
The financial services industry is full of financial jargon that can be confusing for clients. Terms like “asset allocation,” “compound interest,” and “diversification” can be challenging to understand, even for people who are familiar with financial concepts. This can make it hard for clients to make informed decisions about their money.
With many years of industry experience, I understand the challenges financial jargon can create for clients. That’s why I make a point of using plain language and avoiding jargon whenever possible.
This blog contains a glossary of financial terms I’ll add to over the coming months. I believe that everyone should have access to the information they need to make informed financial decisions. I’m committed to providing my clients with clear and concise information in a way that is easy to understand.
Clarity and confidence
Let’s take a look at a case study to illustrate how ISJ Financial Planning has helped clients navigate the money management process.
Jane* is a 55-year-old woman thinking about retirement. She has a good understanding of her pension and ISAs. She found some of the jargon used in her workplace pension literature confusing. She was also feeling worried by pension scam stories she’d read online.
Jane’s colleague referred her to ISJ Financial Planning. During her initial consultation, I took the time to explain the jargon that Jane was unfamiliar with. With a clearer understanding, Jane is now confident that her financial plan will help her achieve her retirement goals.
Here are some of the key terms we discussed. I’ve put them in alphabetical order to make them easier to find if you bookmark this blog!
Glossary of key terms
Annuity: A financial product that provides regular payments to the policyholder over a set period or for life. Annuities can be used to provide retirement income or to protect against outliving your assets.
Assurance: A type of insurance that provides financial protection against a specific event, such as death, illness, or disability. Assurance can be used to provide a lump sum payment to your loved ones if you die or to provide you with an income if you become disabled.
Asset allocation: Dividing your investments among different asset classes, such as stocks, bonds, and cash, for diversification and managing risk.
Bond: A loan that a company or government issues. Bonds are fixed-income investments that pay a fixed interest rate over a set period.
Budget: A saving and spending plan. A budget can help you track your spending, reach your financial goals, and avoid debt.
Cash flow: The inflow and outflow of money in your household or business. Cash flow is essential for budgeting and financial planning.
Codependency: A relationship characterised by an excessive dependency (financial or emotional) on another person. You’ll find more about this in my blog: Is your relationship healthy?
Compound interest: The interest that you earn on your interest. Compound interest can help your money grow over time.
Critical illness cover: A type of insurance that will pay out a sum if you are diagnosed with a serious or terminal illness such as cancer.
Debt consolidation: Combining multiple debts into one loan can simplify your repayments and help you save money on interest.
Diversification: The practice of investing in various assets to reduce risk. Diversification can help you to protect your investments from losses.
Equity: The value of an asset minus the amount of debt that is owed on it. For example, the value of your property minus any mortgage remaining.
Drawdown: A way of accessing your pension savings in retirement. With drawdown, you can take your pension pot as a regular income or as a lump sum. You can also choose to take a combination of income and lump sums.
Fellow of The Personal Finance Society (FPFS): this designation is a professional designation awarded to financial advisors who meet specific education, experience, and ethics requirements. Completing the Fellowship programme is The Personal Finance Society’s highest achievement and shows the attainment and maintenance of the most prestigious level of professional achievement.
Fund: A pool of money invested on behalf of a group of investors. Funds can be invested in various assets, such as stocks, bonds, and real estate.
Discretionary income: The amount of money you have left after paying for your essential expenses. Discretionary income is the money you can save, invest, or spend on non-essential items.
Emergency fund: A savings account that you can use to cover unexpected expenses, such as a job loss, medical emergency, or car repair. An emergency fund should have enough money to cover your expenses for at least 3-6 months.
Fee-only: A financial advisor who charges a fee for their services rather than receiving commissions from the products they sell. Fee-only advisors are typically considered more objective and less likely to push products outside their client’s best interests.
Financial planning: Setting financial goals and developing a plan to achieve them. Financial planning can help you retire comfortably, build savings for a child’s education, or to fund a house purchase.
Goals: The things you want to achieve financially. Financial goals can be short-term, such as saving for a down payment on a house, or long-term, such as retiring comfortably.
Index fund: A type of fund that tracks a specific market index, such as the Standard & Poor 500 (known as the S&P 500). Index funds can be a low-cost way to invest in the stock market.
Inflation: A general increase in prices and a fall in the purchasing value of money. Inflation can erode the value of your savings over time.
Insurance: A contract between an insurance company and an individual or business. The insurance company agrees to pay out a sum of money if the insured person suffers a loss, such as death, illness, or property damage.
Investment: The act of putting money into something with the expectation of getting a return. Investments can include stocks, bonds, mutual funds, and real estate.
Liability: An obligation to pay money to someone else. Liabilities can include debt, such as credit card debt and student loans.
Life cover: A type of insurance that pays out a lump sum if you die. Life cover can help to protect your loved ones financially if you die.
Net worth: The difference between your assets and liabilities. Net worth is a measure of your financial health.
Pay gap: The gender pay gap in the UK is currently 18.4%, meaning that women earn 18.4% less than men for doing the same work. I explain why this is important for women’s retirement planning in my blog: Mind the Pay Gap.
Pension: A long-term savings plan that provides you with an income in retirement. Pensions can be funded by your employer and/or by yourself. Tax relief on your contributions will boost your savings.
Provider: A company that offers financial products and services, such as pensions, insurance, and investments.
Portfolio: A collection of investments. A well-diversified portfolio can help you reduce risk and reach your financial goals.
Retirement planning: The process of planning for your retirement years. Retirement planning can help you ensure that you have enough money to live comfortably in later life.
Return on investment (ROI): The amount of money you make on an investment, expressed as a percentage. ROI is an important factor to consider when making investment decisions.
Risk: The possibility of losing money on an investment. Risk is an essential factor to consider when making investment decisions.
Risk tolerance: Your ability and willingness to accept risk. Risk tolerance is an important factor to consider when making investment decisions.
Saving/s: The act of setting aside money for future use. Savings can help you reach your financial goals, such as retirement or a down payment on a house.
Stock: A share of ownership in a company. Stocks can be bought and sold on the stock market.
Tax: A compulsory contribution to the state by an individual or legal entity. Taxes can be used to fund government programs or to reduce income inequality.
Volatility: The tendency of an investment to fluctuate in value. Volatility can be a measure of risk.
Wealth management: The process of helping individuals and families manage their financial affairs. Wealth management can include investment management, financial planning, and tax planning.
Demystifying money
If you are struggling to understand financial jargon or need help developing your financial plan, please contact me. I’d love to help. I’m committed to helping you navigate the money management process.
*All my case studies are real examples that have been anonymised. Be assured that your personal information is entirely confidential.
