George Kamel - 11 Financial Terms Everyone Should Know

Episode Date: February 28, 2024

 💵 Sign up for EveryDollar today - Create a free Budget!  Some things are just complicated, like quantum physics or that Avril Lavigne song. But money shouldn’t be one of those things. In today’s video, I’ll break down 11 financial terms everyone should know—because the more you understand about how money works, the more likely you are to reach your money goals.   Next Steps 📗 Order George Kamel’s new book, Breaking Free From Broke. Net Worth Calculator: https://www.ramseysolutions.com/retirement/net-worth-calculator How I Went From Broke to Millionaire in Under 10 Years: https://www.youtube.com/watch?v=5kXWDs44LTQ   Offers From Today's Sponsors  This episode is sponsored by DeleteMe. 🔒 Remove your personal information from the web at JoinDeleteMe.com/George and use code GEORGE for 20% off. 🙌   🎙️ The Ramsey Show   🍸 Smart Money Happy Hour 💡 The Rachel Cruze Show 💸 The Ramsey Show Highlights 🧠 The Dr. John Delony Show 💼 The Ken Coleman Show 📈 EntreLeadership   Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

Some things in life are just complicated. Quantum physics, foreign policy, that Avrilavine song. Things so complicated. But I believe money shouldn't be one of those things. So today, I'm going to break down 11 financial terms everyone should know. Because the more you understand about how money works, the more likely you are to reach your money goals. And speaking of Avril, smash those like and subscribe buttons

and share this video with all your skater boyfriends. Because life's like this. You fall and you crawl and you break and you take what you get. and you take what you get and you turn it into honesty, you promise me I'm never going to find you fake it. No, no, no. It was beautiful. All right, let's get to financial terms you need to know.

First term, asset. An asset is anything you own that has value. This includes things like cash, retirement accounts, investment accounts, vehicles, and your house. Heck, even that Pog collection could count as an asset, especially if you've got the commemorative Chuck E. You get at least $12 for that on eBay. And there are two types of assets, liquid and illiquid.

Of course, liquid assets would be things you own that take the shape of the container you pour them into, like milk, tequila, or Mountain Dew Code Red. Dad joke. Sorry, not sorry, I'm a dad now. I'm a father. You did this to yourself, America. What have we done? Okay, but seriously, a liquid asset is something you can easily turn into cash, like actual cash in your bank accounts, stocks, bonds, mutual funds, any investments, that aren't tied up in retirement accounts.

An illiquid asset is something that can't be converted to cash quickly, like real estate, cars, and antiques. So it's all about how easily and fast you can get it. Financial term number two, liability. Liabilities are all the debts and outstanding payments you have laying around. If assets are the stuff you own, liabilities are the stuff you owe, things like credit cards, student loans, mortgages, car loans,

and medical bills. And here's a little fun fact. Your house and your car can both be an asset, and a liability if you have debt attached to them. And that's because these larger purchases, they take a while to pay off. So the part that you own, the equity, that's an asset. But the part that you owe, the mortgage, the car loan, that's a liability because debt always creates risk.

And bonus fact, cars are considered a depreciating asset because they go down in value over time. Bonus term. Number three, net worth. Your net worth is the total value of all your assets minus your liabilities. Basically, it's what you own minus what you owe. And guess what? This has nothing to do with your income.

You could make six figures and still have a negative net worth. Now, opinions aside, which I know you'll leave in the comment section, net worth is a really good metric to see if you're actually building wealth. And if you want some help figuring out your net worth, I will link a free calculator below. Number four, credit report. A credit report is a statement that has super detailed information about the money you've borrowed in the past and present. kind of like a report card you used to get in school. Except instead of having to show it to your parents,

you have to show this to potential lenders, landlords, and even sometimes employers. And this is because it helps them determine how risky you are, aka the likelihood that you pay your bills on time and that you will in the future. And whether you have debt or not, it's a good idea to pull your credit report once a year from all three credit bureaus

to make sure all of the information is correct. And you can do this for free at annualcreditreport.com. And it should be noted that credit reports are different from the next one on the list, which is credit score. Now, your credit score is based off of your credit report, but they're not the same thing. Credit score could be a number from 300-ish to 850-ish that represents your credit history. And imagine this like the letter grade on your report card. Now, falsely, a lot of people think this number is an indicator of how good you are with money. But really, it's just an I love debt score. Here's why. Your credit score is based on debt management.

It has very little to do with money management. And despite what our culture will try to make you believe, it's actually pretty easy to live your life without a credit score. I've done it. It might be a little inconvenient at times, but the benefit of being debt-free is way better than having a high score on a bad scoreboard. Moving on to number six, zero-based budgeting. This is my absolute favorite budgeting method out there, and here it is. You've got to give every single dollar a job. And it's called zero-based because your income minus your expenses should equal zero. So if you take home $5,000 a month, then everything you give, save or spend should add up to $5,000.

Every dollar that comes in, it's got to have a purpose so that nothing gets mindlessly spent on Grande, no-wip, half-calf white chocolate mocas with a single pump made with a soy. Unless it's in the budget, then it's fine. Mopa Pappapagino, a mocha papacuccino. A mocha papacuccino? And just for clarity, a zero-based budget doesn't mean you have zero dollars in your bank account. You can keep a buffer of a couple hundred bucks or so in that checking account so you don't

overdraft by accident. Next up, sinking fund. A sinking fund is a strategic way to save money by setting aside a little bit each month to hit a future goal. It's as simple as that. Although honestly, I wish it were called something different. I mean, why would you use the word sinking to describe something that builds up over time? It's a misleading name. Like peanuts.

Guess what? Peanuts aren't even nuts. They're part of the Lagoon family because they're grown underground. In fact, they're grown on the ovary of a flower. And if that's too graphic, I'm not going to tell you how spam is made. You can Google it's worth of Google. Anywho, a sinking fund works great for things you can't or don't want to pay for in a single month's budget, like new tires, vacations, yearly subscriptions or expenses, or a ticket to a Taylor Swift concert. I mean, at this point, I'm just saving up for the Farewell Tour in 2064.

I'm calling it. Save me tickets. Next on the list, high-yield savings account. Now, this is a type of savings account with a higher interest rate than a traditional savings account, and it's a great place to keep something like your emergency fund. Now, it's not great for long-term investing, but it will get you way more interest than a regular savings account. Most high-yield savings accounts are available through online banks. They can afford to be more generous with their savings rates because they don't have to pay rent and all the other expenses involved in operating a brick-and-mortar location. Things like paying tellers, buying

uncomfortable lobby furniture, red-flavored lollipops, and chaining pens to the counter. You know, the ones that somehow have just enough ink to write the first three digits of your routing number, but then dry up faster than your moisture-wicking Lulu Lemon boxers? And who's stealing these pens anyways? All right, I, for one, prefer my pens off the chains. Dad joke. Number nine, gross income. Ew.

Funnest fact about this one, it's not that gross. It's just an accounting term. Your gross income is the total amount of money you earn before any other deductions or taxes are taken out. Now, deductions can be things like federal and state income tax, social security and Medicare taxes, health insurance premiums, retirement contributions, or wage garnishments. So let's say you have an office job with a yearly salary of $50,000.

If that's all the income you have that year, then that's your gross income, $50,000. But let's say you also have a side hustle selling Nicholas Cage cross-stitch patterns on Etsy. And that brings an additional $5,000 a year to your income. Well, that brings your gross income to $55,000. That's how that works. Wow, that makes so much sense. Next up, net income. Now, this one's commonly called take-home pay.

And this is the amount of money you take home after deductions and taxes are taken out. This is the smaller money you actually get to use to live your life. Thanks, government. I'm laughing too. But sarcasm aside, there is someone I want to thank, and that is Delete Me, one of our sponsors for today's episode.

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All right, back to the list. Number 11 is debt. Now, you might think this is an easy one. You're going to knock it out of the park, but you'd be surprised at how many people truly don't understand what dead is. So here's my definition. Debt is owing any money to anybody for any reason. So it's not just a credit card balance or a car loan. This also includes student loans, personal loans, car leases, mortgages,

helox, medical bills, even the $750 you still owe because you buy now pay later a party-sized bag of Flaming Hot Cheetos in a moment of weakness. And we all know there was never a party. Unless you count a pity party. Dad joke. Huh? That's enough with that.

Stop right there. And you may have heard that there's a difference between good debt and bad debt, that it's some kind of tool to be leveraged. But I'm telling you, stay away from debt at all costs. Your greatest wealth building tool is your income. And it's going to be pretty hard to build wealth for the future when your income is still paying for the past. So I don't think there is any good debt.

There's just bad debt. The only good debt is the one you pay off. So you see, a lot of financial terms may sound scary and complicated, but you probably know more than you think. And when people stop using big unnecessary words to explain things, it's pretty common-sense stuff. And all of a sudden, these financial terms just seem precipitously ubiquitous, you know? What in God's holy name are you blathering about? Now, obviously, you need to know more than just those 11 terms to build wealth.

So let me know in the comments what other terms you want to learn about, and maybe you'll see it in a future video. Now, learning financial literacy is the key to building wealth the right way. And if you want to know the step-by-step plan I use to go from negative net worth to net worth millionaire, check out this video. As always, make sure to like, subscribe, and share this with your friends who love to cross-stitch. I feel like they need to know about this untapped Nick Cage opportunity. Gotta figure out how to make money on this.

It's too good. Thanks for watching. We'll see you next time.