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RoI, credit score...: 6 financial terms all millennials must know

Pramila Deshpande
·2-min read

Adulting isn’t just about learning how to water your plants or drinking coffee. With age, comes more responsibility -- especially, when it comes to managing money.

Millennials know how to hustle - but are they really ‘woke’ about long- and short-term financial plans to keep themselves monetarily afloat?

It’s a whole different ball game when it comes to understanding money - but it’s not complicated. What’s the best place to begin? By understanding basic terms.

Here are 6 financial terms every millennial must know:

1. Credit Score

Are you timely making payments on your EMIs (equated monthly installments) and debts? Avoiding taking time to repay your debts increases your overall credit score. A good credit score is also something a bank looks at when you approach them for a loan during an emergency or a breakthrough business idea.

2. Rebalancing

Bringing your assets back to the desired percentage is what rebalancing is all about. It is necessary to meet financial goals and allows you to distribute your investments into stocks, bonds and cash, as you like, depending on the market’s impact.

3. Debt to Income ratio

The ratio is a metric to understand what percentage of your income you are spending vis-a-vis saving. To understand this, divide your monthly expenses by your monthly income - the lower the ration, the better your financial condition.

4. Vehicle insurance

An insurance contract between you and an insurer protects you against theft or financial loss concerning your vehicle. This helps to cover your liability or legal responsibility to others for any auto damage as well.

5. Return on Investment

This is a performance measure that helps you gauge the return you are actually making out of a particular investment.

6. Compounding

Compounding means increasing your net worth by gathering interest on your currently accumulated wealth. It’s a strategy in which you make your money work for you. For example, if you earn a nominal interest of 5% on an investment of 1,000 annually, then compounding would allow you to reinvest the 5% interest added to your principal amount.

Conclusion

Millennials don’t usually know what’s going on with their money or how to strategize their savings better - purely because they don’t understand financial terminology. But don’t be alarmed - once you start reading these terms, it’s like clockwork - and the best part is, you can have a grip on your finances and start learning how to invest better!

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