Money talks

What's your net worth? 10 financial terms everybody should understand

Some people believe that, unless you work in the world of finance, there is no need to understand financial terms and concepts. Well, nothing could be further from the truth. Finance is a core part of society, and financial literacy is important for everyone. At the same time, some of these terms are thrown around without fully understanding their meaning. What is a principal? Is compound interest different from normal interest? What is a person’s net worth? Here are 10 financial concepts that everyone should know.

Whether you are investing a sum of money or taking a loan, there is an initial sum of money involved. The principal is the initial amount of money that you invest or borrow. It does not include any interest, fees, or future earnings, and it’s used as a base to calculate the interest that will be added to a loan and the returns from an investment.

We commonly understand interest as the cost we pay for borrowing money, often calculated as a percentage of the principal amount. That is ‘simple interest’, but what about ‘compound interest’? Any accumulated interest from previous periods generates its own interest as well, so compound interest is the sum of the interest on the principal amount and the accumulated interest.

We often hear the media discuss the net worth of celebrities, politicians, and other public figures, but can the worth of a person be calculated? When it comes to finance, it can, and it follows a very simple formula: the value of all your assets minus any money you owe. This simple but effective calculation is a good way to check how healthy your finances are at any point in time.

Paying a loan is never as simple as adding interest to the initial amount. In most cases, there are different fees involved, which means that you might owe more than you think. The Annual Percentage Rate or APR will give you the true cost of a loan —initial amount, interest, and any additional fees— represented as a percentage. With the APR, you can also compare loans to see which one offers better options.

If you own shares in a company, you will receive dividends, a portion of the profit made by the company. How do dividends work? Paid regularly, often quarterly, its value is decided by the company’s board of directors, who will determine an amount to be paid per share. The more shares you have, the more dividends you will receive.

When taking out a loan, we are assuming that we will pay it over a period of time. This is called amortization. While the amortization of a loan gives us the possibility of paying a large sum back in regular smaller installments, it also involves interest (both simple and compound) and fees added to the principal amount.

An asset is an item of value, and this includes cash, but also other valuable things such as objects, properties, bonds, shares, etc. Liquidity refers to how quickly an asset can be turned into cash without affecting its value, which in turn tells us how quickly we could access funds to cover any payment or debt.

If you ever looked into buying a home, you might have heard the term ‘escrow’. An escrow is a legal arrangement where a third, neutral party temporarily controls the funds of a transaction, releasing them once the contract’s terms have been fulfilled. This helps prevent fraud, reduce financial risks, guarantee fairness, and ensure that neither party takes advantage of the other.

If you are a financial delinquent, you might be in trouble, but not in the way you imagine. When taking on a loan, you assume a responsibility to pay it back. If you fail to do so, or fall behind in your payments, you become a ‘delinquent’. While delinquency is temporary, it will hurt your credit score and can eventually turn into default, which allows the lender to take action against you.

We often use the word liability to describe a disadvantage or something that could cause difficulties. In its financial sense, liabilities refer to a responsibility or obligation we assume, such as paying back a loan. In this sense, liabilities —money we owe— are opposite to assets —money we possess.

We just know that we know nothing

12 facts that people often get wrong

No one can claim to know everything, but most people go through life confident about certain things. However, some of these widely held beliefs are not actually correct, despite their popularity. Let’s have a look at some "facts" you might have gotten wrong!

The idea that insects—particularly mosquitoes—are not animals is widespread, but it’s also incorrect. In fact, insects are the most diverse group within the Animal kingdom, with more than a million species described and representing more than half of the animal population of the planet.

The mistake comes from not considering that "fruit" is not only a culinary term but also a botanical one. Botanically, a fruit is the part of a plant that develops from a flower and contains seeds. This makes tomatoes, peppers, cucumbers, eggplants, and many other foods that we call vegetables actually fruits in the scientific sense.

Countries have a political delimitation, while continents are divided according to geographical criteria. The Russian Federation is the largest country on Earth, bordering fourteen other countries and extending across eleven time zones. It spans across a good part of Eastern Europe, but also across the Ural mountains—one of the recognized borders between Europe and Asia—and stretches deep into northern Asia.

While cold weather isn’t harmless, it is not the direct cause of illnesses like the flu, which are caused by viruses. In colder months, people tend to spend more time indoors and often avoid ventilating rooms, creating conditions that make it easier for viruses to spread and cause illness.

Bats might not prefer to be out during bright daylight, but this does not mean that they are blind. In fact, many species have excellent eyesight, though it is adapted to low-light or nighttime conditions. On top of that, bats also use echolocation, which allows them to navigate and hunt with remarkable precision in complete darkness.

The belief that you must wait a full day before reporting someone missing is a myth popularized by movies and TV shows. In reality, the law does not require a waiting period. In fact, law enforcement agencies stress that the first 24 hours are often the most critical, so a missing person should be reported immediately.

Some man-made structures are visible from space without magnification, but despite popular belief, the Great Wall of China is not one of them. While it is quite long, being over 13,000 miles long, it is relatively narrow, and its earthy colors blend in with the surrounding landscape, making it nearly impossible to spot with the naked eye from orbit.

This one is tricky: Mount Everest is the highest mountain on Earth (29,032 feet)… if you measure the distance from sea level to peak. For the actual tallest mountain, the answer might vary depending on how you measure. Measured from base to summit, Mauna Kea in Hawaii is the tallest at 33,474 feet—though much of it is underwater. Mount McKinley (Denali) in Alaska rises about 18,000 feet from its base to the peak, making it the tallest mountain entirely above sea level. And Ecuador’s Mount Chimborazo, while shorter in height, is the farthest point on Earth from the planet’s center due to the equatorial bulge.

The Earth is tilted on an axis, which causes the amount of sunlight each hemisphere receives to change as it orbits the Sun. Because of this tilt, when the Northern Hemisphere is tilted toward the Sun and experiences summer, the Southern Hemisphere is tilted away and experiences winter—and vice versa. This is why the Southern Hemisphere celebrates Christmas during summer.

Standard medical advice is to gently guide a sleepwalker back to bed rather than waking them, but not because waking them is inherently dangerous. People tend to sleepwalk during deep sleep, so waking them up might startle them or cause confusion and disorientation.

Hair color and thickness are determined by genetics, not by shaving. Hair naturally gets thin at the ends, so when you shave it, the hair shaft appears to be thicker and darker because of the blunt cut. But it's just an optical illusion; the natural size of the shaft remains unchanged.

Coffee is a natural diuretic, meaning it can increase trips to the bathroom. However, the water in brewed coffee still contributes to your hydration and offsets its mild diuretic effect. If you consume coffee in moderation—3 to 5 cups a day, depending on your tolerance—you should be alright. However, drinking extra water on the side is never a bad idea.