Improve Your Financial Knowledge

Nowadays, more and more women are getting involved with their family's finances instead of leaving it solely to their husbands. Knowing what goes on in the family bank account is crucial, and it's time to start working together as a team to ensure the best decisions for your family are being made.

Woman looking over financial papers

According to a survey by financial site DailyWorth.com, 76 percent of women are their household's primary retirement planner. Women everywhere are stepping up to the plate when it comes to their savings, their spending habits and their future. Understanding finances and improving your financial knowledge is one of the best investments you can make.

Stocks and bonds

Essentially, stocks are purchasing and then owning a portion of a company. If the company does well, stock prices go up, and you can sell at a higher price than you purchased at. If there's a company you strongly believe in, and think that business will only get better, consider buying a few shares of their stock. In order to purchase stocks, you'll need to go through a brokerage firm unless you work for that company already.

Bonds are simply a debt security or an IOU. You lend money to a government or corporation, and they pay you back the face value plus the interest the bond earned during its life. Like stocks, bonds are purchased through brokerage firms. Keep in mind that most brokers require a minimum deposit of $5,000.

Equity

Equity is the current value of your home minus what you owe on your mortgage. Say your home is worth $250,000, but you only owe $175,000 on your mortgage, you have $75,000 of equity. It's the portion of your house that you actually own. Some people choose to take out a home equity loan, or taking out a loan against your house. They may use this money to pay off other debts, buy a boat or take a vacation. Home equity loans can be risky, though, because if the value of your home decreases, you are then upside down on your house.

Net worth

Your net worth is everything you own (equity in your home, stocks, bonds, retirement accounts, etc.) minus everything you owe (mortgage, credit cards, car loans, student loans, etc.), or assets minus liabilities. The main reason it's important to know this number is it forces you to take a real, hard look at your financial situation. You can set goals to increase this number and check it every few months to make sure you're on track to meeting those goals. Simply put, it's a guide to your future.

Estate planning

Estate planning is making sure you have a will and a health care proxy in place. A health care proxy is designating someone to make your health care decisions if you're not able to. Having a will ensures your kids will be taken care of (and by whom) and determines what will happen to your assets. Over half of all parents in the U.S. don't have a will or life insurance. This is one of the best things you can do for your kids, your spouse and yourself, so make it a priority to get this done if it's not already.

More on finances

Investing mistakes to avoid
How to plan a home budget
5 Common money mistakes moms make

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Comments

Comments on "Finance terms every woman should know"

Hannah November 03, 2012 | 2:45 PM

I agree that it's so important for women to be involved in finances. It's smart to be as prepared as possible and understand your family budget and saving for the future. Great read! Thanks!

Kendra November 02, 2012 | 1:45 PM

Great article! We should all be financially savvy in this day and age. I also like the last piece about estate planning. Most of us think we’re going to go on living forever and that bad things only happen to “other” people, but it is important to be realistic and to also be prepared.

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