However, this is easier said than done, given how detached from everyday life the financial jargon can be. As such, you need to be able to understand the language of finance before you can make sense of the industry’s inner workings.
To help you out, we compiled a list of five financial terms that should help you understand this industry better. Read on and learn the terms necessary to efficiently navigate the finance world!
1 – Blockchain
Have you tried to read articles such as What Is an Enterprise Blockchain? or ‘What is a Smart Contract?’ and found yourself completely lost? Well, you’re not the only one – blockchain is a relatively new concept, so, understandably, people are still trying to wrap their heads around it.
Despite being a relatively new invention, blockchain has become one of the most important buzzwords in the finance industry. The technology itself is complex, and it has a lot of potential applications, but when it comes to financing, it’s usually used in the context of cryptocurrencies and transactions.
In a nutshell, blockchain is a decentralized and digitally distributed ledger that essentially records all transactions and can be used to store any kind of information. The most important part is that these records are immutable and tamper-proof.
The transactions are then verified and validated by nodes that are spread around the world, which means that the whole blockchain is incredibly secure.
Blockchain’s most famous application is Bitcoin – a cryptocurrency that is changing the world of finance and helping many people earn a fortune. The technology gives power to individuals and makes sure that there are no middlemen involved in transactions.
2 – GAAP
GAAP stands for Generally Accepted Accounting Principles, and it’s a term that’s used to refer to a set of standards and guidelines used by businesses and accountants to maintain and report their financial statements.
There are various organizations responsible for developing these principles, including the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). The goal is to ensure that financial statements are prepared in a way that’s consistent and transparent so that they can be easily interpreted and compared.
GAAP is an important concept because it helps reduce the risk of fraud and abuse, and it also makes sure that investors and other stakeholders can trust the information that’s being presented to them.
3 – Fintech
Fintech is a term that’s used to refer to any kind of financial technology – this includes anything from online banking to mobile payments and even cryptocurrencies.
In essence, fintech is responsible for changing the way that people interact with the financial world, and it’s had a huge impact on the industry as a whole. Thanks to fintech, it’s now easier than ever for people to use financial services and products, and this has made a lot of previously exclusive services available to a wider population.
4 – Asset Allocation
Asset allocation is a term that’s used to refer to the process of distributing your financial means across different investments to achieve your desired level of risk and return.
The main goal is to create a well-diversified portfolio, and that can withstand market volatility, and there are a few different ways to go about it. For example, you can choose to invest in stocks, bonds, and cash, or you can opt for a more aggressive approach and put your money into commodities or real estate.
The key is to find the right balance for you, and this will depend on your individual goals, risk tolerance, and time horizon.
5 – Cash Flow
Cash flow is a term that’s used to refer to the movement of money in and out of business. It’s important to keep track of your cash flow because it can give you insights into your business’s financial health – for example, if you’re consistently spending more money than you’re bringing in, this is a sign that you might be in trouble.
There are three main types of cash flow: operating cash flow, investing cash flow, and financing cash flow.
Operating cash flow is the money that’s coming in and out of your business from everyday operations, such as sales and expenses. Investing cash flow is the net money that’s being used for investments, such as trading assets.
Finally, financing cash flow refers to means used to finance the business, such as taking out loans or selling equity.
The finance industry is constantly evolving, so it’s important to stay on top of the latest developments. However, this can be difficult if you’re not familiar with the industry’s jargon.
By understanding the meaning of terms such as blockchain, GAAP, and cash flow, you’ll be able to navigate the finance world easier and make better-informed decisions.
Of course, these are only a few of the finance terms you need to know to stay on top of the industry. Fortunately, there are plenty of online resources, such as Investopedia, that can help you learn more about the finance world and how it works.