English Vocabulary for Personal Finances – assets, equity, collateral...

Hi. Welcome back to www.engvid.com. I'm Adam. In today's video, I want to help you basically

take care of your money. Okay? Very, very important topic today. So, what we're going

to look at are some things, some terms, and some expressions that you need to understand

before you speak to a financial advisor. Okay? And that's what we're going to look at here.

A financial advisor is a person who supposedly knows how you should spend your money, save

your money, invest your money. Basically, how to keep yourself comfortable and safe

for the long term, in the future. Okay? Because it's becoming more and more expensive to live

in big cities, especially, and you need to know how far you can stretch your dollar.

Stretch your dollar basically means how much value you can get out of every dollar that

you earn. Okay? So, we have some terms here. Now, again, just a quick warning. All I'm

doing here is giving you some vocabulary, but it's up to you to do the research and

to know your personal situation very well so that you know how to basically take care

of your money and take care of your future. Okay? So, the main focus here is what we

want to do is we want to avoid bankruptcy. Bankruptcy, when you file for bankruptcy...

File for bankruptcy means you're telling the government or you're telling the bank or you're

telling the people that you owe money to that you don't have any money. Okay? Now, a lot

of people use bankruptcy as a last resort, as a last option when they just can't make

payments on their bills. Bankruptcy is a very bad thing to have on your financial history

because companies or banks won't lend you money, they won't sell you a house, they won't

sell you a car unless you pay the full amount. So, you want to try to avoid bankruptcy as

much as possible. So, where does that begin? It begins by creating a budget. So, the "dg"

just sounds like a "j", budget, and the "e" sounds like an "i". So, what you're doing

with a budget is you're taking your fixed income, this is the amount of money that you're

going to get every week or every month, and it's not going to change. For example, if

you work at a company and that's the only income you have, then every month your income

will be exactly the same. It is fixed. So, you take this fixed income and you have to

cut it into pieces of how you're going to spend it. You're going to pay taxes, you're

going to pay your insurance bill, you're going to pay your rent if you're renting, or your

mortgage payments if you bought a house. You're going to pay all your bills, and then when

you're finished paying all the things that you have to pay, what is left for you to spend

on food or entertainment or travel is called your "disposable income". "Disposable" means

you can use it. You can use it for anything, basically. It's not necessary for you to pay

anybody or anything with it, right? Ideally, you will save it. Your savings come from disposable

income, but it's up to you how you spend it. What you want to avoid is an impulse buy or

impulse shopping. Impulse shopping is, for example, you go into a store and you didn't

plan on buying anything that day, but you see something, "Oh, that's really nice." You

see a watch, you see a shirt, something that you don't need, you didn't think to buy, but

you saw it and suddenly you decide, "Okay, I want that." And you go and you buy it. Impulse

shopping or impulse buys are the things that most people get themselves into financial

trouble with, okay? A lot of your debt is going to come from impulse shopping, so avoid

that. But debt is a big issue. Now, notice I don't pronounce the "b", it's not "debt",

"debt", "d-e-t" sound, "debt". Your debt is part of your consideration when you're making

your budget. You have to think about paying all your bills, and your bills include the

money that you owe, your debts. Maybe you took out a loan. Actually, that's "took out"

or "take out" a loan, and you have to pay that back. And not only do you have to pay

back the money that you borrowed, you also have to pay back interest, and I'll talk more

about that when I talk about mortgage. So, maybe you took out a loan. When you did your

tax return, okay, in Canada and in most countries every year, you have to file, and again, we're

using "file", your tax return with the government. Now, if you paid too much taxes, the government

will give you money back. If you didn't pay enough, you have to pay them at the end of

the year, however much you owe them. So, that's another part of debt. What you want to make

sure you avoid is defaulting on any debt, defaulting on any loan or payment. If you

default, it means that you missed a payment. You missed the deadline to pay back, and then

you have to pay penalties, and penalties just take away more of your money. Okay, so you

want to avoid defaulting, and essentially bankruptcy is when you've basically defaulted

on everything, and you can't pay back your bills, and you have to claim bankruptcy.

Now, another thing you have to consider are your assets and your liabilities. Your assets

are all the things that have value. Anything that brings you money or is worth money is

an asset. It's a good thing. Liabilities are anything that costs you money or might cost

you money in the future. So, anything that has a risk of costing you money is a liability.

So, any loan, any payments you have to make, any interest you have to pay, these are all

liabilities. So, let's say, for example, you bought a car. The car itself is worth something,

so the car itself is an asset, but you bought the car with financing. It means you're paying

back the dealership, and you're paying interest. That interest is a liability, and all the

money that you still owe are liabilities. So, risk management is a very important part

of financial planning or personal finances. Okay? So, you have to keep these things in

mind.

Now, a lot of people, and as you get older, this becomes more and more relevant, you should

have an investment portfolio. Your portfolio essentially is your collection of investments.

So, what can you invest in? You can invest in the stock market if you know what you're

doing because it can be very risky. You can buy term deposits. Okay? A term deposit means

you give your money to the bank, and you tell the bank, okay, you can hold this money for

five years, and the bank pays you interest. So, it's a little bit of income. But again,

these days, it doesn't really make much sense to leave your money in the bank because the

interest you receive is very little, and it's less than the inflation. So, you're actually

still losing money if you do that, so be careful about that.

Now, another... Sorry. Another investment that's very popular still is gold. If you

want to buy gold and hope it goes up in value, that's one thing. Every time you invest in

something and you either make money or you lose money, that amount that you gained or

the amount that you lost is called a "capital gain" or a "capital loss". If you make gains,

if your investment went up in value, the difference between what you invested and what the value

is today, that capital gains, you have to pay tax on. So, keep in mind, if you made

$10,000 in gains, you don't actually keep $10,000. You have to give some to the government,

so take that into consideration as well.

Now, everybody... And again, as you get older, this becomes more and more relevant. Retiring...

Like, retirement is a very expensive part of life because there's no more income coming

in, only expenses going out. So, make sure you have retirement savings plan. You have

some sort of plan to have money when you retire, when you're no longer working. In Canada,

we have something called an "RRSP". This is an account you have at the bank, and every

year you can put a certain amount of money into that account, and you don't pay taxes

on it that year. When you're older, when you're 65 or older and you start taking money out

of this account, then you pay income tax on that money. So, you're not making other income,

you're only making this income, so it's a little bit less taxed. So, it makes sense.

You don't have to do it, not everybody does it, but it's probably a good idea. In the

US, it's called a "401(k)". I don't know the exact details because I'm Canadian, so I know

the RSPs, but it's... I think it's more or less the same idea. So, if you're thinking

about retirement, the younger you start, the more you'll save for retirement. That's how

it works.

Now, another part of assets or another part of building a financial wealth or at least

financial stability... Stability is a good thing to have. Stability means you're not

worried, everything is okay, it's safe, you have... You know how much money you're going

to have each month, each year, so you're comfortable. But what you want to do is you want to start

building equity, you want to build. Now, equity is basically value. If you own a house,

the value of that house is part of your equity. The more equity you have, the more money essentially

that you have. And it's not only going to be cash, it's not only going to be your paycheck,

it's also the things you invested in, it's all part of your equity.

What you also want to do if you ever want to get a loan, you want to have collateral.

Collateral is something that you can put as a side, something that guarantees the loan.

So, if I want to buy a condominium and I already own a house, any bank will be very happy to give

me a mortgage on the condominium because they know that if I can't pay back my bills for the

condominium, they just take my house and pay for it that way. So, it's good to have collateral

in order to get more loans. Now, the more loans you get, make sure you pay them back because this

will affect your credit rating or credit score, same thing. Your credit score or your credit

rating is basically a number, a figure that banks calculate to know how good you are at paying back

the money that you owe. The higher your rating, the more companies and banks will lend you money.

The lower your rating, the more risk you present to the banks, and maybe they don't want to give

you a loan. And maybe... Excuse me. If you go rent... If you go apply to rent an apartment,

the landlord will look at your credit score and they'll see it's very low,

they won't give you the apartment because you might not be able to make the monthly rent.

So, credit rating, very important. And some banks, if you have a very good credit rating,

they will give you a line of credit. Basically, this is money that's sitting in the bank that you

can borrow anytime for a lower interest rate than credit card or other loans. Okay? So,

if you get a line of credit, it means you have a good rating.

Okay, so now we're going to look at another thing that you have to keep in mind when you're making

your budget and you're calculating all your costs, etc., and that's insurance. A lot of people forget

to include their insurance in their calculations because it's something that just randomly

happens... Not randomly, it happens every month, but it's so common you kind of forget about it.

You have insurance on your house, your car, maybe you have extra health insurance.

All of these things have a premium. A premium is basically the monthly payment you make for

the insurance. Now, you have to think about your deductible. The deductible is the portion

of the... When you make a claim with the insurance, they don't pay 100% of the claim. You pay a

certain percentage. That percentage is called the deductible. Okay? So, whatever they're paying,

80%, you're paying 20%. Now, you can have a higher deductible and a lower premium,

or a lower deductible and a higher premium. Make sure you calculate what you can afford

each time to basically manage your risk, as we mentioned before.

Another thing you have to consider is your co-pay. For example, if you're buying medicine,

you have health insurance, but when you buy medicine, the insurance doesn't cover 100%

of the cost. A part of it you have to pay for, and that's called the co-pay. "Co" meaning,

like, together or with. Okay? Now, for those people who own property, like you own a house,

you own a condominium, you own, like, a commercial space, if you didn't pay 100% for the

property, then the bank paid some of it, and that loan is called a mortgage. Notice we don't

pronounce the "t", just mortgage. Okay? And it's "ij" sound at the end. Your mortgage means that

you borrowed money and you have to pay back the bank, or whoever lent you the money. There are

two things you have to pay. Generally, you're paying the principal, which is the actual money

that you borrowed, and you're also paying the interest. So, you have to consider that the money

that you're paying back as the principal is basically your money. The interest is the bank's

money. That money does not come back to you. So, consider that as part of your asset and liability

balance, basically. And don't forget that if you own property, you're going to be paying

property tax. Some people pay it every three months or every four months. Some people pay

it once a year. Make sure that's part of your budget when you're making your calculations.

Okay? Now, again, this is just an introduction into personal finances. Everybody has a very

different situation, a very different context. You need to think very carefully about your situation,

and it is highly recommended that you do find a financial advisor or a financial planner.

But make sure that this person is qualified and actually knows what they're talking about,

okay? And when you go to the bank or when you go to the financial planning agency,

make sure that you're not pressured into buying anything or signing up for anything or

doing anything. You know yourself the best. Make sure you go in there, tell them what you want,

tell them what you don't want, take your time, think about things very carefully before you sign

anything, and then proceed from there. Okay? Now, if you have any questions about any of this stuff

or, again, if you want to add some more suggestions for your peers, for the other

people watching the video that they might consider, put that in the comments section

at www.engvid.com. There's also a little quiz, a short quiz to review and practice some of the

vocabulary here. And that's it. I hope everybody has a very prosperous future ahead of them.

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I'll see you again soon. Bye-bye.