Financial jargon includes the special words and phrases used in the financial industry. These terms, though easy for finance professionals to understand, may seem mysterious and foreign to others outside the industry.\nToday, let’s simplify the financial jargon by going through the top 12 common financial terms that everyone should know and understand:\nNet worth\nEverything you own (assets) less everything you owe (debt). Net worth should be positive and growing, with assets increasing and debt shrinking.\nCash flow\nAll income/cash coming in (inflow) less all outflows. Managing money is about making choices: how much to save, spend, share and invest. \nBudget\nA financial plan that projects monthly cash inflows and outflows. A surplus occurs when the cash inflow is greater than the outflow. A deficit occurs when cash outflow is greater than the inflow. Budgets should be adjusted periodically to reflect actual spending.\nFixed expenses\nFixed expenses are overhead expenses such has rent, mortgage payments, utilities and groceries, to meet the basic needs.\nDiscretionary expenses\nExpenses that are non-basic such as restaurant meals, entertainment, vacations or hobbies are discretionary. These are things you don’t need but want.\nCredit\nCredit is a wonderful tool when used responsibly. It is definitely more convenient than cash or cheques. A good credit history enables you to make big purchases at a reasonable interest rate. However, even with good debt, never take on more than you can afford and you always want to have a plan to repay any debt within a reasonable period of time.\nEmergency reserve\nFunds set aside to safeguard your financial stability. Everyone should set aside some money in case of job loss, unexpected medical expense or another emergency. Ideally, have a savings cushion to see you through six months. That’s how long it takes on average to get a new job in your field if you become unemployed.\nInsurance\nProtection against a possible eventuality. A person’s safety net should also include adequate insurance coverage e.g. disability, life, auto, home.\nReturn on investment (ROI)\nMeasures the profitability of the investment by dividing the gain on the investment by its cost. ROI is a simple metric that can be used to evaluate different investment options. \nRegistered Retirement Savings Plan (RRSP)\nContributing to an RRSP means you are both saving for retirement and getting a tax break. Any income earned is usually exempt from tax as long as funds remain in the plan.\nTax-Free Savings Account (TFSA)\nAlthough you pay tax on the funds initially, you don’t pay tax on income earned from investments in a TFSA if you stay within your contribution limits. If you are 18 or older, starting in 2015, you can contribute $10,000 annually, plus any unused TFSA contribution room from previous years, as well as the total of any withdrawals you made from your TFSA in prior years. \nRegistered Education Savings Plans (RESPs)\nEarnings can grow tax-free in an RESP for up to 25 years or until the funds are withdrawn. If used for qualified tuition, the income earned is taxed in the hands of the student who may be in a lower tax bracket than the parent contributing to the RESP. The federal government provides a grant of 20 per cent on the first $2,500 of annual contributions and that grant can be higher for low- and middle-income families.\nDisclaimer\nThe views and opinions expressed in this article are those of the author and do not necessarily reflect that of Chartered Professional Accountants of Canada (CPA Canada).