This article will narrate the basic terms to know in normal life about Financial studies. The way it narrates is to make everyone to understand. This blog will mostly concentrate on the content (which may be known to all senior peoples), to the people who is starting their life in finance management. This is the first part of the blog in defining the basic terms.

Happy New Year 2014 to all my blog readers. As I have committed last week, I am taking this blog to next post with the basic terms to be known before going in to the Financial Study. We cannot stop us with the terms told here as the complete basics. Instead of making one blog as with more content, I have planned to split the content into episodes. This post will be the start for that episode. Please do not worry, the episodes will not take more weeks. First and foremost I will narrate the very basic things to be known, like Money, Debt, Credit, assets, Liabilities etc; So let us start with the content.

The content of the Basic terms to know in Finance - Part-1

    What is Money?
    What is Credit?
    What is Debt?
    What is Asset?
    What is Liability?

What is Money?

Everyone must have come across the term money in their life. Some of them are living with money and some of them are living for money. Money can also universally call as Currency. Currency name and value change from country to country. The currency value also became a tool to find the growth of the country. For instance if we take the Euro and USD, we can get around 1.3630 USD using 1Euro. This means Euro economy is at high comparing to USD economy at present. The status may go up or down depending on the country growth. I hope this is little bit confused. If we start talking about the economy we will end up with confusions. So please do not go very deep into the economy like a currency traders. We only need to update over selves with the GDP growth in each field, which will help us to plan for the amount required for the future.

Now I will try to put it in very easy format. Our ancient people use to do transactions using commodities (Exchange of one goods for other). If one is having rice with him and other is having wheat, they can do transaction in exchanging both. While they were doing like that, there was a little difficult to fix the value of each goods (how many tons of rice for how many tons of wheat). That time the currency was introduced. Then it is being used to buy or sell any products and services, whatever they required. Depending upon the demand the rate also changes from time to time. But it is very easy for transaction and fixing the price for the product and services. Money is a medium of exchange, by which humans pay for their purchases and repay their debts owed. - www.wikipedia.org

What is Credit?

Credit can be explained in two different categories. Commonly credit means, spending some money to purchase any items such as household items or any machinery. By lending amount from lender with a contract of repaying it with some interest within specific time period. In this case lender will be the banker or financier. Such case credits can be divided as Good and Bad credits. Example for good credit is buying some inventory (asset), which in turn will help you to increase the fund which will be more than the interest need to pay the lender. Example for bad credit is buying some liabilities, which really will make us to pay some amount monthly from our pocket.

With respect to accounts, credit means, fund has been added to your account for which the bank need to pay the interest if the amount maintained for more than certain period of time.

let me add what is Debit? under this topic itself, as it does not have much to explain with.Debit is direct opposite of credit with respect to accounts. It is a transaction through amount is withdrawn from your account in any means like internet transactions or from ATM.

What is Debt?

Debt can also spell as loan. It is a transaction happening between debtor and lender. Some amount has been borrowed from lender by the debtor to buy some asset. This amount needed to be paid within a certain time period usually with the interest. From the definition we can easily say the credit and debt are more or less same.

What is Asset?

Asset is a property (can be land or machinery) which will fund our account with in a specific time period. For example if we are buying a land for an investment purpose, we will be selling it after some period of time. The profit we earned from during that transaction is the amount earned by the property and hence that property is our asset.

What is Liability?

Liability is a property which will take away some amount from our pocket with certain period interval. For example if we are buying a flat/house for our personal use, it will take away some amount from our pocket monthly in the form of property tax, electricity bill etc. In such condition that property is to be consider as liability.