Buying and selling are unmistakable financial terms in business. Unfortunately, some people’s familiarity ends there, and this might be problematic down the road. Understanding simple contrasts like comparing net and gross income eliminates doubts. It also minimizes avoidable mistakes.
If this is your story, let’s change it.
This piece will define 25 financial terms every freelancer and employee must know. This list will help you become more conversant at finance meetings. Read this piece if you want to reduce the times you Google every term under the table.
We’ll define the above pair, net, and gross income, then advance to others.
Basic Financial Terms
All disciplines, language or technical, have governing terms. These phrases and words describe a financial act or process.
Here, we’ll divide the 25 financial terms to know based on usage and sector. This grouping will help you easily remember these terms better.
Income and Rates
Since freelancers and some employees get paid per project, knowing the following financial terms and meanings is paramount. These terms are as follows.
- Gross Income is the total amount you earn before taxation and deductions.
- Net income is the sum you take home after you subtract all expenses, tax, interests, and social security.
- Upfront payment is a percentage of the project fee you get before you commence a project. Some freelancers consider this charge a commitment fee.
- Project/milestone payments are clients’ predetermined compensations after completing a stage or project.
- The payment rate is the amount you set for compensation. Standard rates are hourly, milestone, project, and retainer. A retainer is a constant pay after days, weeks, or months the project is still running. Specialized freelancing gigs may have their ratings. For example, writers may charge per word written. I.e., $2 per word.
Expenses
An expense is any business cost you incur. Rent, utilities, and wages are expenses.
The following are some phrases you will come across:
- Start-up or amortization cost is the amount you use to start a freelancing business. It may include the purchasing of equipment or software.
- Overhead costs are the ongoing expenses your freelancing business incurs. These are software subscriptions, supplies, wages, and internet fees.
- Reimbursements are the payments clients make to an employee to cover their expenses. For instance, you might get reimbursed for the money you spend on a site visit. You may get reimbursed for food, accommodation, and other logistical expenditures.
- Expense tracking is recording and monitoring all business-related expenses. The information you garner here helps with investment and debt management.
Taxes
Tax is a government levy on brands and people to bolster governmental public offerings like insurance.
These words are the financial terms and definitions you will encounter on taxation.
- Income tax is the amount you pay based on the money you make.
- Sales tax is the taxation rate you include in your receipts for all products.
- Tax deductions are the expenses the government exempts you from paying. They are subtracted from your gross income. A tax refund is when the government refunds the excess you pay.
- Value-added tax is an impose on the value added to a good or service at all production and distribution phrases. It’s usually a set percentage.
- Self-employment tax covers Social Security and medical taxes for freelancers. This charge differs, so always confirm if it applies to you.
Payment and Invoicing
This section covers financial terms for business accounting basics, helping you properly quote your offering. Knowing these invoicing terms helps you structure your business for accurate taxation and expenditure tracking.
- An invoice is a bill the service provider sends to a client noting the product’s cost breakdown. A pro forma invoice is one you send a client in advance before shipping or offering the service.
- Net 30, 60, and 90 are the payment terms denoting the duration a client must clear the amount. Net 30 means the client must pay in 30 days, 60 in 60 days, and so forth.
- Late fees are additional charges a freelancer or employee includes in the invoice in case of late payments.
- Electronic funds Transfer, or EFT, is the electronic proof of funds moved from a buyer’s account to a seller.
- Accounts receivables, or AR, are the funds a client owes you for goods or services delivered but not yet paid.
Project Management Terms
These phrases will broaden your financial literacy on project management. Knowing these words will help you better plan your projects.
- The project scope outlines the project’s deliverables, which are the outputs of a task. Deliverables can be real or virtual, depending on the project type. The scope also outlines the timelines to reach the deliverables.
- Milestones are progress-measuring project points. Examples of milestones may be brainstorming, prototyping, and testing.
- Gantt Charts are visual presentations of a project. These infographics detail scheduling, task and resource allocation, durations, and other essential project matters.
Contract Terms
The binding document that cements a freelancer and a customer’s agreement is a contract. The contractual financial terms to know are:
- NDA or Non-disclosure Agreement is a document you sign to ascertain you’ll keep the project’s details confidential.
- The kill fee is what the client pays you if they cut the project short. This charge compensates you for your time and any resources you might’ve used. Termination is the act of ending a contract before a project’s completion.
- Clauses are stipulations listing how the involved parties are to handle specific events. An arbitration clause dictates that disputes must be resolved through amicable discussion, not litigation. An indemnity clause means that one of the involved parties is to reimburse the other for losses or damages if they occur. A force majeure clause is a clause that relieves both parties from paying or reimbursing the other whenever an unprecedented event occurs that’s beyond control.
Practical Application of Financial Terms Resources for Further Learning
Financial literacy is continuous. Knowing all the above financial terms is just the tip of the iceberg. More information lies below the surface, and you can find it all through the following sources:
Financial Literacy Courses
Financial literacy courses and workshops offer invaluable financial information for your business. You can find general business and personal courses as well as specialized ones.
For example, specialized personal finances might cover budgeting tips, debt management, and more. Others teach trading, banking, real estate, asset finance, FinTech, and investing for beginners.
Institutions that offer such courses include Coursera, edX, Udemy, and many more. Some are free, and others require payment.
No matter your selection, always pick the ones with accredited certification at the end.
Financial News Websites
The financial world is constantly evolving, and reading financial news may help you stay ahead of the curve. Reuters, Bloomberg, The Wall Street Journal. CNBC, Forbes, and Investopedia are just a few you can check out.
Be proactive and sign up for these sites’ daily emails, articles, and newsletters. For breaking news, you can also refer to X (formerly Twitter).
Financial Books and Podcasts
The last sources to use are financial books and podcasts.
Best-seller titles like The Richest Man in Babylon by George S. Clason and The Psychology of Money are inspirational reads. These publications teach you the basics of smart financial decisions. Another title that offers invaluable knowledge is A Random Walk Down Wall Street by Burton G. Malkiele.
Podcasts are ideal for ongoing learning, especially when you are on the move. The Dave Ramsey Show has become a goldmine for financial literacy. The host and guests share tips on saving, investing, debt, and budgeting.
Importance of Financial Literacy for Freelancers and Employees
Financial literacy is the backbone of a thriving business. Financial literacy offers you systems, techniques, and tricks you can use to streamline your finances.
But wait, why is it so important?
Discovering new financial terms and operations helps you in the following ways:
Budgeting and Financial Planning
With knowledge comes power.
One way you harness this power is by mastering resource allocation through budgeting. A budget allows freelancers and employees to manage their cash flow effectively. Proper management steers goal accomplishment forward. It’s also essential for saving for retirement, significant purchases, and emergencies.
Contract, Terms, and Payment Negotiating
With proper negotiation skills, you can avoid being undervalued. Knowing the financial terms for business accounting basics reinforces your negotiating power.
Imagine walking into a meeting without understanding the various clauses or what an NDA stands for! Or not knowing what a project scope entails!
Financial literacy will save you from such embarrassments and offer you ground to negotiate your worth.
You might even teach your client a word or two from what you know!
This might boost your credibility.
Taxation and Risk Management
Penalties for taxation can be devastating. They can render the business bankrupt, especially if resources are mismanaged. Financial literacy safeguards you against such eventualities.
With ample financial knowledge, you pay taxes on time and save for emergencies and retirement. You also learn how to set insurance finances aside — medical, business, education, etc.
You do all this without leaching cash from other accounts for other business operations!
Ready To Embrace Financial Literacy?
If you are ready, now you have a guide, no excuses.
Master these basic financial terms and dig deeper by taking courses and attending workshops. Sign up for financial newsletters, listen to educational financial podcasts, and read books. This way, you will become a pro at budgeting, planning, negotiating, and managing risk.
It might seem like a lot, but take one financial step at a time. In no time, you’ll teach others how to manage their finances.
One more thing!
Let technology be your friend. Use platforms like Ruul to streamline invoicing and other finance, project, and client management tools.
