Your Top 10 Most Embarrassing Finance Questions Answered

Do you simply nod silently in money conversations because you can’t contribute? Here are your embarrassing finance questions answered.
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Published: Tuesday, January 24th 2017
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Have embarrassing finance questions? We get you. We have all been that "Joey" in the group. You know, in the famous sitcom Friends where Joey is asked by a door-to-door encyclopaedia salesman, "Do your friends ever have a conversation and you just nod along even though you are not really sure what they are talking about?" joey friends Financial questions exist, no matter the difficulty of the question. And, while we think we need to know all finance questions before a certain age, the truth is we're probably only going to know the answer when we need to know the answer. So, if you are a 'Joey' who nods along in a conversation and then Googles the concepts afterwards, read on. 

Here Are 10 Of Your 'Embarrassing' Finance Questions Answered

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1. How Is Interest Calculated On a Loan?

This will depend on the loan and your lender. If it is interest calculated on a credit card, this interest would be daily, making it imperative you pay off the loan as soon as possible. Other lenders may charge interest monthly or even annually. Interest rates are usually quoted at an average percentage rate (APR). If you pay interest monthly, you will need to convert that rate by 12 to get a monthly rate (i.e. 12% annual rate is divided by 12 and becomes an interest rate of 1% monthly).

2. What Is Disposable Income?

If you thought disposable income is the money you have after tax deductions, you'd be incorrect. This is actually the remainder of your income after debt, accommodation, food, water, electricity, children's' school fees, and other monthly expenses have been taken off.

3. What Is The Difference Between a Pension Fund And a Retirement Annuity?

This is a finance question that many seem to struggle with. A pension fund is established at your place of work. Both the employer and the employee contribute towards the fund on a monthly basis. In the case of death, dependents will usually be paid out a lump sum. Otherwise, the fund will begin paying out at retirement, or if you become disabled before that. A retirement annuity (RA) is an investment plan that you set up as an individual and is unrelated to your place of employment. A retirement annuity cannot be drawn out until you reach the age of 55, or unless death or disability occurs. With an RA, there is no need to pay capital gains or income tax. Your investment growth will be higher over the long term, as all growth remains in the policy. An RA also offers a better after-tax return than other types of saving.

4. What Is An asset?

Many have misconceptions when it comes to what is entitled as an asset. An asset is something that will generate an income, or appreciate in value. With this in mind, it can be said that a car is not an asset, despite popular belief. Types of assets include property, machinery, capital, employees, etc.

5. How Does Credit Card Interest Work?

As mentioned in point 1, interest is calculated daily on a credit card with the main goal to pay it off as soon as possible. This is also dependent on the terms and conditions of the institution who issued your credit card.

6. How Do You Calculate UIF?

We all join companies, take a look at the benefits (if there are any), and skim through the rest. An Unemployment Insurance Fund (UIF) is one of those finance questions we wished we had asked a long time ago. UIF gives short-term relief to workers when they become unemployed, or are unable to work because of maternity, adoption leave, or illness. It also provides relief to the dependants of a deceased contributor.

7. Do You Have To Be Wealthy To Have a Financial Advisor?

Not at all. If, after all is paid for at the end of the day (i.e.: food, transport, debts), you still have income afterwards, it would be to your benefit to see a financial advisor to look at making that disposable income work for you.

8. What Is a Liability?

A liability is an obligation, usually in a financial form known as 'accounts payable'. The main difference between assets and liabilities is that assets provide a future economic benefit, while liabilities present a future obligation. Accounts payable arise when a company purchases goods or services on credit from a supplier. On an individual basis, it is in the form of insurance premiums, shopping accounts, bond repayments, etc.

9. What Is Compound Interest?

The addition of interest to the principal sum of a loan or deposit is called compounding. Compound interest is interest on interest and is, essentially, reinvesting interest rather than paying it out. In this way, interest in the next period is earned on the principal sum plus previously accumulated interest.

10. What Is The Prime Lending Rate?

This is an interest rate used by banks. In the past, the prime lending rate was the interest rate banks charged 'favoured' customers who had good credit scores. While banks are still free to set the prime rate at their own discretion, competition usually forces different banks to set the same prime rate. The current prime lending rate in South Africa is 10.5%

Ask The Guru Finance Questions

Ask The Guru is an online platform that allows you to ask all those 'embarrassing' finance questions you are too afraid to ask anyone else. Simply type your question into the archive to see if it has been asked before, if not, submit it and The Guru will get back to you in a maximum of one working day! Simple! unnamed-8