7 Financial Terms Actors Should Know

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Finance can be a completely different language, and that can cause a barrier between you and a financial advisor. This guide will help you through those initial conversations and make the meetings a whole lot less scary!

Bull Market vs. Bear Market
OK, so basically bull market means that the stock market as a whole is expected to go up (increase in value and everyone makes money) or is in the process of going up and expected to continue. A bear market means exactly the opposite—that the “experts” think that the stock market will go down (everyone will lose money) or is already trending down. Generally speaking, a long enough bull market will have people predicting a bear market in the near future and vice versa. It’s the monetary equivalent of “what goes up, must come down.” I always remember this by thinking about a bull’s horns facing up and someone having to bear down.

Interest Rate
Interest can turn money into more money, either for you or for the person or place you borrow money from. Interest is the added cost of using money, usually a percentage. The two most common uses are debt interest and investment interest. For every year you have outstanding debt they add the cost of interest, a percentage of your debt. So if you owe $1,000 to a credit card company and haven’t paid it off for a year, at an interest rate of 18 percent, you now owe an additional $180. On the opposite end of the spectrum, if you invest $1,000 and get and gain 18 percent in interest, you get an additional $180.

A mortgage is the loan you take from a bank to buy a piece of real estate. The bank loans you roughly up to 80 percent of the value of the property you’re buying. A mortgage is usually stretched out over 15 or 30 years, which means you have that long to pay back what you borrowed and the interest (see above) that they charged you. Your interest can be fixed (locked in for the entire mortgage) or variable (changes at specific times).

Simply, it’s the amount of money you have to pay before your insurance company pays its share. For example, you have a $500 deductible on your auto insurance and get into an accident where there is $900 of damage to your car. You put in a claim to the company. You pay $500 and they pay the remaining $400. Fun fact: The lower the deductible, the higher the premium. The higher the deductible the lower the premium.

Owning stock in a company means you own part of the company. If the company makes money, you make money. If the company loses money, you lose money. Some stocks cost as low as pennies and some get into the thousands, but most hover around the hundreds per share. A share is one stock. Buying stocks usually happens through the stock market. In its most simple form, it’s like trading Halloween candy. A Snickers is worth more than a Hershey kiss, but there may be some negotiating as to a fair trade.

A bond is where you loan money to some institution (a company, town, city, state, or government). In exchange for lending that money and losing access to it for the term (length) of the bond, you get to receive interest. If you buy a 10-year, $1,000 bond at 4 percent from New York City, here is what happens: First, you give $1,000 to New York City. Next, every year for the next 10 years you get $400 (4 percent of $1,000) from NYC. At the end of 10 years, you get your $1,000 back.

Mutual Fund
Now that you get stocks and bond, mutual funds are easy! They are a bunch of stocks and/or bonds gathered together and for sale as a unit. So instead of spending $1,000 for one bond or one stock, you get little pieces of hundreds of companies. It’s the “don’t put all your eggs in one basket” form of investing. Mutual funds are usually formed on a theme, like festivals. They might be tech funds or green funds or micro-company funds and so on…

There’s no reason actors can’t invest the way bankers, lawyers, and millionaires do. It’s all about being informed, and now that you are, there’s nothing stopping you from living a financially knowledgable life!

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Bailie Slevin
Bailie Slevin is the founder of Entertaining Finance, a business management and financial consulting firm geared specifically towards creatives.
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