21 financial terms you need to know (freelance and self-employed version)

Every time I listen to a finance podcast or try to understand the small print of my savings account or a travel insurance I get lost, bored and show enough of the white of my eyes to light a whole room.

Goodness me!, it seems that financial jargon and concepts are made difficult on purpose. I actually believe sometimes this is exactly the case).

Information is power, and understanding how our money is managed might be out of the scope for some of us, self employed, sole traders and freelancers.

Where is our power then? Are we giving it away to some random accountants?


We-Guild is a recently founded multi-stakeholder cooperative. We are looking for 100 beta testers for our web app.

Would you be one of We-Guild Beta Testers? Subscribe now to the waiting list via any form in the website and we’ll let you know as soon as everything is ready!


This is what you’ll find in this article (click on the terms to go straight the definitions):

➡️ How can We-Guild help you with your finances?

➡️ How does We-Guild compare to an insurance?

➡️ Don’t have time now? –> Download this article on pdf <–

Why am I writing a financial terms for dummies dictionary?

Compound interest, net worth, capital gains and many more similar terms make you feel dumb, as if you would never be able to fully understand and use them adequately. I feel exactly the same, so I decided to write a blog post on financial terms definitions for two reasons:

Information is power
  • As a challenge to myself: I want to understand financial jargon! And reclaim my power on the way.
  • As a challenge to the system: I’d love for everyone to understand finance jargon at least as well as I do.

Here, at We-Guild we do our best to help each other and break the taboo of money talk.

I’m far from being an expert in finance (hola! self-employed dancer on the other side of the keyboard), however one doesn’t need to be an expert to be able to understand some economics.

Here you have some clear, simple and straight to the point explanations of those otherwise unreachable and very common financial terms.

I really hope it helps, and if you are missing a term or two, let us know in the comments to get it added!

FICO score

This term is related to credit, so let’s first explain what credit is from the point of view of the person who gives the credit.

Giving credit is an investment for some

If you are someone giving credit, what you are doing is selling money (aren’t banks a money shop at the end of the day?)

Selling money is different from selling another material good, as you’ll get paid an interest (the price you put to the money you are selling), plus you will be given the money back. And instead of getting your payment on the spot, you agree on getting paid overtime (months, years, etc). I hope you are following me on this. Let’s carry on.

So, when you give credit, you are giving “the chance to have X amount of money for X amount of time”.

The issue with credit is that you usually don’t have a trust relationship with the person you are giving the credit to, because you don’t know them.

You are giving that money with the intention of making a future benefit for yourself, so you need to assess whether that person will pay you back (plus the interest).

One of the ways you have to assess that trustworthiness is the FICO Score. Some economists talk about creditworthiness, because they see it from the perspective of making a benefit.

Lending money is an investment for some (described below).

To calculate your FICO score and see if you are worthy of a credit or not, they take in account different things, and apply a value to each of them (I won’t go into formulas here, don’t worry).

Those things are:

  • Your repayment history (in case you got a credit beforehand and paid back).
  • The amount of debt you have at that present moment.
  • How long is your credit history (when did you start asking for credits?)
  • Your credit mix: this means the variety of accounts you have credit for (car loans, credit cards, instalment loans, mortgages, etc).
  • The amount of new credit accounts you have opened recently.

At We-Guild we do not promote credit, neither loans. What We-Guild users and members are doing is giving (this means donating) and receiving money based on a relationship of transparency and trust, which is usually built overtime, after repeated interactions.

You could ask for money from your We-Guild network to buy a car, if that’s what you want and your network is ok with it, but that money would never be a credit or a loan.


We-Guild is a recently founded multi-stakeholder cooperative. We are looking for 100 beta testers for our web app.

Would you be one of We-Guild Beta Testers? Subscribe now to the waiting list via any form in the website and we’ll let you know as soon as everything is ready!


ASSETS

An asset is something with monetary value that your company owns (or you as a self-employed). Examples of assets are furniture, vehicles or a computer.

NET WORTH

If we talk about a person, your net worth is the value of all your assets (money included) minus the value of your debts.

This could get as complex as you want. You can include as assets your bank accounts, properties, jewelry, stocks, cash value of a life insurance and many more items.

And credit cards, student loans, personal loans can also be included as debts.

CAPITAL GAINS

When you dispose of something that is yours (let’s say you sell for 5000 a piece of art you bought for 1000), and make a benefit, this benefit is named Capital Gain (4000 in this example).

The term disposing applies to things you sell, swap, donate or get compensated for (i.e. the money you receive from insurance).

Usually, you will have to pay tax on your Capital Gains, but this is a different story and it will be told in a different moment…

TURNOVER

Turnover is the total sales your business generates in a period of time. Some people also call it Gross Revenue. This term doesn’t take into account the costs of producing those goods or services you are selling.

The concept has different meanings depending on the context. Here I’m referring only to the accounting side of things.

As an example: you are a ceramist, and this month you sold 10 pieces of your work for 25 pounds each. Your turnover for this month is 250 pounds, and it doesn’t matter if you spent 200 in material and 300 in electricity for your kiln.

CASH ACCOUNTING

When putting together your accounts, what you sometimes can do is record your income and expenses on the date they actually happen (I mean, on the day the cash leaves or reaches your bank account). If this is the way you operate, you are doing cash accounting.

I personally didn’t know it was possible to make note of your money movements on a different date, but apparently this is the case.

The alternative to Cash Accounting is named Accrual Accounting and it’s usually better for big companies, while cash accounting is usually used more by sole traders or self employed people providing services to people.

GROSS PROFIT

Let’s say you sell an expensive apple for £1, and you paid for that apple £0.40. Your gross profit is 0.60 (1-0.40= 0.60). If you were not selling those products, you would not be having these costs, so the costs you need to deduct here are variable and they include from credit card commissions per transaction to shipping costs.

In more technical words, the gross profit is the profit a company makes after deducting the costs associated with the goods sold.

NET PROFIT

Your net profit is the benefit you made after deducting every single expense of running your company, this is your turnover minus all your expenses, like for example: taxes, rent, bills, server, salaries and everything else.

What’s the difference between gross and net profit?

The gross profit doesn’t take into account the running costs of the company (for example the rent of the office space). It can be used to see if a product or service is viable and financially worth keeping on your catalogue.

The Net profit tells you if your company is making an actual profit, covering the costs or if it is losing money.

CASH FLOW

Is the amount of money (or money equivalents) that goes into and out a business at a specific point in time (this is important).

It can be positive, when the business is getting more money in than out, or negative. A negative cash flow doesn’t necessarily mean that your business is in trouble, it all depends on that specific point of time you are looking at (maybe in October you had a negative cash flow, but then the rest of the months you hopefully have a positive one!).

Cash flow doesn’t mean the same as profit, but it could be an indicator of how your business is doing.

PENSION

In the strict sense of the word, pension is the money you receive from the government or a private company when you are retired and might not have any other source of income.

It is very common (and depending on the law, sometimes also tax free) that people pay contributions towards a private pension scheme. Those savings towards your retirement should be included in your company running costs.

MORTGAGE

A mortgage is a loan you get to buy or refinance a property when you don’t have all the cash needed upfront.

As I mentioned before, I like to think about banks as money shops. When you get a mortgage, a company is selling you the money you need to buy what you want, and you will have to pay for that service on top of giving the money back.

The usual case with mortgages is that the price of the mortgage itself (usually called interest) is not usually fully fixed, so sometimes you don’t exactly know how much you are paying back until you have fully cleared the debt.

It might also happen that you can’t repay the mortgage. In that case the bank usually takes the property from you as a way to get their payment back.

OVERHEADS

These are usually costs that don’t depend on the amount of operations your company makes, and they are ongoing independently of your business making a revenue or not.

Overheads usually include rent and insurances, just to give a couple of examples.

PETTY CASH

It is a little amount of cash that is usually kept in a box and it’s used to pay for small expenses such as a train ticket reimbursement for an employee or business related post.

A petty cash box is common when there is a team of people working together using company money for these little things. Petty cash is not that usual amongst freelancers or self employed.

BALANCE SHEET

This is an important one! A balance sheet shows the company financial state at a certain point. It’s a report in which you see what a company owns and owes, even though the terms for those owes and owns are usually a bit more technical (i.e. liabilities and shareholders equity).

There are some calculations that can be made from the numbers in the balance sheet that would give a quick impression of the company finances in that particular moment.

INVESTMENT

Investment is a broad term and it usually refers to money that you deposit with the intention for that money to grow.

For example, you could invest 10k in a company that is about to be launched with the intention to get more money back when that company makes a profit.

You could also invest in a pension savings account to have some extra cash when you retire.

Or pay training for one of your employees with the intention for that person to fulfil a different role in your company.

Some people lend money as an investment, and even though this is no necessarily a bad thing to do, things get dodgy when the lender sets up a really high interest to someone in high need of that money on that moment.

In the cooperative world (We-Guild is a multi stake holder co-operative, remember?) investment could be an even broader term. Collective investment is usually made to benefit the collective instead of the individual.

One of the seven principles of the cooperatives is the cooperation with other cooperatives, which is often done in the shape of an loan at a low interest rate.

SUNDRY EXPENSES

These are expenses that are not very big and at the same time they are not regular.

Of course having a lot of sundry expenses might have a big impact on your cash flow and balance sheets, so it’s always a good practise to keep track of them.

One example of sundry expenses might be some flowers for a colleague leaving the job or a non regular donation to a charity.

ROI

It stands for Return On Investment and this means how much profit you got from an investment you did (when you invest you do it because you expect to have a profit out f it, but is also possible make a loss).

Let’s say you are paying facebook 50 pounds for some ads. As a result of that campaign, you sell two of your pottery pieces, 60 pounds each (yay! You “made” 120 pounds!). Your ROI in this example would be the net profit (70 pounds, because you “made” 120 but invested 50 in the ads to be able to sell those pieces), divided by the total investment (50 pounds). This is a total of 70/50 = 1.4

The ROI is usually presented as a percentage. You just have to multiply whatever you got by 100 et voilà, your ROI for our example was 140%

Ok ok, but is this a good ROI or not?

Well, this is a question with a million answers. It all depends on your goals, needs and the risk of that investment you made. In my opinion, whether you consider something a good ROI or not also depends on your life values and principles.

Would you think that 40% ROI is a good one if you know the company you put the money in invested in weapons?

The hugs, memories and experiences you get back “investing”  500 pounds to pay holidays for you and your best friend, do those count as a good ROI?

One thing is very clear here: we are putting our intention where we put our money.

INSURANCE

Insurance is a service you pay for. The company providing it is the insurer.

The insurance company calculates the probability of something bad happening to you, and pays you in case that something bad happens. In exchange you pay them a regular fee that will cover the company overheads, increase their turnover, and hopefully for them, also their net profit (if you know what those three last words mean maybe I did a good job writing this blog post!)

Insurances are usually reliable if:

  • You met the requirements to get insured (and this is the choice of the insurer)
  • The “bad thing” that happened to you falls within the agreement you have with the insurer (sometimes this is open to interpretation)

The two previous points might leave some people uncovered. A sad example are some health insurances in the USA, leaving people with previous conditions out, or the professionals insurance companies pay to try and convince you don’t have the right to reclaim any money from them, when you were convinced you were covered.

Mental note: Everything is in the small print. Make sure you always read it and fully understand it!

Please always read the small print and make sure you understand before you sign any contract!. You have all the right to ask for explanations and to negotiate the terms and conditions.

There are different types of insurance, depending on what you want to get covered (health, car, life, and so on…). Let’s go in a bit more detail with a few of them.

LIFE INSURANCE

A life insurance is an insurance that will give your partner or rest of the family coverage in case you die or are not able to work due to a terminal illness.

Some banks make it mandatory to sign a life insurance before giving you a mortgage, as they consider that your partner won’t be able to repay the mortgage in case you die.

But this is not the only use of a Life Insurance. It could also be used to pay for day to day child care expenses, medical bills or funeral expenses.

SICK PAY INSURANCE

Imagine you are self employed, fall ill and can’t work for a couple of weeks. But you have a sick pay insurance that covers this amount of sick time and the reason why you can’t work. So you make your claim, justify your situation, and get your money.

And now that we are talking about sick pay for the self-employed, did you know that the very first idea behind We-Guild was precisely to cover this gap? With time, work and many debates we realised We-Guild could be useful in many other situations though. And no, We-Guild is not exactly a substitute of insurances, but you have more on that at the end of the article.


We-Guild is a recently founded multi-stakeholder cooperative. We are looking for 100 beta testers for our web app.

Would you be one of We-Guild Beta Testers? Subscribe now to the waiting list via any form in the website and we’ll let you know as soon as everything is ready!


UMBRELLA INSURANCE

Let’s say you have home insurance which covers the losses caused by criminals breaking into your house and stealing your plasma tv, and it also covers the repairs of that toilet pipe that literally exploded on your second month in the house.

How about covering your liability in case your dog bites someone in the street and including this in your house insurance?

This is precisely an umbrella policy: an insurance which provides extra protection beyond the coverages of other policies.

For freelancers this translates for example as a public liability insurance which also covers for the loss of your computer.

A very personal take on insurances, risks and selling techniques.

I am usually scared and stressed out at the same time about things that might or might not happen (hello generalised anxiety. Let’s leave the mental health and capitalism conversation for another article). Thinking about insurance makes me sweat big time.

How the hell can I prevent myself and get a cover for all the things that might or might not happen in my life? This fear and the need for safety all humans have is precisely one of the strongest selling points for insurance companies, and I’m just mentioning it for you to be aware, I don’t mean that insurances are a bad thing per se.

The sense of safety, security and stability is something humans have longed for since forever and this is precisely the reason why so many insurance companies trigger a feeling of insecurity in order to sell you their solution.

And now that you get the meaning and implications of some of the most used financial terms, let me introduce you to We-Guild.

How could We-Guild help you with your finances?

Let’s say one of these months you lose one of your assets (the classic coffee drop on your computer), on top of that you have a cash flow issue (one of your clients is overdue in the payment of that big invoice), and you need to meet a deadline with a project by next week to be able to cover for your overheads (the phone bill, studio rent, and transport are all upfront costs, and you definitely need them covered to carry on working).

If you know what your cashflow is like then you’ll be able to calculate how much money you need to save this month, make your request and wait for your friends and the friends of your friends to help you. After all, everyone has got a bad month and understands your situation.

Wait a minute, did I mention you have to actually ASK for help? Ups, sorry, we reached the money taboo, the vulnerability taboo. THE TABOO. To make your life easier let me tell you that the culture over We-Guild is precisely that, and that when you get into the network you do it so you can help others and be helped.

Still don’t know why asking for help seems to be that difficult for you? Stay tuned and subscribe to our newsletter. Our in-house psychology student (that’s me!) will write an article very soon about helping each other.

Let’s change the solidarity culture.


We-Guild is a recently founded multi-stakeholder cooperative. We are looking for 100 beta testers for our web app.

Would you be one of We-Guild Beta Testers? Subscribe now to the waiting list via any form in the website and we’ll let you know as soon as everything is ready!


How does We-Guild compare to an insurance?

Well, technically it doesn’t compare for many reasons.

But in practical terms We-Guild might end up being an additional safety network for you. It all depends on the interactions you have with your network overtime (this means how much you chip in for others and others chip in for you).

As it usually happens you have helped others in the past, the more transparent and trustworthy you are, the better chances you have to be helped when you need to.

Have you watch the film The Platform? We wrote an article about How NOT to promote solidarity, all based on the design of that film.

But let’s come back to our point:

Ok, so what makes We-Guild different from insurance?

  • Unlike most insurance companies, We-Guild is a co-operative (owned and run by its members and workers).
  • We-Guild doesn’t have pre-requirements for you to join. Just your willingness to enhance solidarity and mutual help. Some insurances might refuse to insure you based on their calculations telling them you are very likely to need them. Not long ago I heard about the case of a woman who suffered a depressive episode in the past and an insurance company refused to insure her.
  • We-Guild doesn’t guarantee your financial safety, that depends on your network and your interactions with them. On the other hand, the explanations and justifications you have to give to your friends are up to you and them. This means, if you want and they like to help you with it, you could ask for money to go on holidays.

In conclusion, We-Guild is a financial mutual aid platform, based on trust and transparency, which uses the power of technology to enhance solidarity.


We-Guild is a recently founded multi-stakeholder cooperative. We are looking for 100 beta testers for our web app.

Would you be one of We-Guild Beta Testers? Subscribe now to the waiting list via any form in the website and we’ll let you know as soon as everything is ready!


If after reading us you are feeling like devoting your life to finance, you might want to have a listen to our friend Gaby Dunn and her podcast Bad With Money. Or you might want to have a read over The Young Money blog.

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