Definitions

Just in case there are terms in some of my posts, I’ve decided to add definitions and/or examples here for your reference.

Net benefit: The net benefit of something is the benefit you get after subtracting the drawbacks or the costs of getting that benefit. It’s similar to net income for financially-oriented contexts. Example: you make your own soap at home. You sell your soap for $5 per bar. The materials you need to make the soap cost you roughly $4 per bar. Your earnings per bar sold = $5, but your net earnings per bar sold = $1. So if a credit card gets you 1% cash back, but another credit card gets you 2% cash back and has a $49 annual fee, you will have to subtract that $49 from the cashback you get to find your net benefit, to compare it to the other card to find out if it’s worth it in your case to get the card with more rewards, but with a fee.

Statement credit / Account credit: An account credit on something like a credit card balance or other bill you owe reduces the overall balance you owe. Example: You buy groceries with a credit card for $200. You buy gasoline with this same credit card for $40. Then you buy a plane ticket with the same credit card for $450. Now your credit card balance is $690. The bank offers $300 each year in statement credits for travel purchases. The bank knows that the plane tickets you bought qualifies as a travel purchases, and places an account credit or statement credit on your credit card for $300. Now your credit card balance is only $390.

Liquidity: Liquidity refers to how easily you are able to cover debts or unexpected expenses using cash instead of borrowing more money to cover existing debt. Think of it as how much or how little cash you have available. If you have $50,000 in the bank, and you have no major expenses, only $1,000 a month in bills and expenditures, and no purchases you have planned, you have a lot of liquidity. If an unexpected car repair popped up on day, you would have no problem covering it. No sweat. On the other hand, if you have $5 in the bank, you have low liquidity. If an unexpected expense popped up, let’s say a repair or veterinary bill of $500, how would you pay this? Your options are debt through a loan or credit card, or liquidating assets to come up with the cash. To liquidate something means to exchange it for cash. If you sell your car for $5,000, you’ve liquidated property. If you sell a ring for $750, you’ve liquidated property. Having liquidity means having the cash to cover your debts, not having access to debt. So using a loan or credit card to pay the bill doesn’t mean you have liquidity, because you are now in debt and not able to pay your debts.