Personal Finance– Glossary

Assets– An asset is anything that is owned by an individual. With respect to saving and investing, assets are generally categorized as liquid (cash) assets and capital (investment) assets
Balanced Budget– A situation where income and expenses are equal
Budget surplus– A situation where money is left over after all obligations have been paid
Budget deficit– A situation where there is not enough money to cover expenses
Budget–An organized plan for saving and spending based on your expected income and expenses
Cash flow–Typically used to measure the health of a business, it calculates income minus expenses
Comparison shop– Checking several alternatives to find the best product at the best price
Disposable income–The money you have to spend or save as you wish after taxes, social security, and other required and optional deductions have been withheld from your gross pay
Emergency Fund–An amount of money set aside to cover bills in case of emergency
Expenses–The things people pay for with their money
Financial Plan–A plan of action that allows a person to meet not only the immediate needs but also the long-term goals
Fixed expenses– Expenses that remain constant
Impulse spending– Making purchases without comparing costs or benefits beforehand
Income–Money earned in exchange for work, or received from investments, allowance, or gifts
Investing– The process of setting money aside to increase wealth over time and accumulate funds for long-term financial goals such as retirement
Liabilities–Money owed to individuals, businesses, or institutions
Net worth– The total value of a person or company, which can be calculated by subtracting liabilities from total assets
Pay Yourself First– The concept of putting aside a sum of money into savings each month before paying other bills
Record keeping– To write down information about a transaction or series of transactions
Risk management– The process of analyzing exposure to risk and determining the best way to handle such exposure
Savings– The process of setting aside money until a future date instead of spending it today. The goal of saving is to provide funds for emergencies, short-term goals, and investments
Sharing– Using a portion of income to make charitable contributions
Spending– The act of paying money for something
Spending habits– The ways in which a person typically uses money
Variable expenses– Expenses that increase or decrease
APY– Annual Percentage Yield — The true or effective rate of interest when compounding is taken into effect
ATM– Electronic terminals located on bank premises or elsewhere, through which customers of financial institutions may make deposits, withdrawals, or complete other transactions as they would through a bank teller
Canceled check– Checks the bank has processed
Cash machine– See ATM
Cashier’s check–  A check written by a bank on its own funds in exchange for payment by an individual
CD– A time certificate representing a sum of money deposited for a set length of time, such as six months
Checking account– A banking service wherein money is deposited into an account and checks are written to withdraw money as needed
Commercial bank– An institution which accepts deposits, makes business loans, and offers related services
Compound interest– Interest earned on both principal and interest
Credit union– A member-owned and controlled not-for-profit financial cooperative that offers a variety of savings and lending services to members
Debit card– A plastic card that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers; use of a debit card generally results in an immediate transfer of funds
Direct deposit– The deposit of funds directly into a bank account as a form of payment
EFT– Electronic Funds Transfer – transferring funds electronically rather than by check
FDIC– Federal Deposit Insurance Corporation – Provides deposit insurance which guarantees checking and savings deposits in member banks up to $100,000 per depositor
 Fees– Charges for services rendered
Finance company– A company that makes loans to businesses and/or individuals
 Money market account– A bank deposit that pays interest and that allows a saver to withdraw money at will, often by writing checks
NSF– Not sufficient funds – a check written without sufficient money in an account to cover it
Overdraft– A check written without sufficient money in an account to cover it
POS Terminal– A point-of-sale terminal serves as a computerized cash register; it can track orders, accept credit cards and debit cards, and keep inventory, among other things
Reconcile– Adjusting one’s checkbook balance to match one’s bank statement
Savings– The process of setting aside money until a future date instead of spending it today. The goal of saving is to provide funds for emergencies, short-term goals, and investments
Savings & Loan– Financial institutions that provide loans and interest-bearing accounts. Accounts in federally chartered S&Ls are federally insured
20/10 Rule– One should never borrow more than 20 percent of one’s yearly net income, and payments should not exceed 10 percent of monthly net income
3 C’s– Used by creditors to measure the credit-worthiness of potential customers, the three C’s are: capacity, character, and capital
Annual fee– The annual membership fee, if any, to have a credit card
APR– Annual Percentage Rate- The cost of credit for one year expressed as a percentage
Capital– Wealth available to produce more wealth; assets of a person or business after liabilities are deducted
Closed-end credit– A contract for the loan of a specified amount in which the contract issued tells the amount of purchase, the total finance charge, and the amount of each payment
Collateral– Savings, bonds, insurance policy, jewelry, property or other item that is pledged to pay off a loan or other debt if payments are not made according to the contract; also called security
Co-signer– A person other than the borrower who assumes equal responsibility for a loan or lease
Credit bureau– A for-profit company that is in the business of accumulating, storing, and distributing credit information
Credit line– An arrangement in which a bank or vendor extends a specified amount of unsecured credit to a specified borrower for a specified time period
Credit report– A written report issued by a credit bureau that contains relevant information about a person’s creditworthiness
Default– A status assigned to a cardholder if he or she fails to perform or conform to all the items listed in the cardholder agreement
Delinquent– Failing to make a required payment on time
Down payment– An amount given as security for a loan to ensure that other remaining payments will be made
FCBA– Fair Credit Billing Act – Federal law that covers credit card billing problems. It applies to all open-end credit accounts (e.g., credit cards, overdraft checking)
FCRA– Fair Credit Reporting Act – Consumers’ rights are protected when collecting and reporting information when applying for credit, insurance, and employment
Fee–A charge for services rendered
FICO score– Fair Isaac Credit Organization score – the most widely used credit score model in the United States
Finance charge– The percentage charge applied to the daily or monthly balances as described in the credit agreement
Finance company– A company that makes loans to individuals and/or businesses
Grace period– The period of time from the billing date of your last credit card bill to the due date of your current bill, when you can pay in full without being charged interest
Installment loan– A loan to be repaid in fixed payments that include principal and interest
Interest– Money paid for the use of money; earnings on a savings account
Minimum payment– The smallest payment you can make to maintain a credit account on current status
Open-ended credit– A line of credit which can be used repeatedly until a certain limit is reached
Payday loan– A small, short-term loan that is intended to cover a borrower’s expenses until his or her next payday
Predatory lending– Lending practices which are fraudulent, deceptive, discriminatory, or unfavorable.  The practices may be legal, but they are not in the best interest of the borrower
Prime rate–An index rate that is used to determine the APR in a variable interest rate account
Repossession– When a lender or seller takes back property from the borrower or buyer, usually due to default
Revolving credit– A credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card.  As credit is paid off, it becomes available to use again
Secured credit card– A consumer uses savings or other collateral to guarantee the credit card; the limit of credit is based on the amount of collateral available
Truth-in-Lending– A law that required a lender to inform a borrower of the amount financed, total finance charges, annual percentage rate, payment schedule, and many more important figures
Unsecured debt– A credit source that is not guaranteed with collateral
Usury laws– Laws setting maximum interest rates that lenders may charge
Alternative– One of many choices or courses of action that might be taken in a given situation
Choice– Decision made or course of action taken when faced with a set of alternatives
Customs– Long-established practice or habit by a person, family, or society
Delayed gratification– Making an economic choice to postpone a reward
Evaluation– Setting criteria to help establish value or worth
Goods– Tangible objects that satisfy economic wants
Human Capital– The health, education, experience, training, skills and values of people. Also known as human resources
Impulse purchase– Making a purchase without comparing prices and benefits beforehand
Long-term goal– Something a person or organization plans to achieve at least five years in the future
Media literacy– Using critical thinking to analyze mass media and its messages
Needs– Items you must have to live
Opportunity Cost– The value of the best alternative you give up when scarce resources are used for one purpose rather than another
Peers– Those belonging to the same societal group based on age, grade or status
Priorities– Judging among alternatives, especially when goods or services are in short supply
Pay Yourself First (PYF)– Putting money into savings each month (or each paycheck) before paying other bills
Resources– Items that are useful in the process of achieving goals; natural, human and capital resources are used to produce goods and services
Risk– The possibility of variation in the return on an investment
Scarcity– In an economic system choices are made about how resources will be used because it is not possible to produce all goods and services that people want
Services– Actions performed to satisfy economic wants
Short-term goals– Something a person or organization plans to achieve within a one-year time period
Standards– Established measure of quality or quantity
Time-value-of-money– Money received today is worth more than the same amount received later due to its earning potential
Unintended consequences– Unexpected results of a decision or action
Values– Strongly held beliefs or principles about what is right or wrong, or what is valued
Wants– The items people wish to have, but that are not necessary for survival
401k– An employer-based plan whereby employees set aside money for retirement that is sometimes matched by employers
403b–A retirement account for employees of schools, tax-exempt organizations, and government units
Bartering– The mutual exchange of goods and services
Benefits– Something worth a monetary value that an employer provides to employees in addition to salary. This can include items such as health insurance, vacation time, and sick pay
Bonus– Money (or something else of value) given to an employee in addition to regular pay, often a reward for job performance
Business profit– Gross business income minus operating expenses
Capital gains–Profits from sale of assets, such as stocks, bonds or real estate that are not taxed until the asset is sold
 Capital loss– A loss suffered when assets such as stocks or bonds are sold for less than the price at which they were purchased
Commission– A percentage of sales received as income
Compensation– Wages plus fringe benefits
Deductions– Amounts subtracted from gross pay
Demotion– Being moved to a job with less responsibility and possibly less pay
Dividends– A distribution of money or stock that a corporation pays to stockholders
Entrepreneur– An individual who starts his or her own business
Fair Labor Standards Act– A federal law that guarantees a worker’s right to be paid fairly. The law also establishes the 40-hour work week, federal minimum wage, sets guidelines for overtime pay, and restricts child labor
Fee– A pre-determined amount of money for a service performed
FICA– Federal Insurance Contributions Act, the legislation that funds Social Security
Flextime– A system that allows employees to set their own hours
Gross pay– Income before payroll taxes are removed from the paycheck
Hourly wage– The rate of pay for each hour worked during a regular workweek
Interest– Money paid for allowing someone else to use your money
Investments– Outlay of money in the hope of realizing a profit
IRA– Individual Retirement Account- A retirement plan that allows workers to set aside money each year in tax-deferred savings
Keogh– A tax-deferred retirement plan for self-employed individuals
Medicaid– A government program that pays the health care costs for people with no income or a low income
Medicare– A federal health-care program that pays for certain medical and hospital costs for people aged 65 and older (and for some people who are under the age of 65 and disabled)
Minimum wage– The lowest hourly wage allowed by state or federal law
Mutual funds– An open-ended fund operated by an investment company that pools the money of many investors to buy a large selection of securities that meet the fund’s stated investment goals
Net pay– Take home pay after payroll taxes and voluntary deductions are removed
Non-taxable fringe benefit– These benefits are not included in gross income. Examples include health & dental insurance or access to a company gym
OSHA– Occupational Safety and Health Administration — This is the main federal agency charged with the enforcement of safety and health legislation
Overtime– The rate paid during the workweek after an employee has worked 40 hours. This rate is usually 1-1/2 times the hourly wage
Payroll taxes– Money automatically subtracted from an employee’s gross pay for taxes
Pension– Income received from a retirement fund when the worker leaves the workforce and has reached retirement age
Perk– Compensation that is not wages. Perks make the job more enjoyable, convenient or help the worker perform on the job
Piece rate– The type of pay workers receive when they earn money for each item produced
Promotion– Advancing at work usually by taking on additional responsibilities; may be accompanied by a raise in pay
Real income– The income of an individual, organization, or country after taking into consideration the effects of inflation on purchasing power
Rent income– Income received for the use of real property
Royalties– Income earned when others use your original work
Salary– Money paid for an employee to perform a set of duties, usually paid bi-weekly or monthly
Sick leave– Leave from work granted for illness or to care for a sick family member, usually with pay
Taxable fringe benefit– The value of these benefits must be included in your taxable income. Personal use of a company car is an example
Tip– A small gift of money, usually in return for a service; also called a gratuity
Transfer payment– Income paid by government to individuals who are not working
W-2– Wage and Tax Statement, used by the Internal Revenue Service as an information return to report wages paid to employees and the taxes withheld from them
W-4– Internal Revenue Service form used by employers to determine the correct amount of tax withholding to deduct from employees’ wages
Withholding– Money taken out of an employee’s paycheck and sent to the government and credited to the employee’s tax bill