Glossary: Personal Finance

We are happy to provide this basic glossary of terms you’ll encounter as you begin your journey toward Financial Literacy … and Legacy. This is intended to provide general information only.

Click a term to show its defintion.

  • Adjusted balance method

    How finance charges are computed by creditors after payments are made during a billing period.

  • Adjusted gross income

    Income minus allowable exclusions and deductions.

  • Adjusted gross income

    Income minus allowable exclusions and deductions.

  • Amortization

    The repayment period of a loan or debt divided by the number of years remaining on a loan or debt.

  • Annual fee

    The annual membership fee charged by a credit card company.

  • Annual Percentage Rate (APR)

    A standard calculation by lenders that shows what the interest rate and fees are on a loan or credit card.

  • Annual percentage yield (APY)

    The effective rate of compounded interest when compounding is taken into effect.

  • Annual report

    Yearly information about a company to help a potential investor to make an investment decision.

  • Annuity

    A financial vehicle in which money is invested for a specified period of time, after which the investor receives regular payments.

  • Arrears

    Amount owed past the specified due date for payment.

  • Assets

    Property that can be used to repay debt, such as stocks and bonds or a car.

  • Available credit

    The unused portion of a credit card or agreement which one is eligible to use.

  • Average daily balance

    How creditors compute finance charges by adding daily balances during a billing period and then dividing by the number of days in the period.

  • B
  • Back-end load

    A mutual fund that charges a commission when shares are sold.

  • Balance

    To reconcile debits and credits of an account.

  • Bankruptcy

    A legal process that relieves consumers of most debts to stop legal proceedings by creditors.

  • Bear market

    When the stock market falls by 15 percent or more.

  • Bonds

    Debt obligations of corporations or the government.

  • Borrower

    A person who borrows money, uses credit or has debt.

  • Broker

    A person who buys and sells stock or bonds on behalf of a buyer or investor.

  • Budget

    A spending plan that accounts for monthly and annual expenses

  • Bull market

    A rising stock market.

  • C
  • Capital

    Money and assets available as investments.

  • Capital gains

    Profits from sale of assets, such as stocks, bonds or real estate, that are taxed after the asset is sold

  • Capital goods

    Buildings, tools, machinery and other manufactured items used to produce goods and services.

  • Cash advance

    A loan taken out by charging an amount of cash to a credit card.

  • Cashier’s check

    A check written by a bank on its own funds in exchange for payment by an individual.

  • Certificate of deposit (CD)

    A certificate representing a sum of money deposited for a set length of time, such as six months.

  • Certified check

    A personal check guaranteed by a bank.

  • Co-signer

    Someone who signs a loan with the borrower and promises to assume the responsibility of repaying the debt in the event that the borrower does not repay it

  • Collateral

    An asset pledged as security on a debt so that if the debt isn’t repaid as agreed, a lender can collect that asset and sell it to recover any money owed on the debt.

  • Commission

    Pay based on a percentage of sales.

  • Common stock

    A class of stock whereby the person who owns the stock shares directly in the success or failure of the business.

  • Compound interest

    Interest paid on the original principal plus the accumulated interest.

  • Consumer Price Index (CPI)

    The average of prices of specific goods and services that people often buy, calculated by the US Department of commerce.

  • Corporation

    A business that is owned by stockholders.

  • Cost of Borrowing

    The cost to you to borrow money – includes interest, fees and any other costs associated with the loan.

  • Credit

    A contract for a loan and the agreement terms of future repayment.

  • Credit bureau

    A company that collects, stores and distributes credit information.

  • Credit history

    A record of credit performance.

  • Credit limit

    The amount of credit available for use.

  • Credit Rating

    The evaluation that creditors consult when determining credit worthiness.

  • Credit report

    An analysis issued by a credit bureau that contains relevant information about a person’s creditworthiness.

  • Credit scoring system

    A statistical system used to analyze and ate credit applicants.

  • Credit union

    A not-for-profit financial cooperative bank that offers a variety of savings and lending services to members.

  • Creditor

    Any person to whom one owes money or goods.

  • Creditworthiness

    The ability to pay back a loan.

  • Cryptocurrency

    A cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services, but uses an online ledger with strong cryptography to secure online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward.

  • D
  • Debt

    Money owed.

  • Debt balance

    Unpaid amount owed on a debt.

  • Debt Consolidation Loan

    A loan obtained for the specific purpose of paying out other debts.

  • Debt Consolidation Service

    An organization that helps consumers to consolidate their debts and to negotiate alternate payment options, reduce debt owed and lower interest rates.

  • Debt load

    The amount of outstanding debt at a particular point in time.

  • Debtor

    A person who owes money.

  • Deductions

    Amounts subtracted from gross pay or tax calculations.

  • Demand for payment

    A letter from a creditor or collection agency outlining the terms by which a debt must be repaid.

  • Depreciation

    Loss in value of an asset during its lifetime.

  • Discharged debt

    A debt that is no longer owed after a bankruptcy.

  • Discretionary income

    Money available when the bills have been paid.

  • Disposable income

    Money available after taxes, social security, and other deductions have been withheld from gross pay.

  • Diversification

    The strategy of owning a variety of securities so that a loss in one investment sector can be offset by gains in others.

  • Dividends

    A distribution of money or stock paid to stockholders.

  • Dollar-cost averaging

    The process of investing the same amount on a regular basis.

  • E
  • Early withdrawal penalties

    Fees charged for account withdrawals before a specified time period has expired.

  • Earnings per share

    A corporation’s after-tax earnings divided by the number of outstanding shares of common stock.

  • Equal Credit Opportunity Act (ECOA)

    Protects those applying for credit from discrimination due to age, sex, marital status, religion, race, color, national origin, or the receipt of public assistance.

  • Equity

    The amount an asset or property is valued after all debts are subtracted.

  • F
  • Face value

    The amount a bondholder will be receives when the bond matures.

  • Fair Credit Reporting Act

    Protects consumers’ rights in terms of information collected during credit, insurance and employment applications

  • FICO Score

    The credit score that creditors consult when determining credit worthiness. Ranging from 300 to 900 points, the score is intended to help lenders assess the likelihood that a loan will be repaid.

  • Foreclosure

    The forced sale of property held as collateral for a debt that is in default.

  • Finance charge

    The percentage fee applied to the daily or monthly balances in a credit account.

  • Financial markets

    Businesses in the financial market sector include commercial banks, savings and loans, credit unions, insurance companies, brokerage houses, pension funds, and investment banks.

  • Fixed expenses

    Monthly and annual expenses that remain constant.

  • Fixed interest rate

    An interest rate that does not change.

  • G
  • Garnishment

    A legal order to withhold money from a paycheck to be paid to a creditor.

  • Grace period

    The period of time that goes from the billing date of the most recent credit card bill to the bill’s due date, during which the full amount can be paid without being charged interest.

  • Gross income

    Annual taxable income from all sources before deductions are calculated.

  • Gross pay

    The total amount of salary before deductions are calculated.

  • Guarantor

    A person who pledges collateral for another borrower’s loan or who guarantees to repay a debt if the original borrower defaults.

  • I
  • Income statement

    A report of a company’s revenue and costs for a given year

  • Individual Retirement Account (IRA)

    An investment account which allows workers to set aside money each year in tax-deferred savings.

  • Inflation

    An increase in the general level of prices of overall goods and services.

  • Interest

    Money paid for the use of loaned money or advance payments, also earnings on a savings account.

  • Interest Rate

    The amount charged for borrowed money, expressed as a percentage, usually over a period of a year.

  • Investment portfolio

    A collection of investments, including cash, CDs, stocks and bonds.

  • Investment strategy

    A plan that balances investment returns against potential risks, depending on a client’s life situation.

  • J
  • Joint account

    An account held by two people.

  • Joint endorsement

    Signatures on the back of a check by the people named as payees on the front of the check.

  • L
  • Late payment fee

    An extra charge added to an account if regular payment is not received by a specific date.

  • Liabilities

    Debts and other financial obligations.

  • Line of credit

    An agreement by a lender to extend credit to a specified limit for whenever the borrower needs to use it.

  • Liquidity

    Accounts or assets that can be easily converted to cash.

  • Loan

    Money loaned out with an agreement for interest to be charged and repaid.

  • Lien

    A claim against an asset which utilizes that asset as security for repayment of a loan. The ownership of an asset cannot be transferred whilst under a lien.

  • Liquid Assets

    Assets which can be turned into cash easily.

  • Loan

    A sum of money lent at a specified interest rate.

  • M
  • Maturity date

    The date on which a bond’s principal amount is paid in full.

  • Minimum monthly payment

    The smallest required payment to maintain a credit account.

  • Money market account

    A bank account that pays interest while allowing the holder to withdraw money.

  • Money market fund

    A combination of a savings and an investment plan in which the deposit holder invests your money in financial instruments.

  • Money order

    An order purchased at a post office or financial institution that directs another office to pay a specified amount to a person or fund named.

  • Mortgage

    A loan obtained by using real estate as security for the money borrowed. Municipal bonds: Investment vehicles issued by state and local governments.

  • Mutual fund

    A company that pools investor money to buy a large selection of securities to meet the fund’s stated investment goals.

  • N

    The National Association of Securities Dealers Automated Quotation system is an electronic marketplace which lists more than 5,000 stocks.

  • Negative cash flow

    When expenses exceed income.

  • Net income

    A company’s or individual’s revenue minus expenses. Also called earnings or profits.

  • No-load mutual funds

    Funds that do not charge commissions but do charge annual maintenance and service fees.

  • NYSE

    The New York Stock Exchange.

  • O
  • Over-the-limit fee

    A charge for spending above a credit limit.

  • Overdraft checking

    The extension of credit by a bank which allows withdrawals to exceed deposits in a bank account.

  • P
  • Past due

    A notice that the amount of a bill is past its due date.

  • Percentage yield

    The amount of dividends issued per share of stock divided by the stock’s price. Always calculated as a percentage.

  • Periodic rate

    The interest rate calculated in relation to a specific amount of time, such as a month.

  • Positive cash flow

    When income exceeds expenses.

  • Posting date

    The date that financial transactions are recorded on your charge or credit account.

  • Principal

    The amount of money that is financed or borrowed on which interest is calculated.

  • Profit

    The amount a business retains after paying its expenses.

  • Proprietorship

    A business owned and managed by one individual.

  • Prospectus

    A detailed financial report about a mutual fund company or a company issuing stock.

  • Public corporation

    A company whose stock is traded openly in stock markets and is available for purchase by an individual.

  • R
  • Recession

    An economic downturn for at least two quarters.

  • Repossession or seizure

    A creditor takes back possession of collateral due failure to pay back a loan as agreed.

  • Restrictive endorsement

    An endorsement that specifies certain restrictions on the use of a check.

  • Revolving credit

    A policy that allows consumers to pay all or part of the outstanding balance on a loan or credit card. When a certain amount is paid off, it becomes available to use again.

  • S
  • Saving

    Setting aside income for future spending.

  • Savings bond

    An interest-bearing certificate obtained at a bank. The value includes interest and the full amount is paid upon maturity.

  • Secured credit card

    A card guaranteed by a consumer’s savings or other collateral. The credit limit is based on the value of the collateral.

  • Securities

    A broad range of investments, including stocks, bonds and mutual funds.

  • Security

    Property which a borrower pledges as collateral for a loan. This can be seized by the lender if the loan is not repaid.

  • Service charge

    The amount charged by merchants or banks to borrowers for servicing or carrying an account or loan.

  • Settlement

    When a creditor accepts a reduced payment on a debt.

  • Share account

    A savings account at a credit union; the shares are considered an ownership interest.

  • Share draft account

    A checking account at a credit union. Instead of checks, “drafts” are written on the member’s account.

  • Simple interest

    Interest compounded on the principal of a loan.

  • Statute of limitations

    The maximum period of time that legal proceedings, based on disputed events, may be initiated.

  • Stock

    Ownership in a corporation.

  • Stockholder

    An owner of a share of stock.

  • Stock market

    A market in which the people buy and sell company stocks.

  • Stock split

    The division of a stock into a larger number of lower-priced shares.

  • Stop payment order

    A request that the bank not cash a specific check.

  • T
  • Taxable income

    Adjusted gross income minus deductions

  • Term

    The number of months of a loan.

  • Transaction fee

    An extra charge for various banking activities such as using an ATM or receiving a cash advance.

  • U
  • Unsecured loan

    A loan based on a consumer’s promise to pay, instead of using savings or other collateral as a guarantee

  • Unused credit

    The amount of credit above what you owe that is available for use.

  • V
  • Variable interest rate

    An interest rate that changes based on an economic index such as the prime rate.

  • Y
  • Yield

    The rate of return earned on a security for a stated period of time.

  • Z
  • Zero balance

    When all balances are paid and there are no new charges during a billing cycle.

  • #
  • 401(k) plan

    An employer-based investment plan for employees in which money is set aside for retirement.

  • 403(b) plan

    A retirement account for employees of schools, tax-exempt organizations, and government organizations.

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