Banking biz

Earned Income

Money earned from working a job

Unearned Income (Passive Income)

Money earned from investments or non-work sources

Examples of Earned Income

Salary, hourly wage, tips, commissions, bonuses, overtime pay

Examples of Unearned Income

Gifts, lottery winnings, gambling winnings, interest, stock dividends, rental income, profit from selling real estate

Hourly Wage

Pay earned for each hour worked

Hourly Pay Formula

Hours worked × hourly rate = gross pay

Federal Minimum Wage

The minimum wage required by law in the United States ($7.25 per hour)

Salary

A fixed amount of annual pay divided across pay periods

Salary Supplement

Additional income earned beyond base pay

Commission

Pay earned as a percentage of sales

Overtime Pay

Extra pay for working more than 40 hours per week

Tips

Extra money given by customers for service

Bonuses

Extra pay given for good performance or achievements

Gross Pay

Total earnings before taxes and deductions

Net Pay

Take-home pay after taxes and deductions

Net Pay Formula

Gross pay − deductions = net pay

Deductions

Money taken out of gross pay for taxes or benefits

Mandatory Deductions

Deductions required by law

Federal Income Tax

Tax paid to the federal government

State Income Tax

Tax paid to state governments

FICA

Federal Insurance Contributions Act tax that funds Social Security and Medicare

Social Security

Tax that funds retirement and disability benefits

Medicare

Tax that funds healthcare for people age 65 and older

Voluntary Deductions

Deductions chosen by the employee

Health Insurance

Insurance that helps pay for medical expenses

Retirement Contributions

Money set aside from income for retirement savings

Union Dues

Payments made by members of labor unions

401(k)

Employer-sponsored retirement plan funded with payroll deductions

403(b)

Retirement plan for school and nonprofit employees

IRA

Individual Retirement Account opened and funded by an individual

Roth IRA

Retirement account where contributions are taxed now but withdrawals are tax-free later

Pension

A retirement plan where an employer provides fixed income after retirement

Progressive Tax System

Tax system where higher incomes are taxed at higher rates

Flat Tax

Tax system where everyone pays the same tax rate

Purpose of Taxes

Funds government services like roads, schools, and defense

Sales Tax

Tax paid when purchasing goods or services

Property Tax

Tax based on the value of real estate

Excise Tax

Tax placed on specific goods such as gasoline or cigarettes

Corporate Income Tax

Tax paid by businesses on profits

W-4

Form that tells an employer how much tax to withhold from a paycheck

I-9

Form verifying a person’s identity and eligibility to work in the US

W-2

Annual wage and tax statement from an employer

1099

Tax form for independent contractors or non-employees

1040

Official tax return form filed with the IRS

Withholding

Money taken from paychecks to pay taxes

Dependent

A person who relies on a taxpayer for financial support

Tax Day

The annual deadline to file federal taxes (April 15)

IRS

Internal Revenue Service, the agency that enforces federal tax laws

Budget

A plan for spending and saving money

Income

Money earned or received

Expenses

Money spent

Savings

Money set aside for future use

Disposable Income

Take-home pay after taxes

Discretionary Income

Disposable income left after necessary expenses

Pay Yourself First

Saving money before spending on other expenses

Fixed Expenses

Costs that stay the same each month

Variable Expenses

Costs that change month to month

Occasional Expenses

Irregular expenses that occur sometimes

Opportunity Cost

The value of the next best alternative given up when making a choice

Needs

Essential expenses required for survival

Wants

Nonessential items or services

Short-Term Financial Goals

Goals achieved in less than one year

Long-Term Financial Goals

Goals that take more than one year to achieve

50/30/20 Rule

Budget guideline where 50% goes to needs, 30% to wants, and 20% to savings

Budget Variance

The difference between planned spending and actual spending

Budget Deficit

When spending is greater than the planned budget

Budget Surplus

When spending is less than the planned budget

Assets

Things you own that have value

Liabilities

Money you owe

Net Worth

The difference between total assets and total liabilities

Personal Balance Sheet

A summary of assets, liabilities, and net worth

Bank

A financial institution that stores money and provides financial services

Federal Reserve

The central bank of the United States that regulates money supply and monetary policy

Commercial Bank

A for-profit financial institution that offers banking services

Credit Union

A nonprofit financial institution owned by its members

Online Bank

A bank that operates primarily through the internet

Check Cashing Store

A business that cashes checks for high fees

FDIC

Federal Deposit Insurance Corporation that protects bank deposits

FDIC Insurance

Government protection for deposits up to $250,000

Unbanked

People without a bank account

Underbanked

People who have bank accounts but still rely on alternative financial services

Checking Account

A bank account used for frequent transactions and payments

Savings Account

A bank account used to store money and earn interest

Money Market Account

A savings account requiring higher balances with variable interest rates

Certificate of Deposit (CD)

Account where money is locked in for a set time to earn interest

U.S. Savings Bond

A government-issued investment that earns interest over time

Liquidity

How quickly an asset can be converted to cash

Deposit

Putting money into a bank account

Withdrawal

Taking money out of a bank account

Electronic Funds Transfer (EFT)

Digital transfer of money between bank accounts

Direct Deposit

Electronic transfer of paychecks directly into a bank account

ATM

Automated teller machine used for banking transactions

ATM Card

Card used only to withdraw money from ATMs

Debit Card

Card linked to a checking account used for purchases and withdrawals

Safe Deposit Box

Secure box in a bank used to store valuables

Check

A written order instructing a bank to pay money from an account

Check Endorsement

Signature on the back of a check allowing it to be deposited or cashed

Blank Endorsement

Signing the back of a check without restrictions

Restrictive Endorsement

Endorsement that limits how the check can be used (example: “For deposit only”)

Checkbook Register

Record used to track deposits, withdrawals, and account balance