Frequently missed questions

A sum of money is worth more now than the same sum will be at a future date due to its current earnings potential. The longer the time you keep your money invested, the more interest you will earn.

Time value of money (TVM)

The degree to which assets can be sold for cash

Liquidity

Wages/salary, interest from savings or investments

Sources of income (both earned and unearned)

Used to reduce the amount of taxable income (Typically found on your 1040)

Exemption (or allowance)

Money left over after paying for necessary expenses (i.e. rent/mortgage, utilities, credit card bills)

Discretionary income

Automatically routing some money from your paycheck to savings (before paying bills)

Pay Yourself First

"Interest on interest"; calculated on both the principal amount and the accumulated interest.

Compound Interest

What is given up when a choice is made

Opportunity cost

A service provided by a bank that protects against non-sufficient funds, or NSF (e.g. if you spend more than what is in your checking account)

Overdraft protection

How long, in years, it will take to double an investment (Calculation: 72/interest rate)

Rule of 72

Something pledged as security for repayment of a loan, to be forfeited in the event of a default

Collateral

A number between 300-850 that depicts a consumer's creditworthiness. The higher the score, the better a borrower looks to potential lenders.

Credit score

Businesses that make loans to customers who have low credit scores, but charge extremely high interest rates.

Predatory lenders

Three leading credit reporting agencies

Experian, Equifax, TransUnion

Legislation, enacted in 1968, which requires money lenders to be explicit about the true costs of credit transactions

Truth in Lending Act

Insurance that provides coverage for personal property in a rented apartment, condo or home in case of a loss event. Also protects you from liability if someone is injured on your property.

Renters insurance

The amount you pay for services before your insurance plan starts to pay

Insurance deductible

The amount of money you pay out-of-pocket for a covered medical service.

Co-pay

A type of life insurance policy that provides coverage for a certain period of time or a specified "term" of years

Term life insurance

A type of life insurance that lasts for the policyholder's lifetime, as long as premiums are paid

Whole/permanent life insurance

How to determine someone's net worth

Total Assets - Total

Examples of assets & liabilities

Assets - house, car, investments, bank accounts

Liabilities

credit card debt, student loans, mortgage, car loan

A profit-sharing plan, used to save money for retirement, that allows employees to contribute a portion of their wages to individual accounts

401(k) plan

Allows individuals to contribute pre-tax dollars to a retirement account where investments grow tax-deferred until withdrawal during retirement. Money is taxed when it is withdrawn.

Traditional IRA (Individual Retirement Account)

A special individual retirement account where you pay taxes on money going into your account, and then all future withdrawals are tax free.

Roth IRA (Individual Retirement Account)