KEY TERMS 1 and 2 Personal Finance & Money Management: Key Concepts and Definitions

Personal finance

Awareness of how decisions you make about using your money can affect your life; management of your money.

Personal financial planning

The process of planning for every aspect of your personal finances.

Asset

Something one owns that has value, for example, money, vehicles, property, etc.

Liquid asset

Category of assets; can rapidly be exchanged for cash without risk of loss.

Taxes

Money collected by a government from its citizens and businesses, in order to fund the operation of the government.

Credit

Money that a lender makes available to a borrower, with the understanding that it will be repaid, often with interest.

Bankruptcy

A legal process of a court taking over some of the debts of an individual who is unable to pay their bills. This is seen as a bad thing, where a RED FLAG follows these people.

Paycheck-to-paycheck

Having no money aside for emergency funds or savings, due to only earning enough for/to meet their necessities (needs).

Opportunity cost

Opportunity lost to do something with money when an individual makes a decision on how to use their money differently

Emergency fund

Money set aside to pay for emergencies, such as car accidents, medical fees, loss of job, etc.

Certified financial planner (CFP)

Important credentials that indicate a certain level of training or experience; people who have met the standard to become a professional/capable financial planner.

Personal financial plan

organization of the spending, borrowing, saving & investing which will be needed/used to achieve financial goals.

Budgeting

predicting future income and expenses

Assets

things owned that have value (car, stocks, bank account, etc.)

Liabilities

things that one still owes money for (car loan, student loan, credit card, etc).

Net worth

one's overall wealth

Equity

ownership (within a single asset)

Income

money earned

Expenses

money that needs to be paid

Income taxes

taxes paid on one's income

Liquidity

how much readily available liquid assets (cash/bank account funds) a person has.

Money management

how one manages/decides to use their income to acquire assets

Credit management

how one manages/decides on how to use credit

Finance

borrowing money to make a bigger purchase, with a plan for repayment (synonym for borrowing/credit).

Payment terms

details agreed upon for paying back a financed loan

Risk

possibility of financial loss

Investing

spending money today on something for the hope of earning profit in future.