unit 2 personal finance / financial literacy

Personal Finance

All the money decisions a person or family makes including earning, budgeting, saving, spending, and planning for the future

Financial Literacy

The knowledge and skillset necessary to be an informed consumer and manage finances effectively

Budget

A plan for making and spending money for a specific amount of time and/or purpose

50-30-20 Plan

Budgeting method allocating 50% needs, 30% wants, 20% savings.

75-15-10 Plan

Budgeting method allocating 75% for needs and wants, 15% investments, 10% savings

Career Path

A planned progression of jobs within one or more professions throughout one's working life.

Earning Potential

The top salary for a particular field or profession.

Salary

a fixed regular payment, typically paid on a monthly or biweekly basis but often expressed as an annual sum, made by an employer to an employee, especially a professional or white-collar worker.

Wages

An amount of money paid to an employee at a specified rate per hour worked

Gross Income

the total amount of income from wages before any payroll deductions

Net Income

income remaining after taxes and other payroll deductions have been deducted from one's gross pay

Disposable Income

income (after taxes) that is available to you for saving or spending

Discretionary Income

money income left after necessities have been bought and paid for

Fixed Expense

Costs that do not change from month to month, such as a car note or insurance premium

Variable Expense

An expense that changes from period to period, such as food or gasoline costs.

Savings Account

a bank account that earns interest

Checking Account

A bank account from which payments can be ordered by a depositor

Emergency Fund

a savings account that you can access quickly to pay for unexpected expenses or emergencies

Debit Card

A bank card that automatically deducts the amount of a purchase from the checking account of the cardholder

Credit Card

Type of card issued by a bank that allows users to finance a purchase

Credit Worthiness

a measure of whether a borrower is able to pay back a loan in a timely manner

Credit Score

A rating used by credit reporting companies to help lenders decide whether and/or how much credit can be extended to a borrower.

Credit Bureau

a company that collects credit rating information and makes it available to creditors

Good Debt

money owed on something you will get a return on, such as an investment. These investments (such as a house, a business, college tuition) ideally will ultimately provide a higher return than your debt

Bad Debt

In personal finance, items purchased on credit that have no possibility for a return on investment, and that increase financial strain over time

Lender

A person or company who loans money

Borrower

the recipient of a loan

Interest

the price paid for the use of borrowed money

Interest Rate

Percentage of amount borrowed to be added to the amount loaned and paid back

Annual Percentage Rate

Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan.

Compound Interest

interest earned on both the principal amount and any interest already earned

Secured Loan

a loan backed by collateral, something valuable such as property

Unsecured Loan

loan guaranteed only by a promise to repay it

Collateral

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

Default

failure to pay back a loan

Principal

The amount of money borrowed

Credit Limit

The maximum dollar amount that can be borrowed

Debt to Income Ratio

A standard tool that calculates whether a borrower will have difficulty meeting his or her loan repayment obligation.

W4

The withholding form each new employee fills out, stating the number of exemptions. the more exemptions listed, the less withholding tax will be taken from the paycheck.

W2

Report sent from the employer to both the IRS and the employee, showing gross income, total taxes paid, and total voluntary deductions.

Progressive Tax

A tax for which the percentage of income paid in taxes increases as income increases (more you make the more they take)

Sales Tax

a tax on the dollar value of a good or service being sold (form of regressive tax)

Tax Liability

The total amount of taxes you owe

Asset

Anything of value that is owned

Liability

(n.) a debt; something disadvantageous

Net Worth

the difference between assets and liabilities

Equity

value of an asset over time which can increase or decrease

Appreciation

an increase in value

Depreciation

A decrease or loss in value

Mortgage

a specific type of loan that is used to buy real estate

Rent

A fee charged for the use of property or land

Lease

a contract granting use or occupation of property during a specified time for a specified payment (to rent)

Credit Union

A nonprofit financial institution that is owned by its members and organized for their benefit.

Commercial Bank

a for-profit institution that offers a full range of financial services, including checking, savings, and lending

Insurance

protection against possible financial loss

Life Insurance

insurance paid to named beneficiaries when the insured person dies

Whole Life Insurance

Insurance that is kept in force for a person's entire life and pays a benefit upon the person's death, whenever that may be.

Term Life Insurance

Life insurance that pays a death benefit if the policyholder dies within a specific time period but has no remaining value at the end of this time.

Insurance Premium

The amount you pay for an insurance policy

Insurance Deductible

The amount of money paid out of pocket before an insurer will pay any expenses

Homeowners Insurance

coverage that provides protection for your residence and its associated financial risks

Renters Insurance

Covers your personal property in a rented apartment or home.

Health Insurance

Insurance that covers medical illness or injury.

Auto Insurance

Insurance to protect a car owner in the event of an accident or damage to a vehicle.

Risk Aversion

reluctance to accept risk

Risk Tolerance

The degree, amount, or volume of risk that an organization or individual will withstand.

Wealth Protection

Insurance and estate planning to protect income.

Retirement

The state of being retired from one's occupation.

Individual Retirement Account (IRA)

a tax-sheltered retirement plan in which people can annually invest earnings up to a certain amount

Roth IRA

private retirement plan that taxes income before it is saved, but which does not tax interest on that income when funds are used upon retirement

Investing

Committing money in the hope that it will make more money over time.

Beneficiary

one who benefits from something; a person who is left money or other property in a will or the like

Death Benefit

The actual amount paid to a beneficiary under a life insurance policy

Diversification

Spreading out investments to reduce risk

Investment Portfolio

Collection of financial assets held by an investor.

Stock

A share of ownership in a corporation.

Bond

a formal contract to repay borrowed money with interest at fixed intervals

Mutual Fund

an investment program funded by shareholders that trades in diversified holdings and is professionally managed.

Exchange Traded Fund (ETF)

Collections of stocks and bonds that are traded on securities exchanges, but are traded more like individual stocks than mutual funds.

Real Estate Investment Trust (REIT)

an organization that purchases, owns, and manages real estate for its investors

Cryptocurrency

a digital or virtual currency that uses cryptography for security such as Bitcoin, Ethereum, and Litecoin

Block Chain

A digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly

Penny Stock

Stock that costs less than $1 per share; extremely high risk

Initial Public Offering (IPO)

selling a corporation's stock on public markets for the first time

Capital Gains

a profit from the sale of property or of an investment.

Dividends

payments of cash from a corporation to its stockholders

Blue Chip Stock

the stock of a large, well-established and financially sound company that has operated for many years such as Coca-Cola, McDonald's

Capital Gains Tax

A federal tax paid by businesses and investors when they sell stocks or real estate.

Stock Market

A system for buying and selling shares of companies

Liquidity

the ease with which an asset can be converted into cash

Stock Broker

individual or organization that receives and executes buy and sell orders on behalf of outside customers in return for commissions

Custodial Account

Investment account in which a custodian enters trades on behalf of beneficial owner who is usually a minor child.

Real Estate

land and anything that is attached to it

Payday Lenders

companies that make small short-term, high-interest loans to tide a person over "until payday"

Down Payment

an initial payment made when something is bought on credit.

Security Deposit

A sum of money usually equal to one month's rent, held by the landlord to cover any damage to the apartment caused by a tenant.

Paycheck to Paycheck

an expression used to describe a person or household whose monthly income is devoted to expenses and has little to no savings

Linear Income

Commonly referred to as "trading time for money", linear income is earned in direct relation to the number of hours you work.

Passive Income

Income earned from things you own such as houses, land, or other buildings as well as money earned from books, software, or music you have written

Multiple Streams of Income (MSI)

Having several differing manners by which one receives regular income through employment, entrepreneurship, and investing