Rinks Personal Finance Vocabulary

Describes a defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes; in some cases, employers will match their contributions

401(k)

Retirement plan similar to a 401(k), but one that is offered by non-profit organizations, such as hospitals, schools, and some charitable organizations rather than corporations; employees set aside tax-deferred dollars.

403(b)

Non-qualified, deferred compensation plan established by state and local governments for tax-exempt government agencies and tax-exempt employers; eligible employees are allowed to make salary deferral contributions to this plan; earnings grow on a tax-deferred basis and contributions are not taxed until the assets are distributed from the plan.

457 Plan

Making bi-weekly payments on your mortgage that makes one additional payment on your mortgage annually

Accelerated Payments

Home loan secured by a deed of trust or mortgage in which the interest rate will change periodically (i.e., annually); typically adjusted based on a published index such as the Treasury Bill; brought on as a result of high interest rates in the early 1980s as a way for banks to transfer the risk of higher interest rates to the consumer

Adjustable Rate Mortgage (ARM)

Mutual fund that seeks to provide maximum long-term capital growth from stocks of primarily smaller companies or narrow market segments; dividend income is incidental; the most volatile fund; also referred to as a small-cap fund

Aggressive Growth Stock Mutual Fund

Breakdown showing how much of each regular payment will be applied toward principal and how much toward interest over the life of a loan; also shows the gradual decrease of the loan balance until it reaches zero

Amortization Table

Contract sold by an insurance company, designed to provide payments to the holder at specified intervals, usually after retirement; the holder is taxed at the time of distribution or withdrawal, making this a tax-deferred arrangement

Annuity

A yearly fee that’s charged by the credit card company for the convenience of the credit card.

Annual Fee

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

Annual Percentage Rate (APR)

An increase in value

Appreciation

Anything that is owned by an individual; with respect to saving and investing, they are generally categorized as liquid (cash) and capital (investment) assets.

Assets

The process of deciding how investment dollars will be apportioned among various classes of financial assets, such as stocks, bonds and cash investments

Asset Allocation

Major categories of financial assets or securities. The three primary classes are common stocks, bonds and cash investments

Asset Classes

A public sale in which property or items of merchandise are sold to the highest bidder.

Auction

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

Auto Insurance

The rate of return on investments averaged over a specific period of time. It is determined by adding together the rates of return for each year and dividing by the number of years in the calculation.

Average Annual Return

Sales commission paid when the investor sells mutual fund shares; sometimes phased out over several years; also called redemption fee or contingent-deferred sales charge.

Back-End Load

A mutual fund that invests in more than one type of financial asset: stocks, bonds, and in some cases, cash investments

Balanced Fund

A home loan in which the sum of the monthly payments is insufficient to repay the entire loan; a final payment comes due, which is a lump sum of the remaining principal balance

Balloon mortgage

Legal procedure for dealing with debt problems of individuals and businesses; specifically a legal court case filed under one of the chapters of Title 11 of the United States Code (also Chapter 7, Chapter 1, and Chapter 13.

Bankruptcy

The recipient of assets passed on from the death of a friend or relative.

Beneficiary

A debt instrument where an issuer such as a corporation, municipality or government agency owes you money; a form of I.O.U.; the issuer makes regular interest payments on the instrument and promises to pay back or redeem the face value of the bond at a specified point in the future (the maturity date).

Bond

Mutual funds that buy bonds.

Bond Mutual Fund

The promotion of a product or service by identifying it with distinct characteristics (usually associated with public perception, quality or effectiveness)

Branding

Refers to the public’s ability to recall and recognize a brand by its logo, jingles, packaging, etc.

Brand Recognition/Awareness

Method used to evaluate the wisdom of a financial decision by determining the length of time it will take for the cost of the decision to be recouped.

Break-Even Analysis

A written cash flow plan

Budget

Feeling regret or concern after making a large purchase.

Buyer’s Remorse

A positive difference between an asset’s price when bought and its price when sold; the opposite of capital loss

Capital Gain

Payment to mutual fund shareholders of any gains realized during the year on securities that have been sold at a profit. Capital gains are distributed on a “net” basis after subtracting any capital losses for the year. When losses exceed gains for the year, the difference may be carried forward and subtracted from future gains.

Capital Gain Distribution

A negative difference between an asset’s price when bought and its price when sold; the opposite of capital gain.

Capital Loss

A summary that shows total income and spending for a given time period.

Cash Flow Statement

Also known as permanent life insurance; premiums include a death benefit and a plan to build savings within the policy; two main types are whole life and universal life; significantly more expensive than term life insurance.

Cash Value Insurance

Certificate of Deposit, usually at a bank; savings account with a slightly higher interest rate because of a longer savings commitment (i.e., six months, one year, etc.)

CD

Chapter of the Bankruptcy Code providing for liquidation of the debtor’s assets in order to repay the creditors; certain assets or aggregate value of assets of the debtor may be exempt based on state law.  Sometimes called straight bankruptcy because it is the final move in the bankruptcy codes.

Chapter 7 Bankruptcy

Reorganization bankruptcy, usually involving a corporation or partnership; generally includes a plan of reorganization to keep a business alive and pay creditors over time.  

Chapter 11 Bankruptcy

Chapter of the Bankruptcy Code providing for an individual to repay debts over time, usually three to five years; debtor makes periodic payments to the bankruptcy trustee, who in turn pays the creditors; sometimes includes adjustments to debt balances within the bankruptcy. Some individuals that file this type of bankruptcy will not change their habits and will end up in Chapter 7 Bankruptcy.

Chapter 13 Bankruptcy

Paperwork filed with an insurance company in order to get them to cover a loss for someone they insure.

Claim

Account set up to maintain daily financial activities. Users can draft checks for payment, issue deposits into their accounts, and keep track of their debit card transactions through their checking account.

Checking Account

Portion of auto insurance that covers losses due to vehicle damage in an accident.  If you do not have this coverage damage to your vehicle will not be paid by your insurance company.

Collision

A fee paid for providing a service.

Commission

A food, metal or fixed physical substance that investors buy or sell, usually via future contracts.

Commodities

Interest paid on interest previously earned; credited daily, monthly, quarterly or semi-annually.

Compound Interest

Pays for damage to your car that is not a result of an accident.

Comprehensive

A person or organization that uses a product or a service.

Consumer

Insurance policy that covers personal possessions in a home or apartment

Contents Insurance

Mortgage obtained through the Federal National Mortgage Association (FNMA), which insures against default; generally includes a down payment of 5-20% or more.

Conventional Loan

In regards to health insurance, paying a set amount per medical visit.

Copay

The process of quantifying costs and benefits of a decision.

Cost-Benefit Analysis

Applies to the amount of protection you have through an insurance company in the event of a loss.

Coverage

The granting of a loan and the creation of debt; any form of deferred payment.

Credit

An agency which collects the credit history of consumers so that creditors can make decisions about granting loans

Credit bureau

Insurance that pays for financed item or purchases if you become disabled and are unable to  earn an income

Credit disability

Insurance that pays for financed items or purchases in the event of your death

Credit Life

Report showing your payment history

Credit Report

A measure of an individual’s credit risk; calculated from a credit report using a standardized formula

Credit Score

Not-for-profit cooperatives of members with some type of common bond (i.e., employer) that provide a wide array of financial services, often at a lower cost than banks

Credit Union

Money

Currency

Type of card, often bearing the seal of a major credit card company, issued by a bank and used to make purchases; unlike a credit card, the money comes directly out of a checking account; also called a check card

Debit Card

Establishing and liquidating the same position or positions within one day’s trading

Day Trading

An obligation of repayment owed by one party (the debtor/borrower) to a second party (the creditor/lender); in most cases this includes repayment of the original loan amount plus interest

Debt

Act of combining all debts into one monthly payment, typically extending the terms and the length of time required to repay the debt

Debt Consolidation

Preferred method of debt repayment; includes a list of all debts organized from smallest to largest balance; minimum payments are made to all debts except for the smallest, which is attacked with the largest possible payments.

Debt Snowball

Amount you must pay before you begin receiving any benefits from your insurance company

Deductible

The legal document conveying title to a property

Deed

A broad, overall drop in the price of goods and services; the opposite of inflation

Deflation

Broadly refers to not being current on your payments

Delinquency

A decline in the value of property; the opposite of appreciation

Depreciation

Movement of tax-deferred retirement plan money from one qualified plan or custodian to another; results in no immediate tax liabilities or penalties, but requires IRS reporting

Direct Transfer

A service that electronically transfers all or part of any recurring payment, including dividends, paychecks, pensions and Social Security payments directly to a shareholder’s account

Direct Deposit Service

Policy that insures a worker in the event of an occupational mishap resulting in disability; compensates the injured worker for lost pay

Disability Insurance

Amount of money left over after all necessities and expenses are paid

Disposable Income

Distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders; generally distributed in the form of cash or stock

Dividend

Payment of income to mutual fund shareholders from interest or dividends generated by the fund’s investments

Dividend Distribution

The practice of dividing the money a person invests between several different types of investments in order to lower risk

Diversification

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage

Down Payment

A system by which goods and services are produced and distributed

Economy

After-tax college fund that grows tax-free for educational uses; eligibility based on parents’ annual income

Educational Savings Account (ESA)

Money in readily available cash to be used only in the event of an emergency; because life happens.

Emergency Fund

Tax-deferred savings plans offered by employers that provide a federal tax deduction, tax-deferral of contributions and earnings, and in some cases employer matching. They include 401(k) plans for corporate employees, 403(b) plans for employees of schools and non-profit organizations, and Section 457 plans for state and local government employees.

Employer-Sponsored Retirement Savings Program

A person who starts a business

Entrepreneur

Series of envelopes that are divided into categories (food, entertainment, gas, etc.) and are used to store cash for planned monthly expenses

Envelope System

The value of a piece of property over and above any mortgage or liabilities related to it

Equity

A tax levied on the purchase of certain non-essential consumer goods such as tobacco, airline tickets, etc.

Excise Tax

The percentage of a fund’s average net assets used to pay annual fund expenses. The expense ratio takes into account management fees, administrative fees, and any 12b-1 marketing fees

Expense Ratio

Part of homeowner’s insurance policy that pays a percentage beyond the insured price of the home for purposes of rebuilding it in the event of a catastrophic loss. If you do not update this, it will not cover the appreciation of your home (e.g.house is insured for $200,000, but the value goes up to $300,000, you are covered for the $200,000 plus whatever the coverage states).

Extended Replacement Cost

A federal institution that insures bank deposits

Federal Deposit Insurance Corporation (FDIC)

Process by which the holder of a mortgage sells the property of a homeowner who has not made interest and/or principal payments on time as stipulated in the mortgage contract

Foreclosure

Sales commission that is paid up-front when shares of a mutual fund are purchased

Front-End Loan

A group of mutual funds sponsored by the same organization, often offering exchange privileges between funds and combined account statements for multiple funds

Fund Family

A term used to designate all contracts covering the sale of financial instruments or physical commodities or future delivery on a commodity exchange

Futures

Court-ordered attachment that allows a lender to take monies owed directly from a borrower’s paycheck; only allowed as part of a court judgment

Garnishment

Time period during which a borrower can pay the full balance of credit due with no finance charges

Grace Period

A form of federal or state financial aid that does not need to be repaid; usually given to students who demonstrate financial need

Grant

A person’s total income prior to withholdings and deductions

Gross Income

Measures an economy’s total income. The sum of all goods and services produced in the country over a year.

Gross Domestic Product

A fund that buys stocks in larger, more established companies, medium- sized companies or growth stocks; also called a large- cap fund

Growth and Income Mutual Fund

A fund that buys stock in medium-sized companies that have experienced some growth and are still expanding; also called a mid-cap fund

Growth Stock Mutual Fund

Part of homeowner’s insurance policy that pays for the full cost of replacing damaged property without a deduction for depreciation and without a dollar limit

Guaranteed Replacement Cost