Vocabulary for Chapters 1-5

Comprehensive vocabulary flashcards covering Chapters 1 through 5 of personal finance concepts, including financial planning, personal financial statements, time value of money, tax concepts, and banking.

Personal Finance

How a person manages their money, including earning, spending, saving, borrowing, and investing.

Financial Plan

A plan for managing money to achieve financial goals.

Financial Goals

Specific money-related results you want to accomplish.

Opportunity Cost

What you give up when you choose one option instead of another.

Income

Money received from working, investments, or other sources.

Expenses

Money spent on goods, services, bills, and other needs or wants.

Budget

A plan showing how you expect to use your income, or a plan for future income, expenses, saving, and other uses of money.

Assets

Things or items you own that have financial or monetary value.

Liabilities

Money, debts, or financial obligations that you owe.

Net Worth

The value of your assets minus your liabilities (total assets minus total liabilities).

Liquidity

How easily an asset can be converted into cash.

Saving

Setting aside money for future use.

Investing

Using money to purchase assets with the goal of increasing its value or earning income.

Wealth

The financial value a person has accumulated, generally reflected by net worth.

Cash Flow

Money coming into and going out of your finances.

Cash Inflow

Money you receive, such as wages or other income.

Cash Outflow

Money you spend.

Net Cash Flow

Cash inflows minus cash outflows.

Cash Flow Statement

A financial statement showing income received and expenses paid during a particular period.

Fixed Expense

An expense that generally stays about the same each month, such as rent.

Variable Expense

An expense whose amount can change from month to month.

Discretionary Expense

Spending that is generally optional rather than necessary.

Personal Balance Sheet

A statement showing your assets, liabilities, and net worth at a specific point in time.

Emergency Fund

Money specifically saved to cover unexpected necessary expenses or loss of income.

Debt

Money that has been borrowed and must be repaid.

Time Value of Money

The idea that money available today is generally worth more than the same amount received later because today's money can earn a return.

Interest

Money earned from saving/investing or paid for borrowing money.

Interest Rate

The percentage used to calculate or determine the amount of interest earned on deposits or charged/paid for borrowing money.

Principal

The original amount of money saved, invested, or borrowed.

Simple Interest

Interest calculated only on the original principal.

Compound Interest

Interest calculated on the principal plus previously earned interest.

Compounding

The process of earning interest on both the original money and accumulated interest.

Future Value

What money invested today will be worth at a future date.

Present Value

What a future amount of money is worth today.

Annual Percentage Rate (APR)

A standardized annual rate associated with borrowing money.

Return

Money gained or lost on an investment.

Annuity

A series of equal payments made or received at regular intervals.

Future Value of an Annuity

The future accumulated value of a series of regular payments.

Present Value of an Annuity

The current value of a series of future payments.

Taxes

Money collected by governments to pay for public services and programs.

Income Tax

Tax based on income earned by an individual or household.

Gross Income

Income before certain deductions and taxes are taken out.

Taxable Income

The portion of income subject to income tax after applicable adjustments and deductions.

Tax Deduction

An eligible amount that reduces income subject to tax.

Tax Credit

An eligible amount that directly reduces taxes owed.

Marginal Tax Rate

The tax rate that applies to the next dollar of taxable income within a tax bracket.

Tax Bracket

A range of taxable income associated with a particular marginal tax rate.

Progressive Tax

A tax system in which higher portions of taxable income can be subject to higher rates.

Payroll Tax

Taxes connected to wages and typically withheld through payroll.

FICA

Federal payroll taxes used to fund Social Security and Medicare.

Withholding

Money an employer takes from a paycheck and sends to the government toward taxes.

W-2

A form from an employer reporting wages and certain taxes withheld during the year.

Tax Return

Forms filed with a tax authority to report relevant income and calculate tax liability or refund.

Tax Refund

Money returned when payments/withholding exceed the final tax liability.

Tax Liability

The amount of tax a person legally owes.

Financial Institution

An organization that provides financial services, such as a bank or credit union.

Commercial Bank

A financial institution that accepts deposits and provides loans and other banking services.

Credit Union

A member-owned nonprofit financial institution that provides banking services to eligible members.

Checking Account

A deposit account designed for frequent transactions and bill payments.

Savings Account

An account designed primarily for keeping money while potentially earning interest.

Deposit

Money placed into a financial account.

Withdrawal

Money taken out of an account.

Annual Percentage Yield (APY)

The annual percentage earned on a deposit account when compounding is taken into account.

Certificate of Deposit (CD)

An account in which money is generally committed for a specified period in exchange for interest.

Money Market Deposit Account

An interest-bearing deposit account that may have different balance or transaction requirements than ordinary savings.

Overdraft

When a transaction causes an account balance to fall below zero or exceeds available funds.

ATM

Automated Teller Machine used for certain banking transactions.

Debit Card

A payment card that generally takes money directly from a linked bank account.

Direct Deposit

An electronic payment deposited directly into a person's account.