Financial Planning for Generation X & Y Women
 
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Glossary of Financial Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z # | Show all
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401 (k) Plan
A tax deferred retirement plan that some private corporations offer their employees. Contributions to the plan may be made through payroll deduction. The money you place into the account lowers your taxable income. The employer usually matches a portion of your contribution.
403 (b) Plan
A retirement plan similar to a 401 (k) plan that is offered by certain tax-exempt organizations, public schools, such as universities, certain ministers, and some charitable organizations, rather than corporations.
Account Theft
Occurs when thieves use stolen personal information to access an individual's existing accounts, such as bank and credit card accounts.
Adjusted Balance Method
A calculation used by the credit card company to determine finance charges. They take the balance at the beginning of the current billing period and subtract any payments and credits received during the current billing period. The resulting total is used to compute any finance charges.
Annual Fee
An amount charged to the credit card holder regardless of whether the card is used. Not all companies charge an annual fee.
Annual Percentage Rate (APR)
This is the fixed or variable interest rate you will be charged if you carry a balance on your credit card.
Assets
Everything that an individual owns, including cash and cash equivalents, invested assets and use assets. Cash and cash equivalents include checking accounts, savings accounts, money market accounts, and the cash value of life insurance. Invested assets include the money invested in stock market, mutual funds, and retirement portfolios that include individual retirement accounts. Use assets include real estate, personal property, automobiles and other things an individual may own.
Automobile Collision Protection
An auto insurance coverage that covers damage to your car from a collision or roll over, regardless of who is at fault.
Automobile Comprehensive Coverage
An auto insurance coverage for damage/loss to your vehicle caused by something other than a collision or roll over. This could include fire, theft, vandalism, windshield cracking or hail damage.
Automobile Liability Coverage
Liability insurance pays for someone else's financial loss when you are held responsible.
Average Daily Balance Method
A calculation used by the credit card company to determine finance charges. The total unpaid balance for each day in a billing period is divided by the number of days in the billing period. The finance charge is figured on this average balance.
Bad Debt
Credit used to purchase items that lose value or are no longer around when the bill arrives. These items include clothing, food, gasoline, and other goods or services that do not retain their value.
Bankruptcy (personal)
Debts are discharged because that person is not able to repay debts. Assets may be liquidated to pay creditors, depending on the type of bankruptcy filed. Both types of bankruptcy may remove unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs and debt collection activities. Both types provide exemptions that vary by state and allow people to keep certain assets. Generally considered the option of last resort, a bankruptcy stays on an individual's credit report for 10 years.
  • Chapter 13 Bankruptcy - The court approves a repayment plan that allows the individual to pay off a default during a three-to-five year period, rather than surrender any property.
  • Chapter 7 Bankruptcy- Liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of the property may be sold by a court-appointed official -a trustee-or turned over to creditors. Debts can be discharged through Chapter 7 only once every six years. Also known as straight bankruptcy.
Bond
A debt instrument or IOU issued by corporations or units of government.
Budget
A plan developed by an individual for directing and controlling his or her money.
Caveat Emptor
Let the buyer beware.
Certificate of Deposit (CD)
A certificate from a bank stating that the named party has a specified sum on deposit, usually for a given period of time at a fixed rate of interest. Early withdrawal penalties apply to CDs.
Checking Account
An account which allows the holder to write checks against deposited funds. Some checking accounts pay interest.
Co-signer
An individual with an established credit record who agrees to make the payments on a loan if the borrower does not.
Compensation
Full package offered by employer to employee that includes salary or wages and employer-provided benefits.
Compound Interest
Interest computed on the sum of the original principal and accrued interest.
Coverdell Education Savings Account
This account named after Senator Paul Coverdell (GA) replaces the Education IRA. It allows parents to make a contribution into the account with an annual limit. The contributions are taxed but the earnings used to pay education expenses are not. There are Internal Revenue rules and guidelines that apply to this account.
Credit Bureau
Most Credit Reporting Agencies are credit bureaus that gather and sell credit-related information about individuals to creditors, employers, landlords, and other businesses. Information includes whether the individual pays bills on time or has filed bankruptcy.
Credit Counseling Service
An organization that administers debt repayment plans for individuals seeking assistance with their credit. Credit counseling services may charge a fee that can range from nominal to high. Credit counseling services may be either not-for-profit or for-profit organizations.
Credit History
An individual's record of paying loans, credit cards and other bills.
Credit Report
A record of an individual's credit history that is compiled by credit-reporting agencies. The history contains a listing of debts, bills submitted to collection agencies, bills paid late, public information such as tax liens and bankruptcies, and a listing of who has requested a copy of the credit report. Negative information can remain in a credit report for seven years, except for bankruptcy, which will remain for ten years.
Credit Reporting Agency (CRA)
Organization that collects information for credit reports and in turn sells the reports to people with a legitimate business need as defined by the Fair Credit Reporting Act. Examples of legitimate business needs are applications for employment, insurance, or to rent an apartment. Companies that loan money and issue credit regularly report payment behaviors to credit reporting agencies.
Credit Score
Computer-generated number indicating the likelihood an individual will repay credit received. The most common credit scores are developed by the Fair, Isaac Company and are referred to as FICO scores. Scores range from 300 to 850. Higher scores indicate a higher likelihood of repaying debt.
Debt-to-Income Ratio
The percentage of net income that pays for non-mortgage debt. Examples of non-mortgage debt include auto loans, student loans, and credit cards. Ratio is calculated by dividing the total amount of monthly payments by total net income. A debt-to-income ratio should be less than 15 percent. Debt-to-income ratios exceeding 20 percent indicates potential for repayment difficulties.
Defined Benefit Plan
A defined benefit plan promises you a specified monthly benefit at retirement. It may promise an exact dollar amount or use a formula that considers factors such as salary and years of service. Your employer or both you and your employer contribute to these plans.
Defined Contribution Plan
In these plans, you or your employer (or both) contribute to your individual account under the plan. These contributions generally are invested on your behalf. What you receive is based on contributions plus or minus investment gains or losses. Examples include 401 (k) plans and 403 (b) plans.
Direct Stock Purchase Plans (DPPs)
Allows you to buy stock directly from a company.
Disability Insurance
Disability insurance provides a weekly or monthly income benefit if you are disabled due to a covered injury or sickness.
Discharge
A court order that says an individual does not have to pay certain debts. An individual who files for bankruptcy receives a discharge.
Dividend
A taxable payment declared by a company's board of directors and given to its shareholders out of the company's current or retained earnings (earnings not paid out as dividends but instead reinvested in the core business), usually quarterly.
Dividend Reinvestment Plans (DRIPS)
Dividends are reinvested to buy more company stock instead of being issued to you as a dividend check.
Dollar Cost Averaging
Dollar-cost-averaging is a strategy where a fixed dollar amount is invested at regular intervals, resulting in more shares purchased when the price per share is low and fewer shares when the price is high.
Durable Power of Attorney
Governs what happens during your lifetime by designating someone to perform certain actions for you if you should become incapacitated or otherwise unable to manage your financial affairs or make financial decisions.
Equity
Anything of value earned through the provision or investment of something of value. In real estate, equity is the interest or value an owner has in real estate over and above the mortgage against it.
Fair Credit Reporting Act (FCRA)
The federal Fair Credit Reporting Act (FCRA) is designed to promote accuracy, fairness, and privacy of information in the files of every consumer reporting agency (CRA). The FCRA gives consumers specific rights and additional rights may apply under state law.
Fair Market Value
The price a use asset would fetch if sold on the market today. Homes and real estate typically increase in value while automobiles and some personal property, such as computers and appliances, usually decrease in value over time.
Fixed Expenses
A cost that remains relatively constant. Examples include savings, investments, retirement contributions, taxes, mortgage or rent, debt payments, and insurance.
Good Debt
Credit used to purchase items that retain or increase in value over time. These items include homes and education loans.
Grace Period
The time between the billing date and when finance charges will begin to accrue. Grace periods now range from 15 to 25 days. Under most credit card plans, the grace period applies only if you pay your balance in full each month. The grace period does not apply if you carry a balance forward, nor does it apply to cash advances.
Gross Earnings
Total personal income before deductions, such as income taxes, Social Security and Medicare.
Health Insurance
Offers protection from financial losses that could result from injury, illness, or disability.
Health Maintenance Organization (HMO)
A form of health insurance. An HMO is an organization of health care professionals that provide health care services to members on a prepaid basis.
Identity Theft
An individual's personal information is used by another person without permission to open fraudulent accounts or commit other crimes.
Index Mutual Funds
A passively managed mutual fund that tries to mirror the performance of a particular index, such as the S & P 500.
Inflation
A rise over time in the price of goods and services. As the price of goods and services increases, the value of the dollar falls as its purchasing power decreases.
Insurance
The management of risks that have financial consequences. A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well being of an individual, company or other entity in the case of unexpected loss.
Insurance Premium
The payment you or your employer pay for insurance coverage.
Investment
The act of investing means to place money into stocks, bonds, mutual funds, real estate or other choices with the expectation that the value of the money invested will grow beyond the original amount invested.
IRA
Individual Retirement Account. A tax-deferred retirement account for an individual that permits individuals to set aside a set income amount per year, with earnings tax-deferred until withdrawals begin at age 59 ½ or later. Investors withdrawing money earlier than age 59 ½ may be subject to penalties for early withdrawals.
Letter of Last Instruction
This letter includes information about your funeral plans/preferences, obituary information, insurance policy contact information, a list of your financial accounts and debts, the location of important papers, keys/combinations for lockboxes and other locked containers, and a list of persons to be contacted.
Liabilities
Anything that an individual owes. This includes credit card balances, college loan balances, automobile note balances, mortgage balances, and any other type of personal loan.
Life Insurance
A contract with the insurance company whereby in exchange for paying the insurance company a premium, they agree to pay your beneficiaries (people you designate) a certain amount of money when you die.
Living Will
This document is an individual's written declaration of what life-sustaining medical treatments are allowable in case of incapacitation or terminal illness.
Long-Term Care Insurance
LTC insurance provides for your "long-term care" if you become unable to take care of yourself because of loss of functional capacity or cognitive impairment.
Medical Durable Power of Attorney
This document authorizes your representative to make medical decisions based on what you have specified in your living will.
Money Market Deposit Account
A type of savings account offered by a financial institution. The Federal government insures money market deposit accounts. They are liquid investments with a rate of interest that is lower than most other investments.
Money Market Mutual Fund
A highly liquid mutual fund that invests in short-term obligations such as commercial paper, government securities and certificates of deposit.
Mortgage
An instrument by which the borrower gives the lender a lien on property (commonly real estate) as security for the payment of an obligation. The borrower continues to use the property; when the obligation is fully extinguished, the lien is removed.
Mutual Fund
A pool of money managed by an investment company. The funds are invested in a variety of securities, including stocks, bonds and money market securities.
Net Asset Value (NAV)
The price of a single share of a mutual fund.
Net Income
Amount of money remaining after income taxes, Social Security, Medicare, insurance (health, life disability, etc.), flexible spending plan contributions, retirement savings, and other items have been deducted. Also known as take-home pay.
Net Worth
Value determined by subtracting liabilities from assets.
No Load Fund
A mutual fund whose shares are sold without a commission or sales charge. The shares are distributed directly by the investment company.
Passbook Savings Account
An account that a bank or savings institution issues to keep record of deposits, withdrawals, and interest earned in the savings account. Usually pays a very low interest rate.
Preferred Provider Organization
A form of health insurance. A PPO is made up of a group of medical care providers (doctors, hospitals, etc.) who contract with a health insurance company to provide services at an agreed upon discounted price.
Retirement Plan
A plan for setting aside funds from current income in appropriate investments with the expectation that money will accumulate and grow so that period withdrawals may be made during retirement. The term can also refer to the individual investment options offered to employees by employers.
Roth IRA
A tax-preferred savings and investment account authorized by Internal Revenue Code section 408A. The contributions are made with after tax dollars. The earnings are not presently taxed or never taxed if certain rules of distribution are met.
Rule of 72
Used to determine how many years it will take your money to double. Divide 72 by the annual interest rate.
Savings Bond
Non-marketable, registered securities issued by the U.S. Treasury Department. Non-marketable means they cannot be sold to or bought from anyone except an issuing and paying agent authorized by the Treasury Department. Registered means they are owned exclusively by the person or persons named on them. Savings bonds are backed by the full faith and credit of the United States.
Secured Debt
Debt backed or secured by collateral in order to reduce the risk associated with lending.
Series EE Savings Bond
A low-risk savings product that pays interest based on current market rates on Treasury securities. Interest is calculated semiannually, but paid at maturity and exempt from state and local taxes.
Series I Savings Bond
A low-risk, liquid savings product that while you own them, they earn interest and help protect your savings from inflation. They pay a fixed rate that is lower than traditional savings bonds, but they also pay a variable rate that increases with inflation.
Set-Aside Account
A place to put money that you know you will need for expenses that occur periodically.
Statement of Financial Position
An inventory of an individual's assets and liabilities at a particular moment in time. Record includes a net worth calculation, which subtracts the liabilities from the assets. Also known as a Net Worth Statement.
Statement of Income and Expense
A time specific document that summarizes income received and expenses paid for a full, 12-month year. The overall format is flexible. Expenses are categorized as fixed or variable.
Stock
Security or instrument that represents a unit of ownership in a corporation.
Term Life
A type of life insurance that provides insurance protection for a set period of time. Term policies are written for one, five, 10, or 20 years. If you die before the time period ends, your beneficiaries receive the death benefit.
Thrift Savings Plan (TSP)
A retirement plan similar to a 401 (k) plan that is offered to federal government employees.
Time Value of Money
The idea that a dollar now is worth more than a dollar in the future, even after adjusting for inflation, because a dollar now can earn interest or other appreciation until the time the dollar in the future would be received.
Treasury Note
When you purchase a treasury note you are lending money to the government. Treasury notes are backed by the full faith and credit of the U. S. government. Treasury notes mature in more than a year, but not more than 10 years from the issue date.
Two-cycle Daily Balance Method
A calculation used by a credit card company to determine finance charges using two months of credit transactions. An average daily balance is calculated for the current billing period and the previous billing period, with the total being divided by the total number of days in both billing periods.
Unsecured debt
Debt issued and supported only by the borrowers creditworthiness, rather than by some sort of collateral.
Variable Expenses
Costs that change in proportion to an activity or use. Examples include food, transportation, clothing, education, medical, and utilities.
Vested
The amount of time you must work before earning a non-forfeitable right to your accrued benefit. When you are fully “vested,” your accrued benefit will be yours, even if you leave the company before reaching retirement age.
Whole Life
A type of life insurance that provides protection for life or until you reach age 100. If you live to 100, the insurance would end, and the insurance company would send you a check for the face value of the policy. If you die before 100, the insurance company will pay your beneficiaries the death benefit.
Will
This legal document names the person you have designated as executor of your estate, specifies how you want the assets of your estate to be distributed after any debts and taxes are paid, and states who will care for your minor children. The will goes into effect

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