These Personal Finance Terms Will Help You Become A Money Guru
Hey, sorry to disturb you from that extremely important Instagram sesh — we also are guilty of scrolling through our discover feeds for far too long — but we’d like to talk about your money. Hold the snore; we’re here to show you how to become an ass-kicking personal finance wizard by understanding a handful of key words. Yep, that’s it. Here are the most basic of finance terms everyone needs to know to control their financial destiny.
401(k) — A qualified retirement plan offered by an employer that allows employees to contribute a percentage of their salary from each paycheck. Sometimes, companies will match employee contributions.
Active Income — The income a person receives for performing a service (actual work).
Adverse Credit History — Essentially a record of poorly paid credit cards and loans. Adverse credit history can negatively impact your credit.
Amortization — The act of paying off debt in regular payments over time.
Annuity — A contract between you and an insurance company in which the company promises to pay you periodically after purchasing the annuity.
APR (Annual percentage rate) — The annual cost of a loan, often expressed in percentage terms.
Bank Credit — The amount of credit a person has through a banking institution, often through cards or loans.
Bankruptcy — A state in which a person’s assets are liquidated and he or she is freed from debt. Bankruptcy messes hard with credit.
Bond — A form of debt that an entity owes you. Basically, you loan money to a company, organization or even the government, and it’ll promise to pay you back with interest.
Bonus — A form of financial compensation, often paid out by an employer, in exchange for exceptional work or performance.
Compound Interest — Interest that includes not only that of present payments, but also the interest of previous payments.
Credit History — A record of a person’s ability to pay back debt.
Credit Score — A number, which sits on a scale between 330 to 830, that indicates how healthy your credit history is.
Defaulting — When someone is unable to pay his or her debt over a certain amount of time.
Delinquency — When someone fails to repay debt within the agreed term.
Guarantor — Someone who contractually promises to help pay another person’s debt if that person defaults.
Interest — An amount, usually represented as a percentage, that a lender charges on top of the already-existing amount due. Interest is typically an annual percentage.
Liability — A person’s obligation to pay back their debt.
Liquidity — The ability of an asset (like a house or car) to be transformed into cash without losing any value.
Loan — The giving of an asset, like money, a gift or property, to someone in exchange for future repayment.
Mutual Fund — An investment strategy that allows you and other investors to pool funds that all go toward a collection of stocks, bonds or other forms of investment.
Net Worth — How much money a person’s total assets are worth factored in with any liabilities.
Overdraft — Spending more on a debit and credit from a lending institution than you have, or when the account hits zero.
Principal — The original investment amount, before any interest is added.
Revolving Credit — When a customer pays a commitment fee to a lender to receive a certain amount of money, and when that money is paid off, the amount of money lent to the customer renews.
Tax-Deferred — Postponing taxes past their due date.
Withdrawal — Removing funds from an account.