Friday, 7 August 2020, 8:50 PM
Site: MoneyU
Course: MoneyU (MoneyU)
Glossary: MoneyU Glossary of Terms
CREDIT

Account Number

Every cardholder's account is identified by an account number. Protect it and never give it out over the telephone unless you initiated the call.

Activate

To prevent fraud, many card issuers require you to call them when you receive your new card in the mail to verify that the correct person has received it. Until proper ownership is confirmed, the card may not be activated.

Advance Fee Loan

A loan calculated so that all finance charges and other creditor expenses are deducted before the consumer receives the principal.

Annual Fee

Some credit card companies charge an annual fee; it is the yearly cost you pay to use the card.

Annual Percentage Rate (APR)

The APR measures the cost of credit expressed as a yearly interest rate.

Automatic Clearing House

The automated clearing house is how electronic transactions are processed when a person selects an electronic debit or credit of funds. These are most common with payroll direct deposit and automatic bill payments.

Automatic Payment

If you have a savings or checking account with the same bank that issues your card, you may be able to automatically transfer money from your bank account to pay a credit card bill. Automatic payment eliminates the risk of paying a bill late and being assessed a late charge.

Available Credit

The unused portion of credit that falls within the consumer's applicable credit limit, if any.

Average Daily Balance

(Including or excluding new purchases.) This is the most common method of calculating interest. To figure out your average daily balance, the bank adds up the amount you owe for each day of your billing cycle and divides that number by the number of days in the billing cycle (see Billing Cycle). New purchases may or may not be added to the balance, depending on the individual card's terms. The most favorable calculation excludes new purchases.

Balance

The amount of money you owe the card issuer. This includes purchases, fees, interest, and transaction charges.

Billing Cycle

The time between your last bill and your current bill; usually 28 to 31 days.

Cash Advance

A cash loan taken out on a credit card. Interest for cash advances is usually higher than it is for purchases, a transaction fee may apply, and the grace period may be waived.

Charge Card

A charge card requires you to pay your bill in full each month, but charges no interest. The user pays an annual fee.

Co-Sign

To sign a credit agreement with someone and agree to share the debt with that person, or assume the debt if the other person defaults, or doesn't pay.

Co-Signer

A parent (or any person over 18 years old) who agrees to share credit responsibilities with you and pay debts.

Collateral

Savings, bonds, insurance policies, jewelry, property or other items that are pledged to pay off a loan or other debt if payments are not made according to the agreement. (Also called Security.)

Collection Agency

If you fail to pay a credit or charge card bill, the card issuer may send your overdue bill to a collection agency, a company that attempts to obtain payment from you. If this happens, your account may be listed as a "collection account" on your credit report. If you do not pay your bill and your card issuer has to go to a collection agency to attempt to obtain payment from you, you may be liable for the cost of the collection agency's services. Check your cardholder agreement to see if your card includes this potential fee.

Consumer Protection Act

A revision of bankruptcy law intended to make the system fairer for creditors and debtors and make affordable credit available to more people.

Contract

Legally enforceable written or oral agreement between two or more parties to do or not do something.

Cost of Living Index

An inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food, and transportation. A rise in the cost of living reflects the rate of inflation. The cost-of-living index is published monthly. Also called Consumer Price Index (CPI).

Credit

An amount of money a bank or credit card issuer lends to you. You can charge/spend any amount from your credit line to make purchases or take cash advances. As long as you pay the minimum amount due each month by the due date, you can continue to use your remaining available credit.

Credit Bureau

A credit bureau keeps a record of your credit history for any card or loan issuer to review when considering your application for credit. The three major credit reporting agencies in the United States are Equifax, Experian (formerly TRW) and Trans Union.

Credit Card

A credit card allows you to make partial payments for purchases, but charges interest on the amount owed. You can pay your balance off in full to avoid interest payments. Banks and other card issuers set interest rates and fees.

Credit Card Bill of Rights

An amendment to the Truth in Lending Act to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan.

Credit Card Debt

The total unpaid balances on all your credit cards.

Credit History

A record of how a consumer has paid credit accounts in the past. It is used as a guide to determine whether or not the consumer is likely to pay future accounts on time.

Credit Limit/Credit Line

Your credit limit is the maximum amount you may charge on a credit card or you can carry on an account. Some card issuers set a separate limit for purchases and cash advances. Many banks allow you to spend more than your credit limit, but charge you a fee for doing so. It is up to you to keep track of your credit limit and how much available credit you have left.

Credit Report

An official record of a borrowerÔÇÖs credit history, including such information as the amount and type of credit used, outstanding balances, and any delinquencies, bankruptcies, or tax liens. A report that a prospective lender or employer obtains from a consumer reporting agency that displays the manner in which a consumer has met his or her past credit obligations. It is used to help determine creditworthiness of the potential borrower.

Credit score

A measure of creditworthiness based on an analysis of the consumerÔÇÖs financial history, often computed as a numerical score, using the FICO or other scoring systems to analyze the consumerÔÇÖs credit. A creditorÔÇÖs evaluation of a personÔÇÖs willingness and ability to pay debts as judged by character, capacity, and capital; a mathematical model used by lenders to predict the likelihood that bills will be paid as promised.

Creditworthiness

A measure of oneÔÇÖs ability and willingness to repay a loan; qualified to have credit.

Daily Periodic Rate

The daily periodic rate is your annual interest rate expressed on a daily basis. It equals 1/365th of your annual percentage rate.

Debit Card

This card allows you to deduct the amount of your purchase directly from your checking account for payment to the merchant.

Default

Failure to pay a debt as outlined in the cardholder agreement, bankruptcy, or an inability or unwillingness to pay your debt. If you default on your credit card account, the issuer cancels your account and demands full payment of the outstanding balance

Dispute

To question the accuracy of information on a credit report. Disputes can now be effectively resolved online by notifying Equifax.

Equal Credit Opportunity Act

The Equal Credit Opportunity Act requires that U.S. financial institutions and other creditors make credit equally available to all creditworthy customers without regard to race, color, religion, national origin, sex, marital status or age. For example, a creditor cannot ask you to reapply, close your account or change terms of a loan if you become widowed or divorced. Income from pensions, annuities or part-time employment may not be excluded by a creditor in evaluating a consumer's creditworthiness.

Fair Credit Reporting Act

The U.S. Fair Credit Reporting Act seeks to achieve fair, timely and accurate reporting of credit information by regulating the activities of credit bureaus, limiting access to credit bureau information, and requiring that creditors disclose certain information regarding their use of credit bureau or third-party information. Under the Fair Credit Reporting Act, you have the right to see the credit history maintained by a credit bureau about you (see Credit Report).

Finance Charge

The cost of consumer credit expressed as a dollar amount. A finance charge would include the following types of charges imposed by card issuers: interest, transaction fees, and service fees.

Grace Period

The period of time, generally 20 to 25 days, from the billing date of your last credit card bill to the due date of your current bill, when you can pay in full without being charged interest. Some cards do not offer a grace period. Others only have a grace period if there was no outstanding balance on the account at the start of the billing cycle. Generally, there is no grace period for cash advances.

Installment Credit

A credit agreement that allows you to repay credit in regular payments over a specified time.

Interest

A charge for borrowed money, generally a percentage of the amount owed.

Liability

Liability refers to the responsibility for charges to an account. Generally, a cardholder agrees to be liable for any charges to his or her account, including purchases, fees, and finance charges. If the cardholder allows someone else to make charges to his or her account (through, for example, an additional card), the cardholder is still responsible for paying the bill. Two people who apply for a card together may both be responsible for the entire balance. Your liability is described in the cardholder agreement you receive from the issuer. Be sure to read it carefully.

Minimum Payment

The minimum amount you are required to pay the credit card issuer each month. You may, however, choose to pay more. Paying the minimum monthly payment may be helpful when you can only afford to make a small payment. However, interest charges can really add up when you stretch out a loan with minimum payments.

Overdraft Agreement

Some issuers allow you to link your credit card to a checking or savings account that you hold with that bank. When you sign an overdraft agreement and you bounce a check, the bank can charge that amount to your credit card account and the check will clear. This way, you avoid a returned check fee.

Periodic Rate

The interest rate described in relation to a specific amount of time. For example, the monthly periodic rate is the cost of credit per month; the daily periodic rate is the cost of credit per day.

Prime Rate

The interest rate banks charge for loans to their biggest and highest-rated customers. The prime rate changes based on the demand for money and the rate the U.S. Federal Reserve Bank charges to its member banks. It is used as a major economic indicator.

Principal

The amount of money you owe, not including the interest due on it.

Revolve

To carry over a debt from month to month, paying interest on the amount owed.

Revolving Credit

A credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card. As credit is paid off, it becomes available again to use for another purchase or cash advance.

Security

Savings, bonds, insurance policies, jewelry, property or other items that are pledged to pay off a loan or other debt if payments are not made according to the agreement. (Also called Collateral.)

SET Protocol

Secure Electronic Transaction protocol, an encryption technology designed to allow secure electronic transactions between card issuers, merchants and consumers. Unsecured information sent over the Internet can be intercepted. When making purchases online, you should consider a secure browser that complies with industry standards, such as secure sockets layer (SSL) or secure hypertext transfer protocol (S-HTTP). These often are included with Internet connection services.

Smart Card

A card containing a Central Processing Unit (CPU) that stores and secures information and makes decisions, as required by the card issuer's specific application needs.

Truth in Lending Act

The Truth in Lending Act seeks to tell U.S. consumers important information about credit terms that can help them make informed credit choices and should protect them against inaccurate and unfair billing practices. The Truth in Lending Act was amended by, and includes, the Fair Credit Billing Act (see Dispute).

Unsecured Loan

A loan based on a consumer's promise to pay, without savings or other collateral as a guarantee. Sometimes called a signature loan.

Variable Interest Rate

A variable interest rate is based on fluctuating rates in the banking system, such as the prime rate. For example, if on January 1, the prime rate was 6 percent and your credit card's variable rate formula was the prime rate plus 9.9 percent, your interest rate would be 15.9 percent (see prime rate).

Zero Balance

If you have no previous outstanding balances on your card account, and no new activity that month, this means that you have a zero balance. You might not get a bill since you do not owe anything.

DEBT

Amortization

To reduce a debt by making payments against the principal balance in installments or regular transfers.

Bad Credit

Poor credit rating. Things that damage your credit rating include late or missed payments, exceeding the credit line on cards, defaulting on loans, or declaring bankruptcy.

Balance

The amount of money you owe the card issuer. This includes purchases, fees, interest, and transaction charges.

Bankruptcy

Legal process for selling most of the debtorÔÇÖs property to help satisfy debts that canÔÇÖt be repaid, in exchange for (a) relieving debtors of the responsibility of paying their financial obligations or (b) protecting them while a plan is created and they try to repay debts. Two types of bankruptcy apply to consumers -┬á Chapter 7 and Chapter 13. Once a bankruptcy has been filed, foreclosures, garnishments, repossessions, utility cut-offs and debt collection activities are automatically stayed.

Chapter 13 Bankruptcy

A type of consumer bankruptcy under which the debtor doesn't forfeit personal property but agrees to a three- to five-year wage-earner plan to repay all or part of their debt. A Chapter 13 bankruptcy remains on a credit report for seven years.

Chapter 7 Bankruptcy

The most common form of consumer bankruptcy, Chapter 7 typically releases a debtor from all liability for the accounts included in a bankruptcy. In exchange, the debtor must forfeit some personal property. A Chapter 7 bankruptcy remains on the debtor's credit report for 10 years.

Consolidation Loan

A loan obtained in order to combine multiple debts into one, typically at a lower interest rate. (Also called Debt Consolidation.)

Consumer Protection Act

A revision of bankruptcy law intended to make the system fairer for creditors and debtors and make affordable credit available to more people.

Credit Counseling

An organization that provides debt and money management advice and assistance to people with debt problems. Not all credit counseling firms are reputable, and some might actually make your debts and credit worse.

Credit History

A record of how a consumer has paid credit accounts in the past. It is used as a guide to determine whether or not the consumer is likely to pay future accounts on time.

Credit Repair Organizations Act

Guidelines that credit repair services are required to follow in order to protect you.

Credit score

A measure of creditworthiness based on an analysis of the consumerÔÇÖs financial history, often computed as a numerical score, using the FICO or other scoring systems to analyze the consumerÔÇÖs credit. A creditorÔÇÖs evaluation of a personÔÇÖs willingness and ability to pay debts as judged by character, capacity, and capital; a mathematical model used by lenders to predict the likelihood that bills will be paid as promised.

Creeping Indebtedness

The gradual rising of debt.

Debt

A liability or obligation in the form of bonds, loan notes, or mortgages, owed to another person or persons and required to be paid by a specific date.

Debt Consolidation

The replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period. (Also called Consolidation Loan.)

Debt Manager

Someone that restructures your current debt with your existing creditors. You don't loan money from them (or anyone else) and you still owe all of the same creditors. However, the Debt Manager can help change the terms and conditions that apply to your current debt. The Debt Manager then consolidates your debts into one monthly payment. You pay the Debt Manager and the Debt Manager sends your payments to your creditors for you each month.

Debt Repayment Plan

A plan you create to most efficiently repay all of your debts.

Debt-to-Income Ratio

Your debt-to-income ratio compares the amount of your debt (excluding your mortgage or rent payment) to your income.

Take Home Pay

The amount of money you earn after all deductions.
EARNING

1040

Individual U.S. Income tax return; generally required to be filed by April 15 to report income for the previous year. Form 1040 is the long form, which must be used by taxpayers who itemize deductions or have high incomes. Form 1040A is limited to those who have less than $50,000 of taxable income and limited income sources and do not itemize deductions. Form 1040EZ is the easiest to complete, but may be used only by single people claiming only themselves as a personal exemption, with income only from wages, salaries, and tips, and no more than $400 of interest income.

The 1040 form has several "schedules" with which individuals can declare their deductions, adjustments, and other sources of income. The 1040 form has two pages: the first page figures the income and also any adjustments to income; the second page of the 1040 form records taxes due, deductions, credits, and payments already made toward one's tax liability. A 1040 form can be amended by filling out a 1040X form.

401K Plan

A 401K plan is established by your employer as a way for you to save money for your retirement. It's generally funded with money from your paycheck (before it's taxed by the government) and sometimes, from matching contributions from your employer. This total amount is deposited into a mutual fund. That money, plus any future financial growth from investing, isn't taxed until you take the money out.

Career

Pattern of activities and positions involved in an individualÔÇÖs lifetime of work to which the person has made a long-term commitment.

Federal Insurance Contributions Act (FICA)

The FICA tax is what you're giving to Social Security, the national program that provides money for retired workers, disabled individuals the unemployed, and others who collect government benefits.

Gross Pay

Your gross pay is the amount of money you are paid before any of it is taken from your paycheck for taxes and deductions.

Income Tax

An annual tax that the Federal government, most states, and some local governments charge on all the money a person or company earns in an entire year.

Luxury Tax

A luxury tax is placed on "luxury items" that aren't considered essential for living. These include high-priced items like jewelry or expensive cars. So bread and milk at your grocery stores won't be taxed because they're considered "essentials".

Non-Taxable Income

Money you earn that is not taxed by the federal, state, or local government. This money can come from several sources including disability pay or legal settlements due to personal injury.

Premiums

Monthly fees to a health insurance firm that provides you with coverage.

Property Tax

What you pay on land you own. That applies to whether it's the house you live in or property you own with nothing on it but dirt. The tax is usually charged by your local government, which bases your property tax on what it thinks your property is worth if you decided to sell it. Property taxes are mainly used to repair roads, build schools, remove snow and perform other services in your town.

Sales Tax

What your state or local government charges you when you buy a good or service. It's typically a percentage of the cost you pay. While an income tax charges the money you earn, the sales tax charges money you've spent. States that charge sales tax typically charge 4 to 7 percent of the item's cost.

State Unemployment and Disability (SUI/SDI)

Certain states require employees to contribute to this program, which pays benefits to people who are unemployed or currently unable to perform their job.

Take Home Pay

The amount of money you earn after all deductions.

Taxable Income

Any money you earn or receive - such as salary, bonuses or interest from investments - that can be taxed by the Federal, state, or local government.

W-2 Form

A form sent to you by your employer that lists the total amount of money you earned over the year, and the total amount of taxes taken out.
GOOD BANKING

Account Balance

The amount of money in your account.

ATM

Automated Teller Machine. A machine you can use to deposit money, withdraw money, transfer money between multiple accounts, etc. You can find ATMs everywhere these days, including in the lobbies of banks, in grocery stores, inside restaurants, and at sporting events.

Balance

The amount of money you owe the card issuer. This includes purchases, fees, interest, and transaction charges.

Bank

A state or federally chartered for-profit financial institution that offers commercial and consumer loans and other financial services.

Banked

To have an account in a financial institution.

Certificates of Deposit

(Also known as CDs.) Certificates of deposit, or CDs, are time deposits. CDs offer a guaranteed rate of interest for a specified term, such as one year. With CDs, you can choose from among various lengths of time that your money is on deposit, ranging from several days to several years. Once you pick the term you want, you will generally have to keep your money in the account until the term ends.

Check

Written order directing a bank or credit union to pay a person or business a specific sum of money.

Checking Account

An account with which you write checks to withdraw your deposited funds from the account

Credit Union

A not-for-profit financial institution that is owned by its members. Credit unions offer many of the same services as banks at lower costs. They may also pay higher interest on deposits. To open an account at a credit union, you must qualify for membership.

Credit Union Account

Credit union accounts are similar to those at banks, but have different names. Credit union members have share draft (rather than checking) accounts, share (rather than savings) accounts, and share certificate (rather than certificate of deposit) accounts.

Debit Card

This card allows you to deduct the amount of your purchase directly from your checking account for payment to the merchant.

Deposit Account

An account at a bank or credit union that may pay interest and is usually insured against loss

Electronic Funds Transfer

The Electronic Fund Transfer (EFT) system is a national payment mechanism that moves money between accounts.

Federal Deposit Insurance Corporation (FDIC)

(Federal Deposit Insurance Corporation) A federal government agency that insures deposits in banks and savings banks up to $250,000.

Federal Reserve

The central bank in the United States that monitors and influences the total supply of money and credit through its 12 regional offices. The Federal Reserve Board sets interest rates, maintains the flow of cash to local and regional banks, clears checks, and helps guarantee the stability and security of the U.S. banking system.

Financial Health

This is a description of your overall financial situation. To take a closer look at your financial health, you consider the amount of money you make each month, if you own a home or other valuables, any investments you may have, and the amount of debt you carry. For example, if you own a home, have a small mortgage, and have very little credit card debt, you are in good financial health.

Insured Deposit Account

An account at a bank or credit union that is insured against loss of up to $100,000.

Interest Bearing Account

Accounts which gain interest on the money in the account.

Joint Account

A bank, credit union, or brokerage account owned by more than one individual. Either party may transact business. Accounts can be with or without survivorship rights. State laws vary on rights of survivorship for this kind of account. Some states may or may not automatically apply survivorship rights to joint owners; some states look to the wording of the contract when the account was opened.

Money Market Deposit Account (MMDA)

(MMDA) an interest-bearing account that allows you to write checks. An MMDA usually pays a higher rate of interest than a checking or savings account. MMDAs usually require a higher minimum balance to start earning interest, and often pay higher rates of interest for higher balances. You are generally limited to six transfers per month to another account or to other parties, and only three of these can be by check. Most institutions charge fees with MMDAs.

National Credit Union Administration (NCUA)

(National Credit Union Administration). A federal government agency that insures deposits in credit unions up to $250,000.

Personal Identification Number (PIN)

The number used as an access code to ATMs or debit machines.

Present Value

Money, expressed in today's dollars.

Savings

Accumulating funds by delaying or foregoing consumption.

Savings Account

With savings accounts you can make withdrawals, but you do not have the flexibility of checks. Various fees, such as minimum balance fees, may be charged on savings accounts.

Savings Bond

A promise by the U.S. government to repay principal and a return in the future. The return may be based on government note rates or on the rate of inflation plus a small fixed rate. Savings bonds are available for as little as $25.

Totten Trust

A savings account that allows the depositor to open the account as trustee for someone else (no real trust is set up). Account owners may use the funds as they see fit during their lifetime, and then upon their death the account balance is paid to the named beneficiary.

Transaction Date

The date a purchase is made or cash is withdrawn. Some companies assess interest from the transaction date, others from the posting date.

Transaction Fee

An extra charge for various credit activities, such as using an ATM or receiving a cash advance.
PLANNING

401K Plan

A 401K plan is established by your employer as a way for you to save money for your retirement. It's generally funded with money from your paycheck (before it's taxed by the government) and sometimes, from matching contributions from your employer. This total amount is deposited into a mutual fund. That money, plus any future financial growth from investing, isn't taxed until you take the money out.

Asset

What a person owns, such as cash, stocks, bonds, real estate, savings, or investments, and any personal possessions that can be turned into cash.

Beneficiary

The person who receives the benefits or gifts from an estate, insurance policy, IRA, pension plan, or trust.

Capital

Economic resource or resources that can be used to generate economic wealth.

Charity

The voluntary provision of money, materials, or help to people in need.

Cost/benefit analysis

Tool used to choose among alternatives involves weighing the cost of a product or service against the benefit it will provide.

Health Insurance

Insurance against loss by illness or bodily injury. It provides coverage for medicine, visits to the doctor or ER, hospital stays and other medical expenses. Policies differ in what they cover, the size of the deductible and/or co-payment, limits of coverage and the options for treatment available to the person.

HomeownerÔÇÖs Insurance

Insurance that combines liability insurance and hazard insurance. Most mortgage lenders require it.

Income

A person's total earnings from employment, investments and dividends.

Income Sources

All of the places from which you receive income. This can include a summer or part-time job, your parents, scholarships, grants, student loans, and trust funds.

Liability

Liability refers to the responsibility for charges to an account. Generally, a cardholder agrees to be liable for any charges to his or her account, including purchases, fees, and finance charges. If the cardholder allows someone else to make charges to his or her account (through, for example, an additional card), the cardholder is still responsible for paying the bill. Two people who apply for a card together may both be responsible for the entire balance. Your liability is described in the cardholder agreement you receive from the issuer. Be sure to read it carefully.

Life Insurance

A contract whereby the insured pays premiums, and when the insured dies, an agreed-upon sum of money is paid to a beneficiary.

Net Worth

The value of all of your assets, minus the total of all of your liabilities.

Permanent Life Insurance

A term for a variety of plans that combine a death benefit similar to a term life insurance plan with tax-sheltered savings arrangements. Permanent life insurance policies are meant to be held and paid into for your entire life. Therefore, it costs more to set up the policy. (Also called cash value insurance.)

Renters Insurance

A type of insurance that protects a renter against accidents, damages, and losses that occur in a rented residence. It provides coverage both for the person's belongings and for liability that may result from an accident in the person's home. Many policies cover replacement cost, meaning that the person will receive the money necessary to purchase a new item that is equivalent to the damaged one instead of a portion of that cost adjusted for depreciation.

Spending Plan

A budget you use to track your income and expenses.

Term Life Insurance

A life insurance policy that provides a specified benefit upon the insurance holder's death, if the death occurs within a certain specified time period.
SAVINGS

401K Plan

A 401K plan is established by your employer as a way for you to save money for your retirement. It's generally funded with money from your paycheck (before it's taxed by the government) and sometimes, from matching contributions from your employer. This total amount is deposited into a mutual fund. That money, plus any future financial growth from investing, isn't taxed until you take the money out.

Adjusted Gross Income

Income less certain deductions and expenses (including those related to education). It is the amount on Line 21 of IRS Form 1040A (or Line 4 on 1040EZ or Line 35 on 1040). This amount is used for several purposes, including eligibility for tax benefits.

Annuity

A series of equal periodic payments, such as the interest on a bond.

Asset

What a person owns, such as cash, stocks, bonds, real estate, savings, or investments, and any personal possessions that can be turned into cash.

Bond

A certificate representing the purchaserÔÇÖs agreement to lend a business or government money on the promise that the debt will be paid ÔÇö with interest ÔÇö at a specific time. An investment security for which a government or corporation promises to pay an amount at maturity (usually more than five years in the future), with interest, in return for the current investment. A bond is a tradable security. The minimum investment in most bonds is $1,000.

Bottom Line

The bottom line is your monthly income less expenses.

Budget

The financial record you use to keep track of the money you earn, how much you spend and what you spend it on. Your budget also includes savings and how much you pay to your creditors.

Capital

Economic resource or resources that can be used to generate economic wealth.

Cash Inflows

Cash inflows are dollars (or relevant currency) that you receive on an investment. Cash inflows are a payback, or source of cash, on an investment. Cash outflows, o the other hand, are dollars (or relevant currency) that you spend or invest in order to earn a rate of return. Cash outflows are uses of cash. The interest rate that equates the cash inflows and outflows for a project, even one extending many years, is called the internal rate of return.

Cash Outflows

Cash outflows are dollars (or relevant currency) that you spend or invest in order to earn a rate of return. Cash outflows are uses of cash. Cash inflows, on the other hand, are dollars (or relevant currency) that you receive on an investment. Cash inflows are a payback, or source of cash, on an investment. The interest rate that equates the cash outflows and inflows for a project, even one extending many years, is called the internal rate of return.

Certificates of Deposit

(Also known as CDs.) Certificates of deposit, or CDs, are time deposits. CDs offer a guaranteed rate of interest for a specified term, such as one year. With CDs, you can choose from among various lengths of time that your money is on deposit, ranging from several days to several years. Once you pick the term you want, you will generally have to keep your money in the account until the term ends.

Compound Interest

Interest earned on interest. When interest is earned on an investment and that interest is reinvested, it becomes part of the principal of that investment. The next interest calculation is based on this increased principal. Compound interest results in a higher future value than simple interest. See also Rule of 72.

Cost of Living

The average cost of the basic necessities of life, such as food, shelter, and clothing; some locations, like New York and Los Angeles, have relatively high costs of living compared to the average.   It is important to take the Cost of Living into account when considering job pay in various locations.

Credit Union

A not-for-profit financial institution that is owned by its members. Credit unions offer many of the same services as banks at lower costs. They may also pay higher interest on deposits. To open an account at a credit union, you must qualify for membership.

Down Payment

The amount of cash that a purchaser needs to put toward the cost of a home, automobile, or other large purchase that is being financed (taking out a loan).

Financial Health

This is a description of your overall financial situation. To take a closer look at your financial health, you consider the amount of money you make each month, if you own a home or other valuables, any investments you may have, and the amount of debt you carry. For example, if you own a home, have a small mortgage, and have very little credit card debt, you are in good financial health.

Future Value

The amount that a sum of money will grow to in the future as a result of interest.

Household Income

Income from all sources including wages, commissions, bonuses, alimony, child support, Social Security/retirement benefits, unemployment compensation or disability, dividends and interest. Look at your last federal income tax return for your income sources.

Income

A person's total earnings from employment, investments and dividends.

Individual Retirement Account (IRA)

A deposit or investment account that provides tax benefits to help accumulate funds for retirement.

Inflation

An upward trend in prices; the opposite of deflation.

Insured Deposit Account

An account at a bank or credit union that is insured against loss of up to $100,000.

Joint Account

A bank, credit union, or brokerage account owned by more than one individual. Either party may transact business. Accounts can be with or without survivorship rights. State laws vary on rights of survivorship for this kind of account. Some states may or may not automatically apply survivorship rights to joint owners; some states look to the wording of the contract when the account was opened.

Money Market Mutual Fund

A highly liquid investment that pays a short-term rate of return.

Net Income

Individuals: Net income is the amount of income left after all deductions and taxes. Corporations: Net income is a company's profit for a given period of time after it pays taxes and all other expenses.

Non-Taxable Income

Money you earn that is not taxed by the federal, state, or local government. This money can come from several sources including disability pay or legal settlements due to personal injury.

Note

A promises to pay; similar to a bond but for a shorter term-usually payable in 10 years or less.

Personal Budget

A planning tool that lays out in simple and concise terms how much you earn and spend each month. For example, you may decide to spend $1,000 and save $200 from your monthly after-tax income of $1,200. You can do a personal budget for the entire household. As part of the budgeting process, you want to save for several months of emergency, or rainy day, expenses. These are funds you can live on for three to six months in the event of an emergency. Part of setting up a personal budget is using it to compare to your actual spending. If you actually spend $1,100 a month and save only $100, you either need to discipline your spending, or adjust your budget to more realistic circumstances.

Personal Cash Flow

The difference in cash inflows and outflows over a period of time. Calculating your personal cash flow is an essential part of personal budgeting. Cash inflows include salary and other sources of cash-based income. Non-cash compensation is excluded, and you should deduct any contributions to a retirement account. Cash outflows include bill payments, including mortgage or rent, living expenses, utilities, and repayment of debt. Personal cash flow is usually measured over a monthly period.

Portfolio

A collection of securities assembled for an investment goal.

Present Value

Money, expressed in today's dollars.

Risk Tolerance

The amount of market and credit risk that an individual is willing to take on in pursuit of a higher return.

Rule of 72

Method for estimating an investment's doubling time. 72 is divided by the interest percentage per year to obtain the approximate number of years required for doubling.

Salary

Money you make for working a job.

Savings

Accumulating funds by delaying or foregoing consumption.

Savings Bond

A promise by the U.S. government to repay principal and a return in the future. The return may be based on government note rates or on the rate of inflation plus a small fixed rate. Savings bonds are available for as little as $25.

Social Security Taxes

Social Security taxes are paid to Old Age Survivors and Disability Insurance (OASDI) and Medicare. For 2006, employee and employer each pay 7.65% of the first $94,200 of the employee's salary as Social Security taxes. For any additional income, employee and employer each pay 1.45% to Medicare. Self-employed persons pay 15.3% of their first $94,200 in salary to Social Security taxes in 2006. For higher incomes, they pay 2.9% to Medicare.

Stocks

Securities representing equity ownership in a corporation.

Tax-Deferred Earnings (Investment)

Earnings on which taxes are not paid until a future date, usually when funds are withdrawn. The TSP and traditional IRAs are examples of vehicles that offer tax-deferred earnings.

Tax-Exempt Earnings

Earnings on which taxes are never paid. Roth IRAs and municipal bonds are examples of vehicles that offer tax-exempt earnings.

Taxable Income

Any money you earn or receive - such as salary, bonuses or interest from investments - that can be taxed by the Federal, state, or local government.
SCORE

Bad Credit

Poor credit rating. Things that damage your credit rating include late or missed payments, exceeding the credit line on cards, defaulting on loans, or declaring bankruptcy.

Bankruptcy

Legal process for selling most of the debtorÔÇÖs property to help satisfy debts that canÔÇÖt be repaid, in exchange for (a) relieving debtors of the responsibility of paying their financial obligations or (b) protecting them while a plan is created and they try to repay debts. Two types of bankruptcy apply to consumers -┬á Chapter 7 and Chapter 13. Once a bankruptcy has been filed, foreclosures, garnishments, repossessions, utility cut-offs and debt collection activities are automatically stayed.

Borrower

The person who signs and agrees to the terms of a promissory note and is responsible for repaying the loan.

Charged Off

A term on your credit report that means that the creditor attempting to collect a particular debt gave up and is no longer trying to get payment from you.

Credit Bureau

A credit bureau keeps a record of your credit history for any card or loan issuer to review when considering your application for credit. The three major credit reporting agencies in the United States are Equifax, Experian (formerly TRW) and Trans Union.

Credit Card Debt

The total unpaid balances on all your credit cards.

Credit Criteria

Factors used by lenders to rate the credit worthiness or ability to repay debt. This includes income, the amount of personal debt, the number of accounts from other credit sources, and credit history. A lender can use any credit-related information in approving or denying a credit application as long as they do not violate the Equal Credit Opportunity Act that prohibits credit discrimination on the basis of race, sex and other factors.

Credit History

A record of how a consumer has paid credit accounts in the past. It is used as a guide to determine whether or not the consumer is likely to pay future accounts on time.

Credit Limit/Credit Line

Your credit limit is the maximum amount you may charge on a credit card or you can carry on an account. Some card issuers set a separate limit for purchases and cash advances. Many banks allow you to spend more than your credit limit, but charge you a fee for doing so. It is up to you to keep track of your credit limit and how much available credit you have left.

Credit Management

The way you handle the money you borrow from banks or credit issuers.

Credit Report

An official record of a borrowerÔÇÖs credit history, including such information as the amount and type of credit used, outstanding balances, and any delinquencies, bankruptcies, or tax liens. A report that a prospective lender or employer obtains from a consumer reporting agency that displays the manner in which a consumer has met his or her past credit obligations. It is used to help determine creditworthiness of the potential borrower.

Credit Risk

The risk that money loaned to another will not be repaid. Obligations of the U.S. Government are considered to have no credit risk.

Creditworthiness

A measure of oneÔÇÖs ability and willingness to repay a loan; qualified to have credit.

Debt

A liability or obligation in the form of bonds, loan notes, or mortgages, owed to another person or persons and required to be paid by a specific date.

Due Date

The day a payment is due to a creditor. After that date, a late fee can be charged, the payment can be recorded as late, and the account can be considered delinquent.

Fair Credit Billing Act

A federal law that ensures you can find and fix billing mistakes.

Fair Credit Reporting Act

The U.S. Fair Credit Reporting Act seeks to achieve fair, timely and accurate reporting of credit information by regulating the activities of credit bureaus, limiting access to credit bureau information, and requiring that creditors disclose certain information regarding their use of credit bureau or third-party information. Under the Fair Credit Reporting Act, you have the right to see the credit history maintained by a credit bureau about you (see Credit Report).

Fair Debt Collection Practices Act

A federal law that ensures you are protected from harassment and unfair treatment by debt collectors.

Installment Loan

A loan that you promise to pay back by paying the same amount of money on a regular basis, usually monthly, for a specific amount of time. Student loans, home equity loans and auto loans are usually installment loans.

Late Payment

Most charge and credit card bills list the date payments are due. If you miss the due date, the account is considered past due and you may be charged a late fee. Late payments are sometimes reflected on your credit report. If you have numerous late payments, it may be difficult to get additional credit.

Late Payment Fee

A fee charged for failing to submit the minimum payment by its due date.

National Foundation for Credit Counseling (NFCC)

A non-profit organization dedicated to educating consumers in the wise use of credit. The NFCC is the umbrella group for Consumer Credit Counseling Service offices throughout the nation.
WISE SPENDING

Advertising

An announcementÔÇöusually paidÔÇöof a productÔÇÖs or serviceÔÇÖs benefits that is intended to encourage its purchase.

ATM

Automated Teller Machine. A machine you can use to deposit money, withdraw money, transfer money between multiple accounts, etc. You can find ATMs everywhere these days, including in the lobbies of banks, in grocery stores, inside restaurants, and at sporting events.

Automatic Clearing House

The automated clearing house is how electronic transactions are processed when a person selects an electronic debit or credit of funds. These are most common with payroll direct deposit and automatic bill payments.

Available Credit

The unused portion of credit that falls within the consumer's applicable credit limit, if any.

Bartering

To exchange goods or services in return for other goods or services; i.e., without an exchange of money.

Bottom Line

The bottom line is your monthly income less expenses.

Budget

The financial record you use to keep track of the money you earn, how much you spend and what you spend it on. Your budget also includes savings and how much you pay to your creditors.

Cash Advance

A cash loan taken out on a credit card. Interest for cash advances is usually higher than it is for purchases, a transaction fee may apply, and the grace period may be waived.

Check

Written order directing a bank or credit union to pay a person or business a specific sum of money.

Comparison Shopping

Comparing the price of an item at various places, allowing you to get the item for the least amount of money. Comparison shopping is especially easy to do online, using the Internet.

Credit Limit/Credit Line

Your credit limit is the maximum amount you may charge on a credit card or you can carry on an account. Some card issuers set a separate limit for purchases and cash advances. Many banks allow you to spend more than your credit limit, but charge you a fee for doing so. It is up to you to keep track of your credit limit and how much available credit you have left.

Debt

A liability or obligation in the form of bonds, loan notes, or mortgages, owed to another person or persons and required to be paid by a specific date.

Discretionary Spending

Spending that isnÔÇÖt necessary. This refers to things like magazines, going to the movies, grabbing some fast food for dinner, internet access, gifts for people, clothing, etc.

Expense History

A history of a particular expense, such as your electric bill, your other utilities, etc.

Fixed Expenses

Expenses that you must pay every month. These are expenses that you really can't change, like your mortgage, rent payment, car payment and child care.

Non-Discretionary Spending

Spending that is necessary. This refers to things that you have to spend money on, such as food, gas for your car, other transportation, etc.

Spending Plan

A budget you use to track your income and expenses.

True Cost

The actual cost of something, as compared to what you think it will cost. For example, the ÔÇ£true costÔÇØ of a car does not just include the price you paid for the car, but also for things like gasoline, maintenance, repairs, auto insurance, etc. ItÔÇÖs important to determine the true cost of an item before you actually purchase it.

Variable Expenses

Expenses that can change from month to month. Variable expenses include necessities that can be reduced (such as food and utilities) and non-essentials that could be eliminated (e.g., long distance charges, cable, magazine subscriptions, etc). Reducing these expenses is the simplest step in getting control of your finances.