Finance Definitions
Terms
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- WANTS
- items, activities, or services that increase the quality of life
- NEEDS
- the essentials or basics of life
- CASH FLOW
- a measure of the money a person receives and spends
- OPPORTUNITY COST
- the value of what is given up when one person chooses one option over another
- COST OF LIVING
- the average cost of a variety of expenses for living, such as rent or home costs, insurances, utilities like natural gas and electricity and food
- BUDGET
- a plan for spending or saving money based on a person's goals during a given time period
- GROSS INCOME
- the total amount of income from wages or salary before payroll deductions
- NET INCOME
- the amount of a paycheck that a person can actually spend; essentially gross income less an payroll deductions
- FEDERAL INCOME TAX
- a fee for the support of federal government programs collected by the employer and paid to the Internal Revenue Service
- W-4 FORM
- a federal government form that effectively tells your employer how much to withhold from your paycheck for taxes
- FIXED EXPENSES
- expenses that are the exact amount everytime
- VARIABLE EXPENSES
- expenses that are not fixed
- P.Y.F
- Pay Yourself First; a bill you owe yourself, save a percentage of every paycheck you get
- COST/BENEFIT ANALYSIS
- weighing the cost of a product or service against the benefit it will provide; make a pros and cons list
- CHECK
- a slip or ticket showing the amount owed
- OVERDRAFT PROTECTION
- a financial service offered by banking institutions. It advances money to cover an attempt to withdraw money from an account that does not have sufficient funds. Prevents check from bouncing. Allows consumers to borrow money through a withdrawal.
- SAVINGS
- money set aside for short-term goals
- INVESTMENTS
- money set aside for future income, benefit, or profit to meet long-term goals
- TIME VALUE OF MONEY
- the relationship between time, money, a rate of return and earnings growth
- EARNED INTEREST
- the payment a person receives for allowing a financial institution or corporation to use his/her money
- COMPOUND INTEREST
- earning interest on interest
- THE RULE OF 72
- how long it takes for money to double in value
- RISK TO RETURN
- the more risk you take with your money the greater the potential return you receive, the reverse is also true
- RATE OF RETURN
- how fast money in a savings or an investment account grows
- DIVERSIFICATION
- spreading invested dollars among several different savings or investments to reduce risk
- INFLATION
- an increase in the price of goods and services
- CERTIFICATE OF DEPOSIT
- 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.
- MONEY MARKET ACCOUNTS
- a financial market for short-term borrowing and lending
- CAPITAL GAINS
- the difference between the purchase price and the selling price of an investment
- CREDIT
- an amount of money someone is willing to loan another person based on trust and the expectation that the money will be repaid with interest
- ANNUAL PERCENTAGE RATE
- the total annual percentage amount it will cost a person to use credit
- FINANCE CHARGE
- the actual dollar cost of using credit, which is calculated by the lender
- INSTALLMENT LOAN
- a loan that requires you to make payments on a regular basis, usually monthly, until the loan is paid off
- CREDIT REPORT
- an historical account of how a person has used credit
- CAPITAL
- personal property you can use to pay off debts
- BANKRUPTCY
- a legal process that allows someone deeply in debt to create a plan to get out of debt
- REDUCIBLE
- an item that could lower the price of
- INSURANCE
- protection against large-scale financial loss
- LIABILITY
- pays for bodily injury to other people and damage to property