Part 5
Financial Terminology
Money is a terrible master but an excellent servant." – P.T. Barnum
Financial Activity
Net Cash Flow =
Income - Expenses
"Easy come, easy go, that's just how you live."
— Bruno Mars: In his song "Grenade"
Net Worth =
Assets - Liabilities
Financial Health
Asset
Anything of value that is owned or provides income
Cash, investments, property, business (house)
Liability
Financial obligation or debt.
Loans, credit card balances, (house)
Direction is as important than value
Basic Account Types
  • Checking – Auto deposit income and pay expenses using debit cards, checks, and automatic online payments
  • Savings – Storing money and earning interest
  • Rainy Day / Emergency ($400-1000) (6 months expenses)
  • Pre-pay expensive purchases
Advanced Account Types
  • Money Market Account (MMA) – A hybrid of savings and checking, higher interest rates, limited check-writing
  • Certificate of Deposit (CD) – A time-based savings account with fixed interest rates, requiring money to be locked in for a set period
  • Brokerage – An investment account with stocks, bonds, etc.
  • Health Savings Account (HSA) – A tax-advantaged account for medical expenses
  • Flexible Spending Account (FSA) – An employer-provided account for medical expenses, usually with a “use it or lose it” rule.
  • 529 College Savings Plan – For tax-free education expenses
Retirement Account Types
  • Individual Retirement Account (IRA) – A tax-advantaged account for retirement savings
  • Traditional - taxed later
  • Roth - taxed now
  • SEP - for self-employed individuals and small business owners
  • SIMPLE - for small businesses, with employer and employee contributions
  • 401(k) – Retirement savings plan often with employer matching
  • Traditional - taxed later
  • Roth - taxed now
  • Annuity – A contract with an insurance company that provides a steady income stream, often for retirement.
Taxed deposits, tax-free withdrawls Tax-free deposits, taxed withdrawls Taxed deposits, taxed dividends/gains
Tax me now Tax me later Tax me now and yearly
Market Conditions
Bull Market
Rising prices encourage buying.
Bear Market
Falling prices encourage selling.
Loans & Repayments
1
Collateral
Asset pledged by the borrower to secure a loan, which the lender can seize if the loan is not repaid
2
Principal
The original sum of money borrowed, excluding interest
3
Interest Rate
Percentage charged for the use of money
4
Term
Time over which the loan is to be repaid
5
Amortization
Gradual repayment of a loan
6
Default
Failure to meet the legal obligations of a loan, such as not making scheduled payments
Credit Cards
1
Account Balance
Total amount in the account, including all pending transactions
2
Available Balance
Funds accessible, excluding any pending debits or holds
3
Credit Limit
Maximum amount authorized to borrow
4
Annual Percentage Rate (APR)
Yearly interest rate charged on outstanding balances
5
Penalty APR
Higher interest rate applied to an account after a late payment or violation of card terms
6
Minimum Payment
Smallest amount a cardholder is required to pay by the due date to keep the account in good standing
7
Grace Period
Time frame during which a cardholder can pay the balance in full without incurring interest charges
Credit Cards
1
Cash Advance
Withdrawing cash from a credit card account, typically subject to higher interest rates and fees
2
Late Payment Fee
Charge imposed for not making the minimum payment by the due date
3
Penalty APR
Higher interest rate applied to an account after a late payment or violation of card terms
4
Credit Utilization Ratio
Percentage of available credit that a cardholder is using; high ratios can negatively impact credit scores
5
Finance Charge
Total cost of borrowing on a credit card, including interest and fees
6
Rewards
Benefits for using card, Cash Back, Points, Miles, etc.
7
Annual Fee
Yearly cost to have the card
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