Financial Terms for Dummies

The majority of people rely on money to thrive in an industrial world, unless they live in an isolated area off the grid. Even those people rely on mainstream society to purchase property, food, and services at a bare minimum. The chances of living this kind of lifestyle into a ripe old age are next to nil; therefore, it becomes vitally important to secure a strong financial future. People must understand the aspects of securing their finances before they can start the process, including learning about the various financial options available to them.

In today’s world, people need to know a lot more about finances than they needed to know two hundred years ago. Financial institutions have broadened their horizons in offering more borrowing and investment opportunities for eligible individuals and their families. People need to understand their rights and boundaries before they jump into financial endeavors. This safeguards against potential loss of earned income. Learning about certain financial terminology can act as a starting point in taking advantage of borrowing and investment opportunities available without becoming a victim of lending predators.

Everything starts from knowledge, especially in the financial industry. In fact, many people invest their hard-earned money just to learn about the various financial aspects that could increase and stabilize their futures. While many educational institutions offer advanced courses in finance, most people can teach themselves the basics to get started. Everybody should start with introducing themselves to key terminology relevant to checking, savings, borrowing, building credit, and investing. Many of these key areas cover aspects that increase the chances of gaining financial security to pay for bills now, in the short-term, long-term, and after retirement. In addition, many of these financial options offer perks unavailable in other forms of investment. Some require a borrower to pay back money while others yield tax-exempt profits after a prolonged set of time. Follow the list of financial terms below to gain a better understanding of these concepts to help secure your financial future.

401(k) plan: A retirement plan whereby employees reserve a specific amount of money into an account. Some employers agree to match every dollar placed aside in these retirement accounts.
403(b) plan: A retirement plan for employees of educational institutions, government units, and tax-exempt organizations.
Adjusted gross income: A taxpayer’s accrued income minus adjustments, such as IRAs and alimony.
Annual Percentage Rate (APR): The cost of credit for one annual year converted into a percentile.
Bankruptcy: A term used to describe legally insolvent individuals who can not afford to pay their bills.
Borrower: An individual who borrows money or a form of credit.
Budget: An organized method of matching total income to projected expenses. A budget enables individuals to live within their means.
Bull market: A rising stock market characterized by investor optimism.
Cardholder agreement: A written contract defining the terms applicable to a credit card account, which usually includes the interest rate charged, annual fees, transaction fees, and the method of calculating interest.
Dollar-cost averaging:
An individual who makes regular payments or investments in the same amount periodically.
Investment portfolio: A collection of investments, including CDs, stocks, mutual funds, cash, and more.
Revolving credit: A credit agreement that grants consumers the right to pay off a portion or the entirety an outstanding balance on loans or credit cards accounts. The lending institutions re-issues credit as the consumer pays off the debt.
Savings bond: A certificate yielding interest after a certain period of time. The total value of the savings bond includes the interest and principle paid in the full amount after it has matured.
Secured credit card: A consumer uses collateral or savings to guarantee repayment of the balance on a credit card. Lending institutions base the credit limit on the total value of the collateral available from the borrower.
Securities: A wide array of investment options, including mutual funds, stocks, bonds, CDs, cash, and other assets.
Service charge: Lending institutions charge a nominal fee for carrying or servicing a loan or account.
Share account: A savings account opened at a credit union. The shares represent the ownership interest in the credit union.
Unsecured loan: A high-risk loan based on the consumer’s promise to pay without collateral or savings as a guarantee for repayment.
Usury laws: These laws set the maximum interest rates that lending institutions may charge for their consumers.
Variable interest rate: An interest rate that fluctuates up or down on a schedule based on an economic index, such as the prime rate.