Principles of Finance

checking account

A bank account in which the account holder can withdraw his or her available funds by writing a check.

checkbook

A book containing blank checks to be used by the holder of a bank account.

check register

A booklet used to track and balance checking accounts.

taxonomy

A categorized list of words related to a particular topic.

insolvency

A condition when someone's liabilities are greater than his or her assets; the inability to pay debts when they are due.

credit union

A cooperative nonprofit financial institution that is privately owned and controlled by its members. It provides depository and lending services to its members.

bank

A depository institution where one can keep and borrow money and take care of financial affairs.

financial health

A description of a person's or an organization's finances.

budget

A detailed plan to manage the spending and saving of money.

interest

A fee paid for the use of money over time. In other words, it's the cost of borrowing money. Interest is often expressed as a percentage of the amount borrowed.

insurance company

A financial institution that protects persons against the risk of financial loss.

deficit

A financial shortage that occurs when liabilities exceed assets or when cash inflows are less than cash outflows.

bond

A loan an investor makes to a government or corporation for a specified amount of time for the purpose of raising capital for the government or corporation. In return the investor receives the principal plus interest.

secured loan

A loan that is backed by collateral such as cars, houses, or other assets.

net worth or wealth

A measure of the value of all of the net assets owned by a person, a community, a company, or a country. Net worth for a business or an individual is computed by subtracting personal liabilities from personal assets.

direct deposit

A method of payment that is electronically deposited into an individual's account.

SMART strategy

A method used by individuals and even companies to help provide a framework for how a goal should be created.

lender

A person, or a public or private group, who makes funds available to another with the expectation that the funds will be repaid, plus any interest or fees.

financial planner

A professional who examines the assets of his or her clients and suggests steps to reach the client's financial goals.

financial advisor

A professional who provides financial planning and advice on financial matters.

electronic banking

A service provided by financial institutions that allows customers to manage their banking transactions through computerized network services.

stock

A share of ownership in a company

stock

A share of ownership in a company.

balance sheet

A statement that reflects an individual's or business's financial position. It shows what is owned (assets) and what is owed (liabilities).

Individual Retirement Account (IRA)

A tax-deferred account that allows individuals to plan for their retirement.

money market account

A type of savings account that offers higher interest rates, with higher minimum deposit levels than a regular savings account.

take-home pay

Also called net pay; the amount that is left of your pay after deductions are made.

bank statement

An account summary of all financial transactions occurring over a given period of time on an account offered by a financial institution.

savings account

An account where you receive interest on your deposits, but unlike a checking account that also earns interest, it may have some restrictions.

Federal Deposit Insurance Corporation (FDIC)

An agency of the United States that promotes public confidence in the US financial system by insuring deposits in banks and thrift institutions for up to $250,000, by identifying, monitoring, and addressing risks to the deposit insurance funds, and by limiting the effect on the economy and the financial system when a bank or a thrift institution fails.

automatic payment

An arrangement that authorizes a set payment to be automatically withdrawn from a checking or savings account on a specified day.

financial analyst

An employee of a bank, a brokerage, a financial advisor, or a mutual fund company who studies companies and makes buy and sell recommendations; the analyst often specializes in a single sector or industry.

trade show

An event at which goods and services in a specific industry are exhibited and demonstrated.

variable expense

An expense that changes from period to period, such as food or gasoline costs

National Credit Union Administration (NCUA)

An independent federal agency that serves to supervise and regulate federal credit unions. It also provides account insurance for many state-chartered credit unions through the National Credit Union Share Insurance Fund.

finance manager

An individual who manages money and assets, either for an individual or for an organization.

financial intermediary

An institution that acts as a service for those who have extra money to save or lend and channels it to those who wish to invest or borrow.

financial planner

An investment professional who helps individuals set and achieve their long-term financial goals through investments, tax planning, asset allocation, risk management, retirement planning, and estate planning. The role of a financial planner is to find ways to increase the client's net worth and help the client accomplish all of his or her financial objectives.

investment

An item that is purchased with the hope that it will generate income or increase in value in the future.

liability

An obligation that legally compels an individual to settle a debt—for example, a mortgage or an electric bill.

ATM (automated teller machine)

An unattended computerized machine that dispenses money when a personal coded card is used.

discretionary expenses

Any expenses that are not considered essential to the household or business. Examples include movie tickets, eating out, expensive clothes, and video games.

inflows

Any incoming money; your income, tips, overtime pay, and any other sources of income that you may have.

earned income

Any money that is generated by working.

asset

Any object of value, including cash, investments, property, and personal possessions.

risk

Degree of uncertainty of return on an asset; the possibility of loss.

savings and loans

Depository financial institutions that specialize in home mortgage loans

thrifts

Depository institutions that include savings and loans, as well as savings banks. They specialize in saving accounts and real estate financing.

debit

In banking, money paid from an account that results in decreasing the account balance.

credit

In banking, money received in an account that results in increasing the account balance.

passive income

Earnings received from rental property or other business activity where the individual is not actively involved (such as royalties from publishing a book).

fixed expenses

Expenses that remain the same regardless of the circumstances.

financial services industry

Financial institutions that help consumers, businesses, and governments manage money. These institutions can be depository or not.

pension funds

Financial products that specialize in gathering payments into retirement funds and investing those payments so that they can accumulate to an amount that provides income at retirement.

SMART goal

Goals that are specific, measurable, attainable, realistic, and time-bound.

finance

The science of the management of money and other assets; the management of money, banking, investments, and credit.

portfolio income

Income from investments, including dividends, interest, or the sale of a property.

discretionary income

Income that is available after all of the essential financial commitments have been paid

compound interest

Interest earned on both the principal amount and any interest already earned.

annuity

Investment in which the investor exchanges a sum of money for a series of equal payments over time. Payments can include interest on the original sum plus income from investments. Annuities contracts generally continue throughout the life of the owner. They are often purchased to provide retirement income and shift the responsibility for investing to an investment company.

mutual funds

Investment products that combine the money from a large group of investors to buy stocks and other investments.

income

Money that is received from any source, including the money one earns through labor, for services, from the sale of goods, allowance, disability, and inheritance investments.

income

Money that is received from any source, including the money one earns through labor, for services, from the sale of goods, allowance, disability, inheritance, and investments.

time value of money

Money's potential to grow in value over time; the relationship between time, money, a rate of return, and earnings growth.

account summary

The section of a bank statement that provides a quick overview of account activity.

outflows

Outgoing expenses; anything that you spend money on.

certificate of deposit (CD)

Record of money deposited in a financial institution for a stated time period at a fixed interest rate.

financial literacy

The ability of individuals to make appropriate decisions in managing their personal finances

credit

The act of buying something or borrowing money with the promise to repay the lender at a future date

withdrawal

The act of taking money out of an account.

debt-to-income ratio

The amount of debt a person or a household has in relation to their income. Lenders use this ratio to decide if more debt can be taken on by the borrower.

simple interest

The amount of interest based on a principal amount and not on earned interest.

Federal Reserve

The central bank of the United States. "The Fed" incorporates 12 Federal Reserve branch banks located in major cities across the nation, along with all national banks, all state-chartered commercial banks, and some trust companies. It helps to regulate the US monetary and banking system

inflation

The declining value of money due to rising prices.

capital

The financial resources that are used to make money, which can take the form of equity or debt.

cash flow

The flow of money in and out of a business or a household over a period of time.

surplus

The money left over when income exceeds expenditure.

reconciliation

The process of comparing two sets of records and getting them to correspond.

balance

The remaining amount in a customer's account that represents the amount the customer is able to withdraw.

annual income

The total amount of income an individual earns in a year from working, interest income, dividends, gifts, and so forth.

present value

The value of a future cash stream discounted at the appropriate market interest rate.

devalue

To reduce the value of something.

future value

What an amount invested today at a particular interest rate will be worth in the future.