Financial Organization, Planning Glossaries

APR (Annual Percentage Rate): Total annual cost for a loan, credit card, or other type or credit. Expressed as an interest rate.

Amortization: The process of reducing a debt by making regular payments of principal and interest until the loan is eventually repaid. Home mortgages are amortized, for example.

Annual Fee: Yearly amount charged to a credit card owner by a creditor. Annual fees are charged regardless of whether or not the credit card is actually used.

Annuity: A contract, typically with an insurance company, where the company agrees to make regular payments to a person for a fixed period, or for life, in exchange for lump sum or monthly payments.

Asset: An item of value that increases net worth. A house is an asset.

Balance: The amount of money held in an account, or the outstanding amount on a loan or credit card.

Balance Sheet: Financial statement showing the financial position of a person or family in terms of assets and liabilities.

Bankruptcy: The process of petitioning a court to discharge a person's debts. Chapter 7 bankruptcy proceedings liquidate assets; Chapter 13 bankruptcy proceedings set up a debt repayment plan.

Beneficiary: Person or persons identified to inherit specific property. The beneficiary of a life insurance policy receives the proceeds when the owner of the policy passes away.

Budget: A plan for spending and saving money, balancing income with expenses.

Capital Gain: The increase in the value of an investment.

Cash Flow: Money flowing into and out of a household. A negative cash flow means more money is spent than is earned; a positive cash flow means more money is earned than is spent.

Cash Value: The savings piece of a whole life, variable life, or universal life insurance policy; the amount for which the policy can be "cashed in".

CD: Certificate of Deposit; a sum deposited with a financial institution for a specified amount of time.

Collateral: An item or assets of value, used to secure a loan. For example, a car may serve as collateral for an auto loan. If payments are not made the item can be seized by the lender in order to recover the debt.

Compound Interest: Interest earned on principal and previously credited interest.

Consolidation Loan: A loan that combines all credit card payments, housing payments, loans, and household bills into one monthly payment.

Consumer Price Index (CPI): A measure of inflation used by the Bureau of Labor Statistics to track changes in prices of goods and services.

Co-signer: A person who agrees to make payments on a loan if the primary borrower fails to do so. Co-signors can make qualifying for a loan easier.

Credit Counseling Agency: An organization (profit or non-profit) that creates and administers debt repayment plans for people having difficulty repaying creditors.

Credit Report: A report issued by a reporting agency showing how a person has used credit in the past.

Elimination Period: The number of days before benefits are paid on certain types of insurance policies, like long-term care or disability.

Estate Tax: Tax on the value of a decedent's taxable estate. The estate is usually defined as assets minus liabilities, including expenses like administration costs and funeral expenses.

Fair Market Value: The amount an item can be sold for on the open market.

Federal Deposit Insurance Corporation (FDIC): Federal agency that insures bank deposits.

Financial Adviser: An individual or company that assesses your financial needs and recommends strategies, investments, etc.

Inflation: The loss of purchasing power over time due to an increase in the cost of goods and services. Often expressed as a rate; if the inflation rate is 3%, purchasing power is reduced by 3%.

Installment Loan: A loan paid back over a specific period of time, typically used to buy items rather than to receive revolving credit. An auto loan is an example of an installment loan; a credit card is not.

Intestate: Dying without a valid will in place

Liability: Money owed by an individual that decreases net worth. A loan is a liability.

Liquidity: The ability to convert an asset to cash quickly without loss of value. A mutual fund is relatively liquid; a home is not.

Long-Term Care Insurance: Insurance that covers the cost of support services like home health care and nursing home care when a person is unable to perform basic activities of daily living such as bathing, eating, and dressing.

Maturity: The date when the principal amount of a bond or CD must be paid to the owner.

Mutual fund: An investment company that pools deposits from shareholders and invests in stocks, bonds, or cash assets.

Net Worth: A person's financial situation, calculated by subtracting debts from assets.

Pension: A retirement savings plan offered by an employer that pays benefits to workers when they retire.

Premium: Fees paid to an insurance company in exchange for protection against risk. Payments made on an insurance policy are considered premiums.

Principal: The original amount of money invested or borrowed.

Probate: Legal process of validating a Will, paying debts, and distributing proceeds to heirs and beneficiaries when someone dies.

Return: Investment gain or loss.

Rollover: Transfer of funds from one retirement savings plan to another while avoiding taxes or penalties.

Secured Debt: Debt backed by collateral. The collateral secures the debt. A car secures the car loan, for example.

Social Security: Government program that provides retirement and disability benefits to workers and dependents.

Taxable Income: Amount of income used to determine tax owed.

Tax-Deferred: Investments not taxed in the current year but taxed at a later date, typically upon withdrawal.

Term Life Insurance: Life insurance policy that pays benefits only if the holder of the policy dies within the period of time covered by that policy.

Trust: A legal instrument granting control of assets to a person or financial institution. Trusts can be revocable or irrevocable and can manage property while the creator is alive (living trust) or following the creator's death (testamentary trust).

Trustee: Person who manages a Trust.

Umbrella Coverage: Additional liability insurance that supplements the coverage of a homeowner or renter policy, or a car insurance policy. Designed to provide additional liability protection.

Unsecured Debt: Debt not secured by collateral. A credit card is an example of unsecured debt.

Vesting: The date when a person is entitled to receive money or benefits from an employer.

Whole Life Insurance: Life insurance policy that combines protection for the life of an insured person and a savings component; the savings component is considered the cash value of the policy.

Will: Legal document specifying what will happen after a person dies.

Withholding: Deduction of federal and state income taxes, Social Security taxes, and other items, from an individual's pay.