Money A-to-Z: Glossary of Financial Terms


This list is always being updated.

401(k): An employer-sponsored retirement plan that many employers use as a means of distributing company stock to employees. It allows an employee to choose between taking compensation in cash or deferring a percentage of it. Typically, plan contributions are invested in a portfolio of mutual funds, but can include stocks, bonds and other investment vehicles as permitted.

403(b): Also known as a tax-sheltered annuity (TSA) or a tax-deferred annuity (TDA), is very similar to a 401(k). However, they are for employees of not-for-profit organizations, such as colleges, hospitals, foundations, and cultural institutions. Some employers offer 403(b) plans as a supplement to — rather than a replacement for — defined benefit pensions. Others offer them as the organization’s only retirement plan.Your contributions to a traditional 403(b) are tax deductible, and any earnings are tax deferred.

Accrued Interest: Accrued interest is the interest that accumulates on a fixed-income security between one interest payment and the next.

Adjustable Rate Mortgage (ARM): An adjustable rate mortgage is a long-term loan you use to finance a real estate purchase, typically a home. Unlike a fixed-rate mortgage, where the interest rate remains the same for the term of the loan, the interest rate on an ARM is adjusted, or changed, during its term.

Adjusted Gross Income (AGI): Your AGI is your gross, or total, income from taxable sources minus certain deductions.Income includes salary and other employment income, interest and dividends, and long- and short-term capital gains and losses.

After-Tax Contribution: Money you put into your 401(k) or other employer sponsored retirement savings plan in addition to your pretax contribution.

After-Tax Income: The income you have left after federal income taxes (plus state and local income taxes, if they apply) have been withheld.

Amortization: The gradual repayment of a debt over a period of time, such as monthly payments on a mortgage loan or credit card balance.

Annual percentage rate (APR): The cost of credit each year expressed as a percentage of the loan amount.

Annual percentage yield (APY): The amount you earn on an interest-bearing investment in a year, expressed as a percentage.

Appreciation: When an asset such as stock, real estate, or personal property increases in value without any improvements or modification having been made to it.

Asset: Everything you own that has any monetary value, plus any money you are owed.

Balance Sheet: A statement of a company’s financial position at a particular moment in time.

Beneficiary: The person or organization who receives assets that are held in your name in a retirement plan, or are paid on your behalf by an insurance company, after your death.

Blue Chip Stock: The common stock of a large, well-regarded US company.

Budget: A written record of income and expenses during a specific time frame.

Buyer’s Agent: An agent represents a buyer in a real estate transaction, negotiating with the seller’s agent for a lower price or a contract with more favorable terms.

Closing Costs: Expenses you (usually the buyer) pay to finalize or “close” a real estate transaction.

Closing Statement: A legal form your closing or settlement agent uses to itemize all of the costs you and the seller will have to pay at closing to complete a real estate transaction.

Collateral: Assets with monetary value, such as stock, bonds, or real estate, which are used to guarantee a loan.

Credit Bureau: The three major credit bureaus collect information about the way you use credit and make it available to anyone with a legitimate business need to see it, including potential lenders, landlords, and current or prospective employers. They are Equifax, Experian, and TransUnion.

Credit Limit: The maximum amount of money you can borrow under a revolving credit agreement.

Credit Rating: An evaluation of your ability to repay debt based on your borrowing and repayment history.

Credit Report: A summary of your financial history.

Credit Score: A number calculated based on information in your credit report.

Death benefit: The money your beneficiary collects from your life insurance policy if you die while the policy is still in force.

Deductible: The dollar amount you must pay for healthcare, damage to your property, or any other insurable claim before your insurance company begins to cover the bill.

Deduction: The amount you can subtract from your gross income or adjusted gross income to lower your taxable income when you file your income tax return.

Deed: A written document that transfers ownership of land or other real estate from the owner to the buyer.

Default: Failing to meet a loan obligation on time.

Depreciation: When certain assets decline in value over time.

Down Payment: The amount, usually stated as a percentage, of the total cost of a property that you pay in cash as part of a real estate transaction.

Economic Cycle: A period during which a country’s economy moves from strength to weakness and back to strength. This pattern repeats itself regularly, though not on a fixed schedule.

Economic Indicator: Statistical measurements of current business conditions.

Effective Tax Rate: The rate you actually pay on all of your taxable income.

Electronic Bill Payment: When your bills are sent to an account you designate and the bank pays them automatically each month by deducting the money from that account.

Emergency Fund: Funds designed to provide financial back-up for unexpected expenses or for a period when you aren’t working and need income.

Escrow: Where someone else holds assets of yours until the terms of a contract or an agreement are fulfilled.

Estate: What you leave behind, financially speaking, when you die.

Exemption: A fixed dollar amount that you can subtract from your adjusted gross income to reduce your taxable income.



To Be Continued….

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