Personal Finance (Module 4)

Interest

An amount paid to use someone's money, usually a percentage of the amount deposited.

Principal

The money deposited.

Saving

Depositing your money into a financial institution for safekeeping and to earn interest.

Investing

Buying something with the expectation that it will make money for you.

Windfalls

Things like work bonuses, inheritances, tax refunds, or other unexpected chunks of money.

Compounding

When an interest is added to the original balance in a savings account, along with any other previously earned interest.

Inflation

As it costs more to provide goods and services, the price of those goods and services also increases.

Time Value of Money

A dollar today is worth more than a dollar tomorrow.

Asset

An item of value that can be converted into cash.

Liability

Something owed to another person.

Rate of Return

The degree to which an asset gains (or loses) vale over a given period of time.

Income Investments

Provide regular earnings, such as monthly interest, quarterly dividends, or, in the case of real estate, rent payments.

Growth Investments

Are about delayed gratification. The goal is to buy an asset that you believe has the potential to increase in value over time.

Bond

You lend money to a government or company.

Maturity Date

The borrower promises to repay you in full on your bond on a specific date.

Broker

Whom you purchase stocks and bonds through.

Investment Advisor

Whom you refer to when making investment decisions.

Stock

You are providing money to a corporation or business to help run that business.

Shareholder

Owning stock. (When you own a bit of the company through stocks)

Dividend

An amount paid in cash or shares of stock, based on the amount of stock shares owned.

Stock Exchange

Systems established to trade shares of stock.

Bid

Your offer of purchase.

Ask

A seller's offer to sell.

Mutual Fund

Each mutual fund invests in a variety of stocks and/or bonds to meet a specific investment objective.

Risk

Uncertainty of achieving a desired result.

Risk Tolerance

How comfortable you are with the ups and downs of investing.

Diversification

Having a variety of diverse investments.

Custodial Account

The assets in the account belong to you, but you won't have legal control of them until you're no longer a minor.

Dollar Cost Averaging

Investing a set amount of money each month or at other regular intervals.

401 (K) Plans

You own your own account. You decide the amount to contribute and how it's invested. (Sometimes called an employer-sponsored plan)

Individual Retirement Account (IRA)

You can invest for long-term goals while getting the benefit of tax-free growth and compounding within IRA accounts.