Glossary

  • Annual percentage rate – APR refers to the yearly interest generated for the sum that is paid to a saver or charged to a borrower.
     

  • Annual percentage yield – APY is the real rate of return on a savings account with consideration of the effect of compounding interest.
     

  • Simple interest is the interest of your first payment or savings deposit. It does not consider compounding interest.
     

  • Compounding interest is the interest that you earn on top of the interest. Through time it accumulates or compounds.
     

  • Maturity date is the end of a fixed term determined for a financial term whether it be six months a year or 60 months…etc.
     

  • FDIC insured account is a bank account at an institution where deposits are federally protected against bank failure or theft by the Federal Deposit Insurance Corporation
     

  • NCUA us a federal agency created by Congress to regulate credit unions and insure your money.
     

  • NCUA insurance guarantees that you’ll receive the money that you’re entitled to from your deposit account if your credit union goes under. 
     

  • Bank fees
     

  • Financial Team 
     

  • Financial Mentor
     

  • Financial Coach
     

  • Financial Adviser vs. Financial Advisor
     

  • Financial Planner
     

  • Tax Accountant
     

  • Insurance Agent
     

  • Realtor
     

  • Mortgage Agent
     

  • Attorney
     

  • 401k Plan
     

  • Traditional 401(k)
     

  • Roth 401(k)
     

Credit card definitions
 

  • Interest rates (variable, fixed) – interest rates for credit cards can be a variable or fixed rate.  A variable rate can change over time, is tied to a pre-stated index rate and the credit card issuer may not need to notify you of a rate change. A fixed interest rate for a credit card usually stays the same, could be tied to your payment history or a promotion and you must be notified if there is a rate increase. The best way to avoid any type of interest is to pay off your credit card balance each month.
     

  • Minimum Payment - Minimum payment for a credit card is the lowest amount that you can pay for the month or billing to keep your credit card account in good standing.
     

  • APR/Penalty - APR or the Annual Percentage Rate is the interest you pay for the year. A penalty APR is a higher interest rate than your card’s regular rate and can be charged towards future transactions if you don’t make the minimum payment
     

  • Finance charge - is any charge associated with using the credit card. This includes the interest paid on an unpaid balance after the due date, balance transfer fee (when you transfer a balance from one credit card to another), cash advance fee or a foreign transaction fee when you use your credit card in a foreign country or currency.
     

  • Billing period -  or billing cycle is the length of time between your last statement closing date and your next statement closing date. The billing period is anywhere between 28-31 days long.
     

  • Annual fee - is the yearly charge by the credit card provider to the card holder for use of their credit card. It is automatically charged to you on the anniversary date of when you opened the credit card. Note: Not all credit cards charge an annual fee. 
     

  • Grace period - is the period between the end of a billing cycle and the date your credit card payment is due. During this period, you may not be charged interest as long as you pay the balance full by the payment due date. Although financial institutions are not required to give a grace period, most of them do.
     

  • Types of Bankruptcy for individuals

    • Chapter 7: Liquidation

    • Chapter 13 – Repayment

    • Chapter 11 – Reorganization for business
       

  • Federal Educational or Student loans - The Department of Education offers financial aid through schools and doesn't usually require a credit check. Loan terms, fees, repayment periods and interest are the same for every borrower with the same type of loan. Repayment of federal student loans do not start until you graduate, drop below half-time enrollment or leave school. Certain loans actually have a 6-9 month grace period or repayment plans based on your income.
    Private loans from private lenders (i.e., banks, credit unions, or online lenders) require a credit check and each lender can set their own terms for the student loan. Therefore, the variety of loans is vast. There are fixed rate and various rate loans.
     

  • Credit Builder loans are for those who have no credit or low credit. An amount borrowed is held in a bank account while you make payments and your credit builds when the lender reports your activity to credit bureaus when you pay on time. Alternatively, they will. The borrowed amount is available to you after you have fully repaid the loan. By using this loan type, you are saving and building credit at the same time. This type of loan is not widely advertised and usually provided by community banks or credit unions. 
     

  • Auto financing – The two ways to finance a new car (without the help of your parents or anyone else that may provide you a personal loan) are to get a traditional auto loan or to get a lease. There are advantages and disadvantages to both methods. But ultimately it is a personal decision dependent on your individual goals and needs. Refer to “Buying a new car?” 
     

  • Mortgage loan is a type of loan used to purchase or maintain a home land or other types of real estate. Refer to “Buying a new home”
     

  • Personal Loan – A personal loan is usually good for a large one-time purchase (i.e., paying for a wedding, paying down credit debt…etc.) where you want a predictable payment amount. You can get these from a bank, credit union or online lender. The amount is provided to you in a lump sum and you pay it back monthly with a fixed interest rate, fixed timeline and collateral is not necessary. Note: Some creditors will allow you to use a personal loan for investing in stocks and other investments. However, we do not recommend taking this type of risk for most people.
     

  • Personal Line of Credit – A personal line of credit can be done through banks or online lenders and tend to have a variable interest rate. It works like a credit card where you have a pre-set limit that you can pull money from and you pay interest on the amount that you used. This could be a good choice for things like a home improvement project or for an emergency situation where you don’t know the exact amount of money you will need.
     

  • Business Loan – A business loan is a lending agreement specific from a lender to a business. Many people consider a business loan when they first plan to start a business (“Starting a Business”) There are different business loans from different sources and term limits.
     

  • Investment Property Loan – An investment property loan is usually a mortgage for the purchase of an income-producing property. These mortgages tend to have a higher interest rate than a traditional home mortgage and the terms may be shorter as well. The reason these loans have higher interest rates is because lenders believe that it would be easier for investors to walk away from an investment property versus their own home.
     

  • Debt consolidation Loan – A debt consolidation loan helps borrowers with high interest debt to combine their debt. Usually, the loan can be structured to be with a lower interest rate than the original debt. The actual rate you qualify for will depend on your specific credit history, income and debt to income ratio.
     

  • High Yield Savings Account
     

  • Pre-approval for loan
     

  • Types of retirement plans

    • Roth Individual Retirement Account (IRA)- A tax advantaged retirement account. Contributions (after-tax dollars) and earnings grow tax free. Once you reach 59 1/2 and the account has been open for at least 5 years, you can withdraw penalty & tax free. There are income limits and contribution limits. Good option for those who expect to be in a higher tax bracket at retirement.
       

    • Traditional IRA - A tax advantaged retirement account. Contributions (after-tax dollars) may be tax deductible and earnings grow tax free. Distributions at retirement are tax as ordinary income and you must start taking distributions after age 72. There are no income limits, but contribution limit exists. Good option for those who expect to be in same or lower tax bracket at retirement.
       

    • Traditional 401(k) Account - Tax advantaged retirement plan offered by employers. Contributions are automatically taken from your paycheck (pre-tax dollars), reduces your taxable income, money grows tax deferred AND employers usually give a matching contribution!
       

    • ​Solo 401(k)

    • 403(b) - Public and non-profit employees

    • 457(b)

    • Self-directed IRA

    • SIMPLE IRA

    • SEP IRA

    • HAS
       

  • Health Savings Account (HSA) - Individuals with high deductible health plans can put tax-free money aside to pay for their out of pocket medical expenses. HSAs have great tax benefits, but high deductible health plans are not suitable for everyone, even if your employer offers it.
     

  • 529 College Savings Account - Tax advantaged college savings account. You contribute after tax dollars and your money grows tax free. You get a tax break when you spend the distribution on qualified education expenses, but will have to pay taxes and penalty if you withdraw for unqualified expenses.
     

  • Custodial Account - Taxable account held in the name of a minor. Also referred to as UTMA or UGMA accounts. You have full control of the account until your minor reaches adulthood.
     

  • Modified adjusted gross income (MAGI)
     

  • Uniform Transfers to Minors Act
     

  • Investing terms

    • Leverage

    • Liquidity 

    • Time Horizon

    • Diversification

    • Cash flow

    • Capital appreciation

    • Rate of investment or return

    • Risk tolerance

    • Dollar-cost averaging
       

    • Stock market - The stock market is where publicly listed companies are able to raise money to use for their operations by selling shares of stock to individuals and institutions.
       

    • Stocks or equities
       

    • Annuities - An annuity is a contract between you and a financial institution, typically an insurance company where you pay a lump-sum payment or series of payments now, those payments are invested for you, and in the future, you receive regular guaranteed disbursements. Many people use annuities as an investment to hedge the risk of outliving their savings. The type of annuity you choose will determine how you want the disbursements to be given back to you.
       

    • Mutual fund - A mutual fund is a pool of money managed by an active professional Fund Manager. Effectively it is a trust that collects money from individual investors who have the same investment objective. The mutual fund can invest in stocks, bonds or other securities, but transactions are only allowed once per day and tend to have higher costs.
       

    • Exchange Traded Funds (ETFs) - ETFs are similar to a mutual fund where you as an individual can put your money in the ETF with other investors and it is managed by a Fund Manager. The ETF will usually mirror or track a particular index, sector, or other assets. An ETF can be purchased or sold on a stock exchange the same way that a regular stock and therefore is traded more than once per day.
       

    • Investment management fees - These are fees to have someone manage your investments for you. The company is using their time and expertise to professionally manage your investments. These fees are usually a % of your account balance.
       

    • Tax-loss harvesting - This is using your investment losses (by selling an asset at a loss) and offsetting the taxes you would pay on other investment gains. Investors then buy a similar asset to maintain their target asset allocation and risk profile. This doesn't apply to tax-advantaged accounts. Not all brokerages offer this feature.
       

    • Account minimums - Some brokerages have minimum amount of money you will need to deposit (i.e. $500), before you can start investing. There are also many options with $0 account minimum requirements.
       

    • Tax advantaged investment account
      This is a type of account that reduces the taxes you have to pay. For example, there are accounts that let you grow your money tax deferred (pay taxes later) or pay taxes upfront and not taxed at distribution.
       

    • Taxable investment account - This is a regular account with no tax breaks. Think regular investment account for general investing.
       

    • Market volatility - This is the constant fluctuations of the market, whether it's up or down. This is caused by changes in stock prices.
       

    • Investment risk - This is the risks involved when you invest your money - your investments will fluctuate due to market volatility. This is why you don't invest money that you need in the shorter term and why you need to diversify your investments.
       

    • Investment Timeline Horizon - This is how long you expect to hold your investment to meet a specific goal. For example, your investment timeline horizon for retirement will probably be longer than your investment timeline horizon for your child's college savings.
       

    • Asset Allocation - This is how you plan on allocating your investments (i.e. how much in stocks vs. bonds) in order to balance potential risks and rewards. This depends on your risk tolerance, time horizon and your investment objective.
       

    • Investment portfolio - This is the collection of investments you own. For example, your investment portfolio may comprise of stocks and bonds.
       

    • Diversification - This is not putting all your eggs in one basket (i.e. one single stock or one specific industry). Diversification helps smooth out the ride (i.e. investing in stocks and bonds)
       

    • Asset Classes: Stock - This is a small ownership of a company, also referred to has equity or shares. For example, if you own Apple stock, you are an Apple shareholder!
       

    • Asset Classes: Bond - These represents loans to corporation or the government. You are earning a return when the bond pays interest.
       

    • Asset Classes: Alternatives - This asset class includes assets that don't fall into Stock, Bonds or Cash. Examples include real estate, private company equity, crypto, commodities like gold and art.
       

    • Dividends - This is way for corporations to pay their shareholders profits via cash or shares. For those corporations paying out dividends, they are usually paid out quarterly.
       

    • Mutual Funds - This is a professionally managed fund that holds a basket of investments bought with money from a group of investors. They are popular because you can get exposure to professionally selected pool of diverse investments, at reasonable fees. Mutual funds can be traded at the close of day.
       

    • Exchange Traded Funds (ETF) - These are very similar to Mutual Funds, but traded throughout the day like stock. They are popular due to their low initial investments, low fees and the diversification it offers.
       

    • Index Funds - This is a type of mutual fund of ETF that tracks an index, like the S&P 500 (representing largest 500 public companies in the U.S.) Index funds aim to match the market vs. beat it (i.e. actively managed by humans.)
       

    • Target Date Funds - This fund holds a combination of stocks and bonds via index funds and the investment mix is automatically adjusted as it gets closer to the target date (more conservative). You choose the target date fund that has the year closest to your planned retirement date.
       

    • Expense Ratio - This is the % of expenses a particular mutual fund, ETF or index charges for operating the fund. For example, a 0.14% expense ratio for a target date fund means that you will be charged $1.40 for every $1,000 dollars invested in the fund.
       

    • Rebalancing - This is making changes to your portfolio to maintain the desired asset allocation (i.e. 20% bonds and 80% stocks). As the market fluctuates, the percentage allocation may fluctuate as well.
       

  • Types of brokerage accounts
     

    • Online brokerage firm - This is for those of you who want to buy and manage your own investments. You can passively invest using an online brokerage firm, but you will have to be a little bit more hands on than going with a managed brokerage firm.
       

    • Managed brokerage firm - This is for those of you who want an account that comes with investment management. Your investments can be managed by humans (investment advisor) or computer algorithms (robo advisors). This is a passive form of investing.
       

    • Robo advisor - This is a type of managed brokerage. Based on your financial profile (i.e. appetite for risk, time horizon), your money will be automatically invested. Robo advisors accounts are very popular amongst passive investors due to its low cost and simplicity.