Personal Finance Final Exam

Baby Steps 7 steps to a healthy financial plan
Compound Interest Interest paid on interest previously earned; credited daily, monthly, quarterly, semi-annually or annually on both principal and previously credited interest
Emergency Fund 3-6 months of expenses in readily available cash to be used only in an emergency
Interest Rate The percent paid to a lender for the use of borrowed money
Money Market A mutual fund that seeks to maintain a stable share price and to earn current income by investing in interest-bearing instruments with short-term (usually 90 days or less) maturities
Sinking Fund Saving money for purchases and letting interest work for, not against you
Diversification To spread around one’s investment dollars among several different classes of financial assets among the securities and many issuers results in lower risks
Liquidity Quality of an asset that permits it to be converted quickly into cash; availability of money
Risk Degree of uncertainty of an asset; in business, the likelihood of loss or reduced profit
Risk Return Ratio Relationship of substantial reward in comparison to the amount of risk taken
Share A piece of ownership in acompany or mutual fund
Annual Fee A fee charged by a credit card company for the use of their credit card
Annual Percentage Rate (APR) The cost of borrowing money on an annual basis. Takes into account the interest rate and other related fees on a loan
Credit Money owned
Debt Snowball The preferred method of debt repayment. Includes a list of all debts organized from smallest to largest balance. Minimum payments are made to all debts except for the smallest, which is attacked with the largest possible payments
Depreciation A decline in the value of property. The opposite of appreciation
Tax Deduction An expense that a taxpayer is allowed to deduct from taxable income. For example, money paid as home mortgage interest and charitable donations can be deducted from your total income before calculating how much income tax you must pay the government
Buyer’s Remorse Regretting a purchase soon after making it
Financing To buy on time with credit; paying for it over time
Finite Having a beginning and an end
Opportunity Cost The true cost of something in terms of what you have to give up to get the item. The benefits you would have received by taking the other action.
Significant Purchase An amount of money you spend, usually $300 or more, that causes some pain to part with
Auction A public sale in which property or items of merchandise are sold to the highest bidder
Estate Sale Type of yard sale with more items, usually the entire contents of a household
Foreclosure process by which the holder of a mortgage sells the property of a homeowner who has not made interst and/or principal payments on time as stipulated in the mortgage contract
Integrity Having to do with a person’s honesty and moral attributes
Mark-Up The difference between the wholesale price and retail price
Negotiating To bargain for a lower price
Patience The ability to wait or delay an action without becoming upset or annoyed
Walk Away Power The ability to walk way from a purchase when negotiating
Win-Win A negotiation where both parties benefit
Allowance Money given to a child by his/her parent/guardian, typically on a weekly basis
Commission A fee paid for providing a service
Fiscal Having to do with money
Career Your line of work
Cover Letter Similar to contact letter but used to inform the prospective employer of your interest and capabilities as they relate to a specific employment opportunity; always accompanied by a resume
Income Tax Progressive tax on the financial income of individuals, companies, deceased estates, and certain bankrupt estates paid to the government
Payroll Deduction Amount subtracted from paycheck, either by government requirement (mandatory taxes, Social Security) or at the employees request (health insurance, retirement plan)
Resume Personal and work history used for gaining employment
Health Insurance A plan in which private companies or government programs pay for part or all of a person’s medical costs
Renter’s Insurance Type of insurance that provides coverage for accidents, damages and losses in a rental (apartment or house) or dormitory. Provides coverage for personal belongings and liability that may occur from an accident in the insured home
Mutual Fund pool of money managed by an investment company and invested in multiple compaines, bonds, etc.; offers investors a variety of goals depending on the fund and its investment charter; often used to generate income on a regular basis or to preserve an investors money; sometimes used to invest in companies that are growing at a rapid pace
401k defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deffered income for retirement purposes; in some cases, employers will match their contributions
Educational Savings Account after-tax college fund that grows tax-free for educational uses; eligibility based on parents’ annual income
Individual Retirement Arrangment (IRA) Tax-deffered arrangement for individuals with earned income and thier non-income-producing spouses; growth is not taxed until money is withdrawn; contributions to these are often tax-deductible
Pre-Tax Retirement Plan A type of retirement plan where you put money in before taxes have been taken out, but must pay taxes of the money at the time of withdrawal.
Rollover movement of funds from a tax-deferred retirement plan from one qualified plan or custodian to another; incurs no immediate tax liabilities or penalties, but requires IRS reporting
Roth IRA Retirement account funded with after-tax dollars that subsequently grows tax free
Tax-Favored Dollars Money that is working for you, either tax-deffered or tax-free, within a retirement plan
Interview Most important aspect of securing a job

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