Understanding Common Financial Terms
Becoming familiar with financial terminology can help you understand your own money situation. Below are some common financial terms and phrases to help you better understand your finances and create a smart budget.
Annualcreditreport.com: Website that allows consumers to obtain a free credit report every year from each of the three credit reporting agencies.
Annual Percentage Rate (APR): the annual rate charged for borrowing or earned through an investment, and is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction but does not take compounding into account.
Budget/Spending Plan: A document used to determine the cash flow of an individual or family.
Capitalized Interest: Interest that is added to the principle balance of a long-term loan.
Credit Reporting Agencies: Companies that maintain a record of your credit history known as your credit report. Your FICO Score is based on the information in your credit report at the time it is requested. The three major reporting agencies are Equifax, Experian, and TransUnion.
Direct Student Loan: Studen
t loans guaranteed by the federal government. There are subsidized (no interest to borrower until in repayment) and unsubsidized (interest accrues when the loan is disbursed).
Emergency fund: An account used to set aside funds needed in the event of a personal financial dilemma, such as the loss of a job, a debilitating illness or a major expense. Most experts suggest having enough money in an emergency fund to cover 3 to 6 months of expenses.
Expense: The cost required for something; the money spent on something.
Expense Tracking Method: A way for individuals and families to track their expenses throughout the month to then compare with their budget. There are many methods to track expenses: envelope, receipt, register, notebook, calendar, spreadsheet, online, or apps.
Federal Deposit Insurance Corporation (FDIC): The US government corporation that provides deposit insurance to depositors in US banks, The FDIC insures deposits in member banks up to $250,000.
FICO Credit Score: A number lenders use to help decide how likely it is that they will be repaid on time if they give a person a loan or a credit card. Your FICO Score ranges from 300 to 850 and is based on calculated factors from information in your credit report. Other companies have developed their own credit scores that are not the same as the FICO Score which is used by most lenders.
Financial Goals: It is important to create short-term, intermediate, and long-term financial goals. Short-term goals are those you can complete in less than three months, intermediate are those that can be reached in 3 months to 1 year, and long-term goals are goals that will take longer than a year to reach.
Fixed Expense: Monthly costs that do not fluctuate.
Flexible Expenses: Monthly costs that fluctuate.
Gross Income: An individual's total pay before accounting for taxes or other deductions.
Income: Money received (either earned or given), especially on a regular basis.
National Credit Union Administration (NCUA): Independent federal agency created by the United States Congress to regulate, charter, and supervise federal credit unions, the NCUA insures deposits in member credit unions up to $250,000.
National Student Loan Data System (NSLDS): Website to find information on all federal student loans.
Net Income: Also known as take-home-pay, this is the amount of money received in a payroll check after taxes (Federal Income Tax, State Income Tax, Medicare, Social Security).
Occasional/Periodic Expenses: Costs that only occur a one time or a few times a year.
Pay Yourself First (PYF): Before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save. A good rule of thumb is to save 10% of your net income.
Security Deposit: A fixed amount of money you pay your landlord, or management company, to cover any damage you might cause to the property. Typically, equivalent to one month’s rent.
SMART Financial Goal: A goal that is specific, measurable, attainable, realistic, and time- bound.