ABC buliding blocks with colored pencils next to them

Easily Learn Your Financial ABCs

ABC buliding blocks with colored pencils next to them

Are you looking to learn the basics of finance while you are in college? Check out the financial ABC’s blog that I created for you!

A – Annual Percentage Yield (APY): Annual percentage yield is a term in finance that describes an amount of money that you will make on your money. If you look at your savings account, you will usually see a % of money that your bank gives you for having your money in their account. The national average is 0.09% as of 1/28/20.  Some banks, however, offer up to 2% APY!

B – Budget: Your budget is an estimate of how you are planning to spend your money and helps you keep track of your income and all of your expenses. There are four main types of budgets that exist: zero-based budget, envelope system, 50/30/20, and pay yourself first budget. Budgets help you to manage your money.

C – Certificate of Deposit (CD): A certificate of deposit is a different type of savings account that typically gives you a better interest rate. You put your money into a CD, and it is locked there for a certain amount of time. You will not be able to get this money (without penalty) until the end of the term.

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D – Debit Card: A debit card is a payment method that is usually issued by a bank or credit union. When you use a debit card, you will see the money come out of your account automatically. This is the best payment method if you are trying to stick to a budget.

E – Equity: Equity is an amount of money that you own in a certain investment. If your house is worth $200,000 and you have paid $100,000 then you would have $100,000 equity in the house.

F – FDIC: The Federal Deposit Insurance Corporation is a government agency that guarantees that you will not lose money that you put into a bank. In most cases, the FDIC will back up up to $250,000 in the case that the bank goes bankrupt or closes.

G – Gross Income: Gross income is the amount of money that you make at your job before taxes are taken out. The money that you actually take home is called your net income. Think of it like this: The ocean is the gross income, and when you cast a net you are going to get some of the fish but not all of them. That is your net income.

H –  House Poor: House poor is used to describe a person or family that lives in a house that takes up more than 35% of their total household income. Your mortgage payments or rent should never exceed 35% of your income if you want to be successful with money.

I – Interest: Interest can be a good or bad thing depending on where the interest is. If you have a 27% interest rate on your credit card, it means that anytime that you do not pay your card off in full any month, you will be charged 27% of that money in addition to the amount that is due. If you have a 1.5% interest rate on your savings account then that means that the bank is giving you 1.5% on-top of your money. If you have $10,000 in your savings account, the bank would give you a free $150 for having your money with them.

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J – Joint Account: A joint account is a type of bank account that you and your partner or parent both have access to. You would both be able to deposit money into and take money out of a joint account.

K – Kickback: K is a tough one to talk about when referring to finance. A kickback is another word for bribery. It is an illegal payment intended to increase the favorability or compensation from a certain company.

L – Lease: A lease is a type of contract where you make recurring payments for a certain amount of time, but do not have any equity in the product at the end of the term. You can lease a car or a building typically. Car leases are the most expensive way to own a car due to having no equity in the car at the end of the lease.

M – Maturity Date: A maturity date is not the day in which a child begins to mature. In finance, the maturity date is a term that describes the day that a lease comes to an end. If you enter into a 36 month lease, 36 months after your start date the lease matures. This term also applies to CDs. When a CD reaches its maturity date, you can take the money out of your CD for no penalty.

N – Net Worth: Your net worth is the amount of money that is left over when you subtract what you own minus what you owe. If you own $500,000 worth of products and you owe $250,000 on credit cards, student loans, and your house then your net worth is $250,000.

O – Opportunity Cost: Opportunity cost refers to what you are giving up in order to get something else. If you buy a coffee from Starbucks every day, your opportunity cost is what you are giving up. If you spend $5 every day on coffee, your opportunity cost may be a laptop.  

P – Portfolio: A portfolio is a group of assets that you own. Your portfolio may include real estate, stocks, bonds, and mutual funds.

Q – Quarter: Companies break their year down into quarters.  If they are doing well one quarter, it does not mean that they will do well in the next quarter. Check how they were doing in that quarter last year!

R – Return on Investment: A return on investment is the amount of money or time that you get in exchange for something else. For example, if you spend $30,000 on school then you are hoping for a good return on investment. You will hope that you will make more money than you would have if you didn’t go to school. That is your return on investment.

S – Stock: A stock is a share of a company. If you invest in a company, you are buying stocks in the company. Company’s stocks have prices that fluctuate every day or week. Some company’s stock prices go up, while others go down. You own a tiny piece of the company when you buy stocks in them.

T – Taxes: Taxes are one of the most hated things in America. The government takes a portion of your income and purchases to help fund schools, roads, and other government run facilities.  In America, we have different tax brackets based on your income. Most states also add a certain percentage to your purchases. In Pennsylvania, that percentage is 6%.

U – Underwriting: Underwriting is a service provided by banks, credit unions, insurance companies, and many other companies in which they guarantee payment in exchange for a fee.  This is usually used for loans and mortgages.

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V – Vested: Vested is a term commonly used when speaking about retirement funds that you get through work called a 401K. Most companies will match a certain percentage of your contribution into a 401K. After a certain amount of time working for them, you are considered fully vested meaning that you will get to keep all of the money that the company contributed for you.

W – W-9: A W-9 is a form that is used in the United States to keep track of taxes. You will fill out a W-9 when you start a new job. The company will then send it to the IRS to provide them with the correct tax information.

X – Xenocurrency: X is a letter that almost no finance terms start with. Xenocurrency is the only one that I could find for you! Xenocurrency is a currency that is traded outside of the country it was supposed to be traded in. Xenocurrency literally means “Foreign Currency”. For example, if you pay with US dollars in Canada, you would be using Xenocurrency.

Y – Year Over Year: Year Over Year (YoY) is a term that refers to how a product is doing this year compared to last.  For example, if a stock price was $5 last year, but $10 this year then it would have had a 100% increase YoY.

Z – Zero based budget: Zero based budget is a budgeting method that says you should have $0 left over at the end of the month. In this type of budget, you will put your total income at the top of the sheet and then list all of your expenses. Any money that is left over goes towards savings, therefore giving you $0 at the end.

Now you know your financial terminology.

To Sum it Up…

There are many financial terms out there that make money really scary. Money Tree Network is here to help make it less scary. Read through my financial ABC’s to get a quick explanation of a few different terms.