Education

Knowledge is power.  I have compiled a list of terms and definitions that will help you understand financial terms.

Compounding-the application of interest on top of interest on top of principal.  The value of an investment increases at a faster rate because accrued interest is added to the investment’s interest-earning balance.

Debt-to-income proportion ( DTI)-is the relationship between the amount of money coming in and the amount of money going out.

Residual income-income that continues to make money off of a onetime service; it continues to pay even when no work is being done.

Revolving credit-has not specific term to pay off.  Interest is accumulated off the balance; the balance can be paid down and built back up.  An example of this is a credit card.

Installment credit-has a specific term (when it begins & ends).  The principal and interest has an inverse relationship.   Examples of this are mortgages or car loans.

Asset- is anything that has monetary value.

Blended rate-is the average interest rate between two or more specific debts when combining debts as a whole.

CD (certificate of deposit ladder)-an assortment of CD’s that mature at regular intervals.

Certificate of Deposit-is insured by FDIC for up to $150,000.

Consumer Debt-is money borrowed for the purchase of consumer goods and services.

Credit Score-is a tool used by banks to evaluate a person’s worthiness to extend credit.

Debt-is an obligation or money owed to someone.

FDIC (Federal Deposit Insurance Corp.)-is an agency of the government that manages bank insurance funds.  It guarantees deposits in banks for up to $150,000.

Interest rate-the amount charged per year on a personal or home loan at a percentage that varies depending on the type of loan.

Annual percentage rate (APR)-is the total amount of fees and interest that is expressed in an interest rate; it is anything the lender charges.

Liabilities-are all debts and legal obligations.

Loan to value ratio (LTV)-is the ratio of the home loan taken to the appraised value or the sale price, whichever is lower.

Net income-is the amount left of your income after taxes have been paid.

Gross income-is the total sum of all the money, goods and property you received during the year.

Net worth-is the sum of all of your assets minus all the debts.

Obligation-is a promise to repay any financial debt

Per Diem interest-.is the amount of interest calculated per day.

Return on capital-is a percentage which determines how much you invest in making improvements versus how much it is worth to someone who is interested in buying your home.

Rule of 72-is the means of estimating how many years it will take to double an investment.

Risk-is the evaluation of the risk of investing versus paying off the debt.  An example of this would be a CD ladder.

Remaining balance-is the amount left to pay off the loan.

Revolving line of credit-is a secured credit card.

Reserve fund-is a rainy day fund, usually 3 to 6 months of living expenses.

Savings-is the amount of one’s income after expenses are deducted.

Term-is the amount of time it takes for a loan to be paid off.

Personal finance-refers to the practices of managing one’s money.

Unsecured loan-a loan not guaranteed by collateral, usually a credit card.

Inverse Relationship-interest gradually decreases over time as the principal increases over time.

Disposable income-income left over after paying bills.

Accrued interest – is interest that has been accumulated since the principal investment.