401(k) savings plan. An employee-provided, salary-deferral plan approved by the Internal Revenue Service that allows qualified persons to save and invest pretax dollars.
adjustable-rate loan. Also called variable-rate loan. The interest rate of the loan fluctuates, adjusting periodically to the moves of a key rate, such as the prime rate or one-year Treasury bills.
affinity card. A credit card marketed to a group of customers with a common bond, such as membership in an organization.
allocation. The way in which a person’s savings are divided among the different accounts he or she has selected.
annual fee. The annual charge, from $35 to $400, paid by a cardholder to a credit card company for the privilege of possessing their particular credit card. Many credit cards do not charge an annual fee. The annual fee is billed directly to the customer’s monthly statement.
annual percentage rate (APR). The true cost of borrowing money, expressed as a percentage. It includes interest and fees on some loans such as an auto loan. The interest rate on a mortgage or home equity loan does not include fees.
annual percentage yield (APY). Typically, APY is used when you are earning interest. It is the interest rate you earn plus the effect of compounding interest.
appreciating asset. An asset that has a reasonable expectation of increasing in value with time.
appreciation. An increase in value.
appropriate. To set aside funds for a specific use.
asset. Anything of value that a person owns.
ATM card. A plastic card that gives the owner access to the automated teller machine when used with one’s personal identification number (PIN). An ATM card often doubles as a debit card.
attitude. A way of thinking or behaving.
austerity. A severely simple lifestyle.
automated teller machine (ATM). A convenient way to deposit and withdraw money from a savings or checking account any time of the day or night. (Often thought of by children as a place in a wall where Mommy and Daddy can get as much money as they want.)
automatic deposit. A deposit that is made from one’s account or paycheck into an investment or other account every month or at specific intervals as directed by the account holder. Authorization is made by the account holder and can be retracted or amended at any time. It is a painless way to get into the habit of saving or investing regularly.
automobile loan. A loan from a bank, credit union, or finance company to purchase an automobile.
balance transfer fee. A charge by a credit card company to customers for transferring an outstanding balance from one credit card to another.
bankruptcy. A legal declaration of insolvency. The bankruptcy law contains several types of bankruptcy. Chapter 7 is full discharge of all of one’s debts except for student loans and obligations to the IRS. Chapter 11 and Chapter 13 denote reorganization repayment plans set up and administered by the courts.
belief. A feeling of certainty about the meaning of something.
biweekly mortgage. A form of repayment. If a person makes mortgage payments every two weeks—or the equivalent of thirteen payments a year rather than twelve—he or she can reduce the term of a thirty-year mortgage by eight to twelve years.
biweekly schedule. A method by which a person pays one-half of a monthly payment every two weeks. The net result is twenty-six half payments each year or the equivalent of thirteen monthly payments. This is a fairly painless way to pay more than is required and thus reduce the time and fees associated with the indebtedness.
budget. A formula for adjusting expenditures to income.
buying power. Worth determined by how much something will buy. For instance, the buying power of a dollar today is much greater than it will be fifty years from now.
canceled checks. Checks that have been paid by the bank as directed by the checking-account holder. Canceled checks are sometimes returned to the customer for record keeping, although generally many banks and credit unions retain copies but do not return the actual canceled checks.
card hopping. The act of transferring credit card balances to a low-interest card for just the introductory period, then transferring them again to another card for its introductory period. Card hopping can be detrimental to one’s credit score.
cash advance. A very expensive loan taken against a credit card’s credit limit.
cash-advance fee. A charge by a bank to a customer using credit cards for cash advances. This fee can be stated in terms of a flat per-transaction fee or a percentage of the amount of the cash advance. For example, the fee may be expressed as 2 percent or $10. This means the cash advance fee will be the greater of 2 percent of the cash advance amount or $10. Banks may limit the amount that can be charged to a specific dollar amount. Depending on the bank issuing the card, the cash-advance fee may be deducted directly from the cash advance at the time the money is received or it may be posted to a bill as of the day the customer received the advance.
cash flow. Refers to the money that flows in and out of one’s possession. Spending more than comes in produces a negative cash flow. A positive cash flow occurs when more comes in than goes out.
certificate of deposit. An interest-bearing receipt from a bank guaranteeing that upon deposit of a specific amount of money, at a specific point in time, a guaranteed amount of interest will be paid to the bearer along with the original deposit. CDs are available in a variety of denominations and for varying time periods. The longer a person agrees to leave his or her money on deposit, the greater the interest rate he or she will earn.
cheapskates. Those who give generously, save regularly, and never spend more money than they have.
co-branded card. A credit card that is issued through a partnership between a bank and another company or organization. For instance, a large department store may co-brand a card with a bank. The card would have both the bank name and the store name on it. Some co-branded cards are also rewards cards that provide the consumer with benefits such as extra service, cash, or merchandise every time the card is used. Also called an affinity card.
collateral. An asset owned by the borrower that is pledged and held by the lender pending the borrower’s faithful repayment of the debt. Something of value such as real estate, stocks, bonds, or other assets offered as security to encourage a lender to make a loan.
commercial paper. Short-term IOUs of large US corporations.
compounding interest. The concept that money makes money. When interest is allowed to remain in an account rather than being paid out, it becomes principal. Now interest is earned on the interest. Compounding interest is what allows investments and savings to grow.
consumer credit industry. That segment of the business world that extends credit to consumers on an unsecured basis.
consumer debt. Unsecured loans offered to consumers to buy goods and services.
contentment. Being happy with what you have.
Contingency Fund. A pool of money that is readily available within seventy-two hours and is held as a hedge against emergencies such as health and safety issues or the loss of one’s income.
corporate downsizing. The process by which a corporation pulls in its belt by drastically reducing overhead and expenses. Corporate downsizing is often the catalyst for massive layoffs.
credit card. A card authorizing the holder to buy goods or services on credit. (Mary’s preferred definition: A small piece of plastic that has the ability to make its bearer do strange things he or she probably wouldn’t dream of doing with cash.)
credit inquiry. A notation on one’s credit report that indicates the person gave a company permission to look into his or her credit file.
credit insurance. Insurance that pays off all or part of a loan if the borrower dies or becomes disabled or unemployed.
credit report. A report filed by a subject’s name, birth date, and Social Security number that gives an accounting of that person’s credit activities and payment history. This report will help a new lender determine the creditworthiness of the applicant. Many prospective landlords and employers look at a person’s credit report to get a true picture of the applicant’s character. Major companies providing these credit report services include Experian, TransUnion, and Equifax.
credit scoring. A point system lenders and credit bureaus use to assess a person’s creditworthiness.
credit union. A nonprofit financial institution formed for the benefit of its members. Since there are no stockholders, profits are partially paid back to the members in the form of dividends. It offers checking accounts, savings accounts, and loan services and generally has better interest rates, lower fees, and personal service. A person must qualify to join. It is not open to the public.
daily Spending Record. A simple list showing where a person spent his or her money today. It should include every single expenditure, even the small ones.
day-trading. A form of investing that involves buying and selling stocks for a profit on the same day with no overnight holds. The chances of losing money are very high.
debit card. A plastic card that gives a person electronic access to his or her checking account. It often doubles as an ATM card and can also be used like a credit card to make purchases from vendors.
debt. Something that is owed.
debt-proof living formula. Giving away 10 percent, saving 10 percent, and living on 80 percent.
debt trap. That place where a person is overcome by too much debt. A place of bondage.
debt, intelligent. That to which the borrower is obligated in a loan transaction secured by collateral that can be repaid anytime.
debt, stupid. A debt that is not secured, has no collateral attached to it, and can be incurred with a signature alone.
dejunk. The act of getting rid of all the clutter in one’s home, office, and life.
depreciate. To lose value simply because of the passing of time.
depreciation. A loss in value or efficiency resulting from usage and/or age.
deprivation. The act of withholding.
discontentment. Not being happy with what you have.
discretionary income. That which is left after all the bills are paid; money available for nonessential expenditures.
dislocated worker. Anyone fired or laid off due to downsizing or a self-employed person whose business failed because of a turn in the economy.
displaced homemaker. A woman who has left the workplace to rear children, is single as a result of either divorce or death, and requires training to return to the workplace.
disposition fee. The amount of money charged to a lessee at the end of a lease when turning in a vehicle. One should negotiate this before signing the lease and only agree to pay an acquisition fee or a disposition fee, not both. A typical charge is $200 to $400.
diversification. The practice of spreading investments among a number of different investments to reduce risk. It’s the opposite of putting all your eggs in one basket. A mutual fund is an example of diversification because it invests in many different securities.
dividend. A sum of money to be distributed to stockholders.
dollar-cost averaging. Investing the same amount of money in the same investment at regular time intervals.
down payment. The up-front money required to enter into a loan.
DPLers. People actively engaged in debt-proofing their lives.
durable goods. Things that have a life expectancy exceeding three years.
entitled. A feeling that is the result of having an available balance on one’s credit card account.
equity. The value remaining in excess of liabilities or loans.
f (fixed). If the letter f appears after the annual percentage rate (APR), the interest rate is fixed and not subject to adjustment.
face value. The original dollar value of a security as stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity (generally $1,000). Also known as “par value” or simply “par.”
falling payments. Payments that fall in direct proportion to the outstanding balance, such as minimum monthly payments on credit card accounts, as opposed to mortgage payments that remain fixed regardless of the current outstanding balance.
federally insured. Money deposited into a bank or savings and loan that is covered by insurance. In the event the financial institution becomes insolvent, the insurance will reimburse the depositor.
federal tax withholding. Money withheld by one’s employer and sent to the IRS in anticipation of payment of federal income taxes and Social Security taxes.
financial bondage. That uncomfortable situation in which one owes so much money to so many creditors that he or she feels like a slave.
financial calculator. A calculator that figures payment schedules and debt-payoff periods.
financial freedom. The state or condition of being free from financial pressures brought on when one lives from paycheck to paycheck and under the bondage of heavy debts.
financial security. That point in time when a person can live the lifestyle he or she has chosen, financed by the assets he or she has accumulated, without the need for additional income.
for-profit corporations. A corporation that has stockholders and the expectation of making a profit, which is then paid to said stockholders.
Freedom Account. A separate checking account into which a person deposits monthly 1/12 of his or her known irregular expenses.
frugality. That which is necessary to keep expenses less than income.
gambling. Putting money at unreasonable risk in an effort to profit from the outcome of a game of chance.
grace period. The period of time a customer is allowed to pay a monthly bill before the account begins to accrue interest. Issuers determine a grace period based on different stages in the transaction. A grace period can begin based on one of the following: (1) transaction—the actual date the customer used the card for a purchase or a cash advance; (2) posting—the actual day the issuer received the charge and posted it to the customer’s account; (3) billing—the date the bill is generated for mailing to the customer.
hoarding. Saving to an extreme and to the detriment of joy and an ability to do good in the world.
home equity loan (HEL). A loan secured by the equity in one’s home. Also called a second mortgage.
home mortgage. A loan from a bank or other lender that is secured by the value of one’s home.
income. The money that flows into one’s life.
index. A published, market-based figure used by lenders to establish a lending rate. Examples of the most common indexes are the One-Year Treasury Constant Maturity Yield, the Federal Home Loan Bank (FHLB), the 11th District Cost of Funds, and the prime rate as it appears in the Wall Street Journal.
indexed rate. The sum of the published index plus the margin. For example, if the index is 9 percent and the margin is 2.75 percent, the indexed rate is 11.75 percent.
individual retirement account (IRA). A personal savings account specifically designated for retirement. Anyone who has earned income may contribute up to $5,500 a year to an IRA. The money placed into an IRA may be tax deductible depending on one’s income and participation in other retirement plans. Even if it is not, all money in an IRA account grows on a tax-deferred basis—taxed only when a person begins withdrawing funds.
insurance premiums. Payment for insurance coverage.
intelligent borrowing. Borrowing only when the loan is secured and the proceeds go to buy something that will appreciate.
interest. A fee a borrower pays to a lender for the temporary use of the lender’s money.
interest-bearing account. A savings or checking account that earns interest for the account holder.
introductory rate. Also called the “teaser rate,” this is the rate charged by a lender for an initial period, often used to attract new cardholders. This rate is charged for a short time only and is used to entice borrowers to accept the card’s terms. After the introductory period is over, the rate charged increases to the indexed rate or the stated interest rate.
investing. The deliberate act of putting money to work in a commercial endeavor with an expectation of a reasonable gain and with the full understanding that no investment is without some level of risk.
investment portfolio. The entire collection of one’s investments. A portfolio should represent many different types of investments, including stocks, bonds, mutual funds, real estate, security, and cash. A well-diversified portfolio is one that offers the greatest security.
irregular expenses. Any expenses that do not recur on a monthly basis.
late fee. A charge to a customer whose monthly payment has not been received as of the due date or stated deadline for payment as shown on the billing statement. This fee can be stated in terms of a flat per-transaction fee or a percentage of the amount of the cash advance. The fee may be expressed as follows: 3 percent or $25. This means that the late fee charged will be the greater of either 3 percent of the amount of the balance or $25. Late fees are a serious indication of a borrower’s lack of financial integrity and show up on one’s credit report for future lenders or others assessing one’s character to see for up to seven years.
leasing. Renting for a specific number of years. Leasing carries a legal obligation on the part of both the lessor (owner) and the lessee (renter).
liability. A financial obligation.
lien. A legal right to claim or dispose of property in payment of or as security for a debt.
line of credit. A preapproved loan in which one can draw down as much or as little of the line as he or she wants and pay interest only on the amount he or she actually uses. A credit card limit represents a line of credit, as does a home equity line of credit in which the loan is secured by the equity in the home. If the borrower defaults, the lender can foreclose on the property.
liquidating. Turning assets into cash.
liquid cash. Money that is available right now in spendable cash. An investment in stock is not liquid. It would have to be sold to convert it to cash.
liquidity. The ability of an asset to be turned into cash. A checking account is very liquid because a person can draw out the cash at any time. US savings bonds are somewhat liquid, but it takes about three weeks to receive the cash once liquidated. The equity in a home is less liquid because of the time necessary to go through the sale and actually receive cash. Great Uncle Fred’s stamp collection would have a low degree of liquidity.
living beneath your means. Spending less than you earn.
long-term investment. An investment one intends to hold for a minimum of five years.
lower-rate cards. Credit cards with amazingly low interest rates. Usually the low rates are limited to the first six months or so until the true rate kicks in.
means. Money or other wealth available to provide for one’s living.
minimum monthly payment. The least amount a creditor will accept as the monthly payment on a debt. Often the minimum payment represents only the creditor’s profit and does not reduce the principal.
money leaks. The ways money leaves a person’s life unnoticed and unaccounted for.
money managers. Caretakers of money.
money market account. A savings account offered by a bank that pays better interest than a passbook savings account. It offers check-writing privileges and is guaranteed by the FDIC up to $100,000. It is not to be confused with money market funds that are not FDIC insured and issued by mutual fund companies.
money market fund accounts. Specialized funds sponsored by mutual fund organizations that take a person’s money and make very short-term loans to big businesses, the US Treasury, and state/local governments. It’s a way of pooling one’s money with that of other small investors and getting a better deal on interest rates. It is basically a savings account disguised as a mutual fund. It is not insured against loss the way a money market account in a bank is insured by the FDIC.
monthly interest rate. The annual interest rate divided by twelve. Credit card companies use the monthly interest rate times the average daily balance to determine the monthly interest payment on a credit card account.
monthly Spending Record. Four weeks’ worth of daily Spending Records divided into categories to reveal the money leaks and a picture of where one’s money goes.
MSRP. Manufacturer’s suggested retail price.
mutual fund company. A corporation chartered by a particular state that pools the money from shareholders and invests in a portfolio of securities. It is “mutual” because the fund is actually owned by its shareholders, who pay a pro rata share of fund operating expenses and receive a pro rata share of income earned and capital gains realized.
net asset value (NAV). The current value of a mutual fund share, stock share, or bond share. The net asset value of any mutual fund, stock, or bond changes daily.
net income. One’s take-home pay, reflecting what’s left after taxes and other items are deducted.
net worth. The dollar value of one’s assets (what one owns and what is owed to them) minus one’s liabilities (financial obligations).
no-load mutual fund. A mutual fund whose shares are sold without sales charges of any kind. Some no-load funds charge a small fee, usually 1 percent, for investments held less than six months.
nonrecurring expense. Any kind of expense that is a one-time charge. An appraisal fee would be an example of a nonrecurring expense of buying a home.
nonsufficient funds (NSF). Not enough funds to cover a check. In other words, the check bounced. It is illegal to knowingly write a check when there are not sufficient funds in the account equal to the amount of the check.
offers of entitlement. Preapproved or preselected credit card applications or offers.
overdraft protection. A line of credit attached to one’s checking account that puts in a set amount of money at a time to cover checks written in excess of available funds. High interest rates plus significant fees for accessing funds are charged to the account.
par value. The original dollar value of a security. For stocks, it is the original cost of the stock shown on the certificate or statement. For bonds, it is the amount paid to the holder at maturity. Also known as “face value.”
passbook savings. A regular savings account in a bank or credit union, the contents of which used to be recorded in a little book called a passbook.
paycheck to paycheck. Spending the entire amount of one’s paycheck before the next paycheck is earned.
payoff plan. A specific written plan to pay off debt that lists payments, dates, and the date the plan will be complete.
Pell Grant. A gift from the government for one’s college education that is not subject to repayment.
personal finance. One’s money in one’s personal life as opposed to a business.
points. An up-front fee charged by a lender that, in effect, lowers the nominal interest rate on a loan. A point equals 1 percent of the total loan amount.
portfolio. A collection of investments.
poverty. Living on less money than it takes to survive.
premium. The annual price one pays for an insurance plan as a whole.
prime rate. The interest rate a bank charges to its best or “prime” customers. Each bank will quote a prime lending rate.
principal. The amount borrowed separate from the interest.
private mortgage insurance (PMI). The insurance homebuyers must maintain until the equity in the property reaches at least 20 percent. This insurance protects only the lender in case the borrower defaults on the loan. It is sometimes confused with mortgage insurance, which is similar to life insurance.
prospectus. A legal document that describes the objectives of an investment, such as a mutual fund, including risks, limitations, policies, services, and fees. By law, a prospectus must be furnished to all prospective investors.
purchasing. Acquiring goods and services with a plan and purpose in mind.
purposeful giver. A person who does research and looks for needs so that his or her giving is directed purposefully and not in a haphazard or flippant way.
quitting points. Events or occurrences in our lives that weaken our resolve never to give up and tempt us to quit.
Rapid Debt-Repayment Plan (RDRP). A simple, powerful plan to repay rapidly one’s unsecured debts.
rebate. Something given back. In the case of a grocery product, the rebate is the amount of money sent back to the consumer in exchange for a proof of purchase or some other qualifier.
repossess. To take back. Lenders repossess cars or homes they’ve lent money on when the borrower defaults or refuses to make payments as agreed.
resale value. The value of an asset determined by the amount of money it could bring if sold.
retirement nest egg. Money exposed to interest and growth during one’s working years that becomes the security of one’s retirement years.
revolvers. Credit card customers who roll a balance over from month to month, pay interest faithfully, and never quite have enough money to pay the balance in full in any given month.
revolving debt. Debt that continues from month to month, year to year.
rewards cards. Cards that allow a customer to accumulate cash, merchandise, or services based on card usage.
saving. Putting money in a safe place where it is not exposed to the risk of loss and pays only a pittance in interest—not enough to keep up with inflation.
savings bond. An IOU from the US government in exchange for a loan. US savings bonds are very safe but pay low rates of interest.
second mortgage. A second loan on a house or other real estate that is second in position to the first mortgage holder. If the homeowner gets into financial trouble and cannot pay, the lender in first position has first right to the property.
secured debt. A debt that is secured or guaranteed by something of value. A mortgage and an automobile loan are examples of secured debt. If the borrower gets into trouble, the home or the car can be sold to satisfy the obligation.
Securities Exchange Commission. The governmental department that regulates the securities industry—the stock market, bond market, etc.
security deposit. Money given up-front to a landlord or car leasing company as a promise of the renter’s/lessee’s faithful performance of the deal.
selective amnesia. The mental “condition” in which one conveniently forgets that Christmas, for example, is coming; then when he or she finally remembers, it’s too late to do anything but shop with a credit card.
shopping. The activity of cruising through stores with a credit card, checkbook, or cash.
signature loan. An unsecured loan that can be obtained with a signature alone.
single-cycle billing. A billing method to determine interest owed on a credit card bill by multiplying the monthly interest rate by the average daily balance of the past thirty days.
slippery places. Situations, events, or locations where one could easily trip and fall, financially speaking. An example might be the mall, where one could easily slip into an old habit of shopping mindlessly and running up a lot of debt before he or she has time to analyze what’s going on.
solvency. Having enough money to pay one’s bills, debts, and obligations with some left over.
speculation. Exposing money to high levels of risk with the expectation of a large return in a short period of time. Speculation should be left to highly experienced professionals.
spending limit. A term credit card companies use for a credit limit to soften the idea of a loan or debt being involved.
Spending Plan. A written strategy for how one plans to spend his or her money.
Spending Record. A detailed, written account of where one spent his or her money.
statement closing date. The date on which a credit card company cuts off the billing cycle. Purchases made after the statement closing date will show up on the next month’s statement.
SuperNOW account. A type of checking account that requires a person to maintain a higher minimum balance and in return pays a higher rate of interest.
Supplemental Educational Opportunity Grant (SEOG). $200 to $4,000 a year available to very low-income undergraduate students.
surplus. The amount of money over and beyond what is needed to pay all of one’s expenses.
teaser rate. A low introductory rate to entice a borrower to accept a loan or credit card.
thrift. The economical management of assets and resources.
transaction fee. A fee charged for the privilege of borrowing money through a cash advance.
Treasury bills. Government issued bonds that have short-term maturities. Also called T-bills.
two-cycle billing. A billing method to determine interest owed on a credit card bill by multiplying the monthly interest rate by the average daily balance of the past sixty days.
unclutter. To simplify one’s life by getting rid of the clutter and unused stuff.
unemployment benefits. Proceeds of unemployment insurance available to someone who is laid off, but only for a short period of time.
unsecured loan. A loan not guaranteed by the pledge of any collateral.
upside down. Owing more money than a collateralized asset is worth. Typically used to refer to a car loan or lease when the car has a fair market value of less than the balance due.
US Treasuries. IOUs issued by the US government in the form of savings bonds, T-bills, T-notes, and T-bonds.
v (variable). If the letter v appears after the annual percentage rate (APR), the interest rate is variable and subject to change.
values. Specific types of beliefs that are so important and central to one’s belief system that they act as life guides.
windfall. An unexpected sum of money in any amount.
work-study program. A federal program that provides on-campus jobs for students. Money earned from the job goes to the payment of tuition and is not subject to repayment.