Money
What is given up when a choice is made
Opportunity cost
Automatically routing some money from your paycheck to savings (before paying bills)
Pay Yourself First
Something pledged as security for repayment of a loan, to be forfeited in the event of a default
Collateral
Insurance that provides coverage for personal property in a rented apartment, condo or home in case of a loss event. Also protects you from liability if someone is injured on your property.
Renters insurance
How to determine someone's net worth
Total Assets - Total Liability = Net Worth
The degree to which assets can be sold for cash
Liquidity
"Interest on interest"; calculated on both the principal amount and the accumulated interest.
Compound Interest
A number between 300–850 that depicts a consumer's creditworthiness. The higher the score, the better a borrower looks to potential lenders.
Credit score
The amount you pay for services before your insurance plan starts to pay.
Insurance deductible
Examples of assets & liabilities
Assets - house, car, investments, bank accounts
Liabilities - credit card debt, student loans, mortgage, car loan
Wages/salary, interest from savings or investments
Sources of income
(both earned and unearned)
A sum of money is worth more now than the same sum will be at a future date due to its current earnings potential. The longer the time you keep your money invested, the more interest you will earn.
Time value of money (TVM)
Businesses that make loans to customers who have low credit scores, but charge extremely high interest rates.
Predatory lenders
The amount of money you pay out-of-pocket for a covered medical service.
Co-pay
A profit-sharing plan, used to save money for retirement, that allows employees to contribute a portion of their wages to individual accounts.
401(k) plan
Used to reduce the amount of taxable income (Typically found on your 1040)
Exemption (or allowance)
A service provided by a bank that protects against nonsufficient funds, or NSF (e.g. if you spend more than what is in your checking account)
Overdraft protection
Three leading credit reporting agencies
Experian, Equifax, TransUnion
A type of life insurance policy that provides coverage for a certain period of time or a specified "term" of years.
Term life insurance
Allows individuals to contribute pre-tax dollars to a retirement account where investments grow tax-deferred until withdrawal during retirement. Money is taxed when it is withdrawn.
Traditional IRA (Individual Retirement Account)
Money left over after paying for necessary expenses (i.e. rent/mortgage, utilities, credit card bills).
Discretionary income
How long, in years, it will take to double an investment (Calculation: 72/interest rate)
Rule of 72
Legislation, enacted in 1968, which requires money lenders to be explicit about the true costs of credit transactions.
Truth in Lending Act
A type of life insurance that lasts for the policyholder's lifetime, as long as premiums are paid.
Whole/permanent life insurance
A special individual retirement account where you pay taxes on money going into your account, and then all future withdrawals are tax free.
Roth IRA (Individual Retirement Account)