Back to the Basics: Learning the Vocabulary
When you’re learning something for the first time, introduction to the vocabulary is key, especially in the world of finance. Below are some keywords you should know before you get started!
budget: organized plan for managing your money by matching outputs with your inputs compound interest: super powerful phenomenon where interest is paid on the original amount plus the interest you have accumulated so far interest: money paid for the use of money (credit or loans) OR earnings on a savings account
Types of Accounts
checking account: a banking service where money is deposited into an account and checks or a debit card can be used to withdraw and spend money savings account: a banking service where money deposited into an account can earn interest, sometimes has a limit on withdrawals and may have slight fees associated with it IRA account: a type of retirement account (more on IRAs below) brokerage account: specialized account where you can invest in the stock market without using an IRA or utilizing a 401K account — companies like Charles Schwab, E*Trade, Vanguard, etc. provide these accounts
Credit and Credit Cards
amount due: the minimum monthly payment you must make, may or may not be the total amount you owe annual fee: annual membership fee that comes with some credit cards annual percentage rate (APR): the cost of credit for one year expressed as a percentage annual percentage yield (APY): the true or effective rate of interest when compounding is taken into effect available credit: credit cards come with a credit limit (the maximum amount you are eligible for), the available credit is the unused portion of that credit limit billing cycle: the number of days between your last bill and current bill co-sign: adding your signature to a loan made by someone else, promising that you will repay if the other person does not (ex. parents co-signing for their kid’s credit card) credit card: a card that allows you to buy items on credit and pay off your debt over time credit limit: maximum amount of credit you can use credit score/scoring system: a statistical system used to rate credit applications based on various characteristics, where applicants are granted a number between 300–850 debit card: a card that people use to make purchases, withdrawals and transfer — results in an immediate transfer of funds unlike a credit card
401(k) plan: an employer-based plan whereby employees set aside money for retirement that is sometimes matched by employers individual retirement account (aka Traditional IRA): a government-sponsored, tax-deferred personal retirement plan— taxes are deferred until the account owner withdraws money from it and money deposited is tax-deductible Roth IRA: retirement account funded with post-tax income, with withdrawals being tax-free, however, there are no tax deductions with Roth IRA contributions *There are a number of other nuances between a Traditional IRA and a Roth IRA.
More Exhaustive Vocabulary Lists
We’ve limited some of the sections to the bare bone vocabulary so this is by no means an exhaustive list. Here is a much bigger list of vocabulary that you might be interested in learning: https://lifesmarts.org/personal-finance-glossary/
If you want to know the definition of every possible term related to finance I would check out Investopedia’s financial dictionary: https://www.investopedia.com/dictionary/