Knowledge is power. Here are some key financial terms everyone should know. Power up!
Amortization
Paying off of debt regularly over a period of time.
APR (Annual Percentage Rate)
The cost of a loan for one year; including all fees and interest. Expressed as a percentage of the whole.
ARM
An adjustable-rate mortgage where interest payments can go up or down.
Assets
Anything of value a person or business owns, including: products in inventory, buildings, land, supplies, furniture, and intangible things like trademarks, patents or other intellectual property.
Balance Sheet
A financial snapshot of a business that includes assets, liabilities, and capitol.
Bankruptcy
A legal proceeding where a debtor seeks to have certain kinds of debt reduced or officially canceled. There are several different kinds, Chapter 7, 11 and 13 are the most common.
Bottom line
The total money earned or lost at the end of the month.
Capitol
The money a person or business has in its accounts, assets, and investments.
Cash Flow
The money that goes in and out each month.
Credit report
A summary of a person’s credit history, such as: bankruptcies, loans, late payments, and recent credit inquiries.
Credit score
A number representing a person’s credit-worthiness based on their credit report. One of the most common scores used in the U.S. is Fair Isaac Corporation’s FICO® score, which ranges from 300 - 850. It’s based on things like: payment history, length of credit history, and total owed. A higher score means a better credit rating.
Compound interest
Interest calculated on the original amount of money as well as the interest it has already earned.
Debt
An amount of money owed to a person or business.
Delinquency
When a borrower fails to pay a debt on time.
Depreciation
The decrease in value of assets over time.
Inflation
The rise in the prices of goods and services over time.
Interest
The cost of borrowing money.
Liability
An obligation to repay debt, like: bank loans, mortgages, credit card debt, and money owed to suppliers and vendors*.
Liquidity
The ability of an asset to be sold quickly without a loss or discount.
Net worth
The assets of a person or business minus liabilities.
Prime rate
The lowest interest rate banks will charge their customers, tied to the interest rates set by the Federal Reserve bank.
Principal
The amount of money loaned or borrowed that interest is paid on.
Recession
A decline in GDP (gross domestic product) for 2 or more consecutive quarters, where usually the stock market and housing markets decline and unemployment rises.
Transaction
An exchange or transfer of goods, services, and money.
