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Personal Finance

Foundations in Personal Finance Vocabulary

TermDefinition
Consumer A person or organization that uses a product of service
Credit The granting of a loan and the creation of debt; any form of deferred payment
Debt The obligation of repayment owed by one party (the debtor/borrower) to a second party (the creditor/lender); in most cases this includes repayment of the original loan amount plus interest
Economy A system by which goods and services are produced and distributed
Financial literacy The knowledge and skillset necessary to be an informed consumer and manage finances effectively
Interest A fee paid by a borrower to the lender for the use of borrowed money; typically interest is calculated as a percentage of the principal (original loan amount)
Loan A debt evidenced by a "note," which specifies the principal amount, interest rate and date of repayment
Personal finance All of the decisions and activities of an individual or family regarding their money, including spending, saving, budgeting, etc.
Compound interest Interest paid on interest previously earned; credited daily, monthly, quarterly or semiannually
Emergency fund Five hundred dollars in readily available cash to be used only in the event of an emergency; the goal of the First Foundation
Interest rate Percentage paid to a lender for the use of borrowed money (in debt); percentage earned on invested principal (in investing)
Five Foundations The five steps to financial success
Sinking fund Saving money over time for a large purchase
Inflation The persistent increase in the cost of goods and services or the persistent decline in the purchasing power of money
Interest-Bearing Account An account that generates interest income on the available balance in the account
Budget A written cash flow plan
Cash Flow Statement A summary that shows total income and spending for a given time period
Carbon Check A copy of each check you write
Envelope System Series of envelopes that are divided into categories (food, entertainment, gas, etc.) and are used to store cash for planned monthly expenses
Impulse Purchase An item that is bought without previous planning or consideration of the long-term effects
Overdraft Occurs when money is withdrawn from a bank account and the available balance goes below zero
Reconcile To match your bank statement with your checkbook
Zero-Based Budget A cash flow plan that assigns an expense to every dollar of your income, wherein the total income minus the total expenses equals zero
Created by: ACC124