Advanced Terms & Concepts
Personal Finance

401k

An employer provided defined compensation retirement plan with tax advantages. Their are two types which are traditional and ROTH. With a 401k, employers are able to contribute towards the employee's plan.

50/30/20 Rule

A budgeting method to help people stay financially disciplined. This rule allocates a person(s) after tax income into 3 groups, 50 percent to necessities, 30 percent to discretionary spending or wants, and 20 percent for savings and debt repayment.

Asset Allocation

The division of an investment portfolio among different assett classes to reflect an investors risk tolerance, investment outlook, and risk/reward analysis.

Billing Cycle (Credit Cards)

This is a specific time period between each billing statement. The billing cycle is very important for credit card users to be aware of in order to maintain and increase their credit score, make on-time payments according to payment due dates, and take advantage of grace periods.

Billing Statement
(Credit Cards)

A statement provided by a financial institution listing all transactions such as purchases, payments, fees, and financing charges for a given period (usually a month). This is an important part of the billing cycle for a credit card.

Cash Value

The amount due to a policyholder if the policy for an annuity or insurance product is surrendered.

Copay

Cost sharing between the insured and their insurance policy whereby the insured covers a specific dollar amount of incurred expenses and the insurance policy covers the remainder.

Credit Bureau

Also known as a credit reporting agency, these are organizations that collect consumer information in order to compile a credit report on a individuals financial health and offers access to this information to lenders and financial institutions in order to evaluate a consumer's credit worthiness. The 3 national credit reporting agencies in the US. are Equifax, Experian, and TransUnion.

Credit Freeze

A service offered by the 3 credit bureaus that prevents the sharing of a consumers credit report information with third parties. This helps prevent fraud by limiting access to a consumer's information for applying for new credit and loans. Changes made to the Dodd-Frank act makes credit freezes for consumers free and accessible through each of the credit bureaus.

Deductible

The portion of the loss that is insured that the policy holder is responsible for paying.

IRA and Roth IRA

Individual Retirement Account (IRA) is a tax advantaged account that can be funded with earned income. The  Roth IRA version can use after tax dollars to grow tax free for future gains.

Oppurtunity Cost

A cost when not obtaining the potential benefits from choosing an alternative.

Per Diem Interest

The amount of interest that accrues daily on a loan. This is the annual interest rate times the outstanding balance of the loan, then divide that by 365.

Mutual Fund

A basket of securities that follows an index, sector, or investment strategy that can only be traded at the end of each trading day.