Glossary

Here, friendly readers, is a list of terms I use in my posts that are bold and italicizedso they look like this. If they look like this, then I consider them to be financial terms that not everyone may understand so I try to provide a succinct and easy to understand definition of the potentially confusing term.

  • Gross Income: the amount of money you get paid before anything is withheld. If you get paid $10 an hour and you worked 40 hours, you have a gross income of $400 for that paycheck.
  • Net Income: the amount of money that is left from your paycheck after witholdings are removed. This is also referred to as take-home pay, because it is the actual amount that ends up in your pocket.
  • Withheld/withholdings: this is the amount of money that is removed from your paycheck automatically to pay things like social security, income tax, state tax (if applicable to your state), company health insurance costs, company retirement account costs. It is all based on percentages and the set cost your company designates that each employee is responsible to contribute to the employee’s health insurance and that you designate to be taken out for your company retirement account.
  • Poverty threshold: or, poverty line is the amount the government says that a household has to make in order to cover living expenses. Those living below the line can apply and receive government financial help. To find out the current poverty threshold go to: http://aspe.hhs.gov/poverty/12poverty.shtml/
  • Monthly maintenance: is what banks charge you per month to maintain your account. Different kinds of accounts come with different prices, of course. Prices range from $0-25 for many accounts from many banks. Some bank accounts will “waive” the mmf if you have meet the average daily balance clause. The best fee is no fee, though; look for accounts called “free checking.”
  • Service fees:are fees your bank might charge for transfers, statements, ATM uses, etc. The best kinds of accounts are those that have zero service fees, or if they do, they’re cheap, or apply when you’ve gone over a certain monthly limit. For example, when you’ve gone over your limit of 6 transfers a month, a bank will usually charge a small fee for the next transfers.
  • Minimum Deposit: is the amount of money a bank will ask you to deposit in order to open and keep open an account. Often times there’s a penalty if you use it, meaning when you put in the $500, you should imagine your account to have a balance of $0. Lots of free checking accounts will ask for $1-5. Some student checking accounts ask for $25. Don’t go higher than that. Large minimum deposits are used to fund other people’s credit card lines, mortgages, and loans, which is necessary to develop a strong economy. In the future, if your checking accrues interest, it won’t hurt to have $500 in there at all times, never touched, making money. Try to look for accounts that require no/low minimum deposit and charge you no fees until you’re very financially stable.
  • ADB/Average Daily Balance: is a clause that banks use for the “better” checking accounts. It says that if your average daily balance is over a certain amount, your monthly service fee is waived. Usually the balance amount is in the tens of thousands, though.
  • Short term savings goal: saving for something you want to purchase in a year; electronic device; travel; furniture; expensive clothing item, etc.
  • Long term savings goal: saving for something that you want to purchase in more than a year; your wedding; a big trip; a car; etc.
  • Certificate of deposit: is an account in a bank in which you deposit money and leave it to mature for a certain number of years. The interest rate is very high. The more money you put in and the longer you let it sit there to mature, the more money you’ll have when you’re allowed to take the money out. You can choose the maturity length of a CD, usually the starter ones start with 12 months, but in those 12 months, you’re not allowed to withdraw or deposit any money. CDs are only really helpful if you want to deposit a large amount of money– say $5,000 plus– and not touch it for a long time — at least a year, but up to 10– and get a lot of money from it when you are allowed to touch it again. This would be smart if you want to save for a wedding, a house, a future child’s college education.
  • Carrying a balance: this term is used with credit cards. Suppose your card’s payment due date is September 1st. Suppose you have a balance of $340. That balance is due September 1st. Or you can pay the minimum payment, which is usually a percentage of the balance or a flat rate, like $10. Let’s say it’s $10. You realize you can’t pay the entire $340, but you can pay $50 on top of the minimum $10. So you pay $60 on September 1st and you get charged interest. You are now carrying a balance of $280 plus the interest fee. Carrying a balance is not a good idea. Only do it if you absolutely cannot pay off the card. If you must carry a balance, try to keep it below 30% of the card’s total limit.
  • APR: Annual percentage rate. This is the interest rate. The cost of borrowing money. It differs depending on how much money you’re borrowing, what kind of borrowing is happening–loan, mortgage, credit– who’s backing the money–bank, government– and the credit history of the borrower. Interest is applied to the balance of the borrowed amount. Depending on the contract of the borrowed money, you’ll pay interest in your monthly payments, or it will be tacked on every year. It is calculated thus: the total amount of APR divided by the number of days in a year= the daily percentage rate. This daily amount is applied to your balance for as many days as you have the balance. Then that number is added to your balance.
  • Hard credit check: When an institution checks your credit history to find out your risk as a borrower for a loan, credit card, mortgage, apartment application, car loan, job application, etc. One hard credit check stays on your history for two years. It’s a good idea to only have 2-3 hard checks on your history at any given time.
  • Net worth: How much money you have minus how much money you owe equals your net worth.
  • Discretionary income: the money you have left to play with after all of your basic necessities have been paid for.
  • Cost of living: the amount of money it costs to live. There are national averages, and then cities are ranked below or above the national average based on a percentage. This phrase can also mean what the total amount of your budget is.
  • Premium: The out of pocket cost (the monthly payment) of your health insurance plan.
  • Deductible: The amount of money you’re responsible to pay the doctors, hospitals, labs, etc after the insurance pays what it will pay.
  • Co-pay: The fee you pay to visit the doctor or buy a prescription.
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