10 More Financial Terms Everyone Should Know
In our original financial terms article, we looked at ten financial terms you should know to help you be completely prepared to manage your financial future. Knowledge will always be the most powerful tool an individual can have when it comes to their finances. Knowledge will keep you from making the mistakes that so many people make every single day with their money, and will help ensure that you and your family are taken care of no matter what situations may arise. With that in mind, let’s take a look at ten more financial terms that many people either don’t know or perhaps simply don’t fully understand:
1. Fixed Expense
A fixed expense is one that does not change based on outside variables, such as a mortgage or insurance payment.
2. Variable Expense
A variable expense is one that fluctuates based on a number of factors. Examples of this would be gas, electricity, groceries, etc.
3. Asset Allocation
Asset allocation is the process of spreading your money out over multiple investments and accounts, to avoid losing everything if one fails. Think of the saying “Don’t put all your eggs in one basket” and you’re right on the mark.
4. Savings Bond
A savings bond is, in essence, a loan given by an individual to the federal government, for which you get an I.O.U. ( the bond) ensuring that the government will pay you back in a set amount of time with a certain level of interest.
A ledger is a record of your spending habits that lets you track all of your purchases and identify any potential problem areas in your finances.
A budget is an overall plan for managing your money can take into account information from ledgers you may keep. A budget presents a plan for paying any monthly bills you are responsible for and sets spending limits for things like entertainment and eating out.
Variance is the difference between what you think you’ll spend and what you actually spend. For example, if you budget $300 this month for gas but only spend $225, that’s a variance of $75. The more data you have when you budget, the less variance you can have between your projected costs and your actual costs.
Equity refers to the “stock” you have in a business, or how much of that business you own. Equity is usually expressed in a monetary value that’s equal to what you would receive if you sold all of your stock in that company.
A beneficiary is the person or organization that will receive the benefits of a financial agreement. For example, if you leave everything to your only son in your will, he is the beneficiary of that will.
APR, or Annual Percentage Rate, refers to the amount you’ll pay each year on a specific loan. Your APR is based on compound interest, so if the interest on your original loan is accruing more interest, your APR will wind up being higher than it would be with fixed-rate interest.