green chameleon s9CC2SKySJM unsplash 1 Financial ABCs

Financial ABCs

/ Uncategorized /

A quick reference to a few common terms in the financial world.

As with any other arena, finance has its own language. Understanding key helps you navigate the financial arena.

If you’ve lived in this world for a while, these terms will be basic. You’ve known and used them for years. But you may know someone who is just getting her feet wet in the world of finance. Either way, we hope these give a quick grasp on some commonly used financial phrases.

Asset—Anything of value is an asset. It may be owned by you or your business. Assets you likely have include investments, real estate, and money. 

Beneficiary—When you die, who will receive access to your assets? This person is your beneficiary. You may have multiple beneficiaries, and they don’t have to be people. Your beneficiary may be an estate, trustee, or institution. Whether a person or organization, the beneficiary gains access to your trust, insurance policy, and other assets upon your death.

Compound Interest—When you deposit or invest money, compound interest is a good thing. It’s the amount of money your money earns for you. With a loan or other borrowing situation, it’s not so good. In this case, compound interest is what gets piled on your original loan.

Donor-Advised Fund—A way to support your favorite nonprofits and get tax deductions at the same time. Also known as DAFs, you give them to the charity of your choice. The charity invests your funds and earns tax-free growth, thanks to you.

Emerging Market—Across the world, more countries are industrializing and becoming competitive in a global market. These are emerging markets. Invest in the right one and you’ll enjoy significant income. Pick the wrong ones and you’ll lose your investment.

Financial Planner—Experts in money management, financial planners help you figure out how to best use you money. First, these planners learn about your finances and your dreams and goals. They then help you create a plan to make those dreams come true. Their services can include nearly anything involving the use of your wealth.

Giving Pattern—How you or another philanthropist has historically given. This includes the type of organization you normally support, how much you give, and other pertinent information. Knowing your giving pattern can help you identify your purpose and passion.

Hammer Price—What the sales price is for an item at auction. This does not include the buyer’s premium, which increases the final price.

Liquidity—Need to turn your investments into cash? You need liquidity. A security that easily transforms to cash is liquid. Anything that’s not liquid requires more time to turn into cash.

Matching Gift or Grant—A gift or grant that challenges others to give generously. Sometimes, the donor promises a dollar-for-dollar match to any funds raised. This is often limited to a specific time and maximum donation.

Net Worth—Your company may gross $1 million, but how much does it profit? That’s your company’s net income. The same is used for people. Your net worth (in terms of dollars) is the value of your assets, minus any debts you have. That debt may be a mortgage, credit card balance, or another outstanding financial obligation.

Operating Support—As overlooked as it is essential, operating support keeps nonprofits afloat. Giving toward operating support ensures staff and bills are paid on time.

Principal—This means different things in different contexts. With an investment, principal is how much you’ve contributed. You want this number as large as possible. With a loan, it’s how much you owe (minus interest). You want this number to shrink as fast as possible.

Query Letter—Prior to sending a full-blown proposal, many fund-seeking organizations send a query letter. This short letter gives a quick glimpse at the requesting organization’s purpose and needs. If an individual or organization shows interest in funding, a more extensive proposal is submitted.

Restricted Funds—Monies that come with strings. To access these funds, a fund-requesting organization may have to offer a specific service, service a specific community, or meet other requirements. 

Security—This word covers a lot of ground. It’s an umbrella term for various investments. Stocks, bonds, and mutual funds are a few common securities.

Trust—A careful way to give assets to one or more people or organizations. With a trust, assets are overseen by a trustee. This expert releases specific assets as established within the trust.

Unrestricted Funds—The opposite of restricted funds, unrestricted funds comes with no strings attached. Some unrestricted funds were once restricted funds. As time passes, those restrictions no longer stand.

If you’re interested in developing a modern skillset for personal finances, then checkout our friends over at The Wealth Edit.

Share This Post
About the Author

Women Doing Well

Read more posts from Women Doing Well