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Savings Terminology
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Terms in this set (32)
70-20-10 rule
70% of the money can be spent, 20% should be saved, and 10% should be invested
Cash management
The daily routine of handling money to take care of an individual's or family's needs
Cash management tool
A financial account used to assist with daily cash management
Certificate of deposit (CD)
An insured interest earning savings instrument with restricted access to funds
Checking account
A tool used to transfer funds deposited into the account to make a cash purchase
Compounding interest
Earning interest on interest
Financial risk pyramid
An illustration which represents the trade-offs between risk and return for a number of investments
Fixed interest rate
The interest rate will not change
Future value (FV)
The value of an asset projected to the end of a particular time period
Interest
The price of money
Interest rate
Percentage rate paid on the money saved or invested expressed as an annual percentage rate
Inflation
Steady rise in the general level of prices. Occurs when the supply of money rises faster than the supply of goods and services available for purchase
Investing
The purchase of assets with the goal of increasing future income
Liquidity
The speed and ease with which an asset can be converted into cash
Money market deposit account
A government insured account offered at most depository institutions
Number (N)
Time, number of payments or compounding periods
"Pay yourself 1st"
Taking out a portion of a paycheck for saving or investing before using any of the check for spending
Payment (PMT)
The amount paid for each pay period. PMT: enters the payment amount in annuity calculations and loan calculations
Present value (PV)
The current value of an asset received in the future
Principal
The original amount of money invested or saved
Rate of return
Annual return on an investment including appreciation and dividends or interest
Risk
Uncertainty the yield on an investment will deviate from what is expected
Rule of 72
A formula for figuring the number of years it takes to double the principal using compound interest. This is found by dividing 72 by the interest rate
Saving
The portion of current income not spent on consumption
Savings account
An account to hold money not spent on consumption
Savings bond
A discount bond purchased for 50% of the face value from the U.S. government
Savings plan
A strategy for putting a portion of money from current income aside, which will not be spent on consumption to reach a specified goal
Simple interest
Interest earned on the principal (original) investment
Tax-deferred
Taxes will not be paid until a person takes the money out of the investment
Taxes
Compulsory charges imposed by the federal government on its citizens and their property
Tiered interest rate
The amount of interest earned depends on the account balance
Time value of money
A calculation which adjusts for the fact that dollars to be received or paid out in the future are not equivalent to those received or paid out today because of compounding interest
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