32 terms

70-20-10 rule

spend 70% of the money you make, save 20% and invest 10%

cash management

the daily routine of handling money to take care of an individual's or family's needs by keeping enough available for living expenses, emergencies, savings, and investing while maximizing interest earnings

cash management tool

a financial account used to assist with daily cash management including checking accounts, savings accounts, money market deposit accounts, certificates of deposit, and savings bonds

certificate of deposit

an insured interest earning savings instrument with restricted access to the 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 for the lifetime of the investment

future value

the value of an asset projected to the end of a particular time period

interest

price of money; making money on 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

time, number of payments or compounding periods

pay yourself first

taking out a portion of a paycheck for saving or investing before using any of the check for spending

payment

the amount paid for each pay period. enters the payment amount in annuity calculations and loan calculations

present value

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 the interest rate the money will earn into the number 72

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 US Government

savings plans

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