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Personal Finance Glossary

Household finance should be easy to understand and accessible to everyone.
That’s why we created this financial dictionary highlighting the terms you need to know, in plain English.

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a

Annual Percentage Rate (APR)

Annual Percentage Rate is the yearly percentage earned by the cost of funds from a loan or an investment. This is used on everything financially, from credit cards to mortgages and many more.

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Asking Price

Asking Price is the amount a seller wants their possible buyers to pay for their product or service. This is normally not the final price paid by the borrower and may change depending on factors such as the negotiation process or market conditions.

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Asset Class

Asset Class is a grouping of investments with similar characteristics. They are also subject to the same rules and regulations in a marketplace because of their similar financial structure.

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ATM

ATM is a machine that will let you complete bank transactions without the need for a bank teller or a representative. Anyone can access an ATM and make simple banking transactions such as cash withdrawals through the use of a debit or a credit card. 

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Average Tax Rate

Average Tax Rate is the total tax amount divided by your total income. This measures a household’s tax burden and how the tax affects the household’s ability to purchase or save in the present and the future.

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b

Balance Sheet

Balance sheet is a financial statement that states what a company owns and owes and the amount invested. It will include data on the company’s liabilities, assets and the equity owned by the shareholders for a specific period. 

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Bank Card

Bank Card is a card issued by a bank that allows customers access to their funds. ATM cards, debit cards and credit cards are all forms of bank cards.

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Bankruptcy

Bankruptcy is a legal process involving a business or a person who cannot pay their debt. This process commonly starts with a petition that a debtor files for. Their assets are then evaluated and measured to see if they can be used to repay a portion of the outstanding debt.

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Beneficiary

Beneficiary is a person or an entity who profits or receives an advantage from something, typically from a trust, will, or life insurance policy. Beneficiaries can either be named in written documents or they could have met certain conditions that make them eligible to receive benefits.

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Billing Cycle

Billing Cycle is a period of time from one billing statement date to the next billing statement date. It is the period of time in-between billings for an account. A company can determine the billing cycle through a certain amount of days and or certain dates.

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Blockchain

Blockchain is a distributed database or ledger of data that stores data of any kind. A blockchain can record and store information about NFT ownership, cryptocurrency transactions and or DeFi contracts.

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Bond

Bond is a financial unit that represents a loan from an investor to a borrower. It’s a type of debt security. Borrowers use bonds to raise funds for willing investors to lend them money for a specified amount of time.

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Breach Of Contract

Breach Of Contract takes place when terms or conditions within a contract fail to perform all or parts of that contract. This will include failure to perform in a way that meets the industry standards or the requirements of any type of warranty.

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Brokerage Account

Brokerage Account is a type of investment account that is used to buy and sell bonds, stocks, ETFs, and mutual funds. You can open this type of account through licensed brokerage firms. You can transfer funds in and out of a brokerage account and purchase or sell stocks and other investments in the market.

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Bubble

Bubble is an economic cycle where the rapid increase of prices is unsustainable, causing the asset to burst. They follow 5 stages; displacement, boom, euphoria, profit, and then bust.

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Bylaws

Bylaws are rules used by a business or organization that dictate how it will operate and conduct business. They are not filed with any government agency and may include the following: election of directors, dates and nature of board meetings, types of committees, types of officers, how to dissolve the organization and other various policies.

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c

Call Option

Call Option is a financial contract that allows the buyer to buy stocks, commodities, bonds, or any other security within a specific period of time for a predetermined price. The buyer is not obligated to purchase the stock but he doesn’t recover the fee paid to the seller of the option.

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Capital

Capital is a term used to describe anything with value and is used for investment purposes. Capital can be anything from, factory, machinery, patents and other intellectual properties or financial assets.

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Capital Gains

Capital Gains refers to the increase of the value of an asset or investment beyond its sale or purchase price. This is attributed to all kinds of capital assets and are not limited to bonds, stocks, real estate and goodwill.

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Cash Back

Cash Back refers to a percentage of cash returned for every qualifying purchase on your credit card. Cashbacks are normally redeemed through either offsetting a credit card’s outstanding balance, a gift card or through a bank deposit.

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Cash Flow

Cash Flow is the net amount of cash transferred in and out of an organization or business. Cash that is received is called inflows, and money spent is called outflows while free cash flow is produced by a business during its normal business operations after subtracting funds spent on expenditures.

Central Bank

Central Bank refers to a financial institution that regulates the distribution and production of credit and money for a country or a group of nations. Central banks are commonly responsible for creating monetary policies and the regulation of its member banks.

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Certificate Of Deposit

Certificate Of Deposit is a type of savings account offered by banks that holds a specific amount of funds for a period of time, and in return, the issuing financial institution pays interest. When you redeem your certificate of deposit it will include the money that was originally invested plus any interest. 

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Commercial Bank

Commercial Bank is a financial institution that offers financial services to individuals and small businesses. They make money by giving and earning interest from loans while they use customer deposits as capital to make these loans that they offer.

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Commodities

Commodities are goods and or products that are interchangeable or traded with similar types of other goods. They are commonly represented as; raw materials, agricultural products, precious or industrial metals, and chemicals like sulfuric acid or ethanol.

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Common Stock

Common Stock is a form of security that represents ownership of equity in a business or an organization. Owners of common stock have the right to claim their share in the business’s profits and participate in the election of their board of directors and creation or amendment of corporate policies. 

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Community Bank

Community Bank is a locally-owned financial institution that operates in that local area. They address the financial needs of that community they are located in and they normally operate with smaller assets.

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Compound Interest

Compound Interest refers to interest that is earned on existing interest. This interest can come from a loan or a deposit account and its calculated on both the accumulated and initial principal interest.

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Consumer Credit

Consumer credit is an individual debt or personal credit that is taken to purchase goods and or services. This term is often used to describe debt that is unsecured but it can also include collateralized consumer loans such as auto loans and mortgages.

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Credit

Credit is the ability to access or borrow money with the understanding that the lender will be paid with interest at a later date. Merchants and lenders provide credit based on their confidence that the borrower can be trusted to repay their debt with any applicable fees.

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Credit Card

Credit Cards are a piece of plastic or metal issued by a financial institution that will allow the cardholder to purchase goods and or services against a credit line instead of the account holder’s cash deposits.

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Credit History

Credit History is a record of a borrower’s ability to repay debts and represents their historical responsibility in repaying a lender. This will include information such as; the number of credit lines, total debt load, and timelines of payments. This collection of data will help lenders evaluate if they will approve a new line of credit or other possible types of debt for a borrower.

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Credit Limit

Credit Limit refers to the maximum amount of credit that a financial institution extends to an individual or an organization. Lenders set credit limits based on factors that affect the consumer’s credit scores, credit histories and their ability to obtain credit in the future.

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Credit Line

Credit Line is a type of debt or loan that allows an organization or an individual to borrow a preset limit and repay it at a later date. A line of credit can be tapped into at any time and can be withdrawn from as needed until the limit is reached. This is also an arrangement between financial institutions and their customers.

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Credit Rating

Credit Rating refers to the measurement of an entity or an individual’s ability to repay their financial obligation based on their income and financial history. This will determine whether you qualify for any type of financing.

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Credit Risk

Credit Risk refers to the possibility of a financial loss due to the failure of any party in abiding to the conditions set by a financial contract principally the failure to make the needed payments on debt to a financial entity.

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Credit Score

Credit Score is a number that represents a consumer’s creditworthiness. This number is between 300-850 and the higher score the better for the borrower will look like to potential lenders.

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Cryptocurrency

Cryptocurrency is a form of virtual currency that is secured through cryptography, making it nearly impossible to counterfeit. Most cryptocurrencies are decentralized networks that are based on blockchain technology. They are also not generally issued by any central authority rendering them immune to government manipulation or interference.

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Cryptocurrency Wallet

Cryptocurrency Wallet is a ledger or an app where you can store and retrieve your private keys to access your digital assets such as cryptocurrencies, NFTs and more.

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Current Tax Year

Current Tax Year is the amount of tax that is payable for that tax year. The current tax year spans 53 or 52 weeks depending on the accounting methods used. This accounting period is used by companies and or individuals to keep records and report their income and expenses for the entire year to the IRS or the Internal Revenue Service. 

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