Raise your hand if you have ever been personally victimized by finance jargon with too many syllables and too many acronyms.
Ok put your hands down. We're providing a dictionary of finance and investment terms to know so that everyone is on the same playing field when it comes to understanding your professional and personal finances.
ACH, also known as the Automated Clearing House Network, is the end-all / be-all when it comes to electronic transaction processing. Your directly deposited paycheck, online mortgage and credit card payments, and last night's Venmo are all through ACH. In summary, you've cheated the U.S. postal service out of what would have been a mailed check received in three to five business days.
Annual Percentage Rate refers to the yearly interest charged for a loan or earned by an investment. APR includes all fees and other costs involved in procuring that loan such as any broker fees, closing costs, rebates, and discount points.
Not to be confused with APR, the Annual Percentage Yield reflects the amount of money you earn on a bank account over one year, INCLUDING the effects of compound interest. APR is the percentage you want to look at when comparing and choosing a financial institution to meet your banking needs.
There are two lenses to consider with amortization.
From an intangible asset perspective, it is the process of expensing the cost of assets not physical in nature including goodwill, brand recognition, intellectual property, trademark, or copyright. It is usually done to reduce a business' taxable income/tax liability and gives investors a better understanding of a company's true earnings.
From a loan perspective, it means paying off your loan through scheduled monthly installments. In the beginning, a higher percentage of the monthly loan payment will go towards paying off the interest. Over time, more of the monthly loan payment will cover the loan principal — aka. the non-interest amount — as the overall interest decreases.
Find out what your amortization schedule should look like.
A balance sheet is a statement of a company's assets, liabilities, shareholder equity, and more, at any given point in time. It provides a snapshot of a business' finances for current investors and potential investors.
Bonds = investments in debt. Buying a bond means lending money to a corporation or government for a specified period of time at a fixed interest rate. You then receive periodic interest payments until getting back the full loaned amount at the loan's maturity date. Something worth noting: as interest rates rise, bond prices fall.
Compound interest is the "interest on interest" on the amount of money you have borrowed or deposited. It is the money your bank pays you, or charges you, on your balance plus the money already earned from accruing interest. According to billionaire Warren Buffet, compound interest is your best friend when it comes to investing and saving. It tends to work against you however when trying to pay off loans or credit card debt.
Dividends are the benefits reaped by eligible company shareholders. It is a percentage of a company's earnings, either in the form of cold hard cash or additional stock in the company, distributed at the discretion of the board of directors, usually following a proportional increase or decrease in a company's stock price. Most companies do not pay dividends as they are either not publicly traded or their retained earnings are instead invested back into the company.
FICO, not "Fido" the loyal Italian dog, is named for the company that came up with the technique behind calculating your credit score, the Fair Isaac Corporation. Your credit score is based on many factors pertaining to your payment history and impacts many more factors pertaining to your quality of life.
A fiduciary is a person or organization that is ethically and legally bound to act on behalf of another person or persons best interests. This usually means managing tangible and intangible assets, and their requested distribution.
If you are looking for ways to invest and make money without having to actively work at it, passive income is the way to go. Investing in real estate and owning rental properties, entrepreneurship through acquisition, or those bonds we mentioned earlier are all avenues for making a passive income. Among more.
Refinancing takes place when a business or individual is looking to make changes to an existing mortgage or loan repayment obligation. This could be changes to interest rates, payment schedules, or repayment amounts, and usually occur in response to outside factors that could result in potential savings for the borrower.
Looking to take control of your finances? Get started today and speak with one of Flagship's experienced lenders.