Financial Terms

What Are Financial Goals?

Financial goals are the priorities and targets you set for how you want to spend and save your money. They aren't one size fits all, because everyone has different priorities. However, if you don't set your financial goals, you'll probably be left wondering where all your money went.

What Are Adjustments to Income?

Adjustments to income are expenses that reduce your total, or gross, income. You enter income adjustments directly onto Form 1040 of your tax return. The amount remaining after deducting these expenses is "adjusted gross income." Adjustments to income reduce your tax bill but are not itemized deductions, which you list separately on Schedule A and Schedule C. That means you benefit from adjustments to income whether you itemize deductions or take the standard deduction.

What Are Assets?

An asset is any item that you own that increases your net worth, as opposed to a liability that decreases your net worth. Examples of assets include the money in your bank account, property like your house or your car, and personal items like your TV, fine art or appliances. Knowing what assets you have and how much they are worth helps you make better financial decisions.

What Are Bonds?

A bond is a type of debt issued by a corporation, government or other organization where the purchaser pays a certain amount to purchase the bond and, in exchange, will receive either a lump sum after a certain period of time or specified recurring payments over a period of time. For example, you might pay $50 to buy a bond that will pay you $75 in 10 years or will pay you $10 per year for the next seven years.

What Are Cutbacks?

Cutbacks refer to steps taken to reduce the amount of money being spent. If you're coming up short each month when it comes to paying your costs of living, you probably need to reduce your spending. However, taking the time to budget may reveal some relatively painless ways to do so.

What Are Interest Rates?

Interest rates refer to the amount a lender charges a borrower in return for the privilege of borrowing money. This figure is generally expressed as a percentage of the principal. For example, if the interest rate on a $1,000 loan is 5 percent per year, and you want to pay off the loan in full at the end of a year, you would pay $1050: the $1000 you borrowed, plus $50 in interest. When you put money in a deposit account, you're essentially "loaning" money to the bank, so the bank pays you interest.

What Are Investments?

Investments are things of value, or assets, that you buy now in the hopes they will be worth more later and/or will provide income in the form of cash or other valuable items. Personal investing usually means the purchase of financial securities like stock and bonds, or of physical property such as commodities, collectibles or real estate. Investments are risky and can lose money, so it’s a good idea to research an investment before taking the plunge.

What Are Loans?

Loans refer to when one party gives money to another on the condition that it be paid back, typically with interest, at a certain time in the future. The terms of the loan determine what that interest rate will be, how long the borrower has to repay the money, and sometimes place additional stipulations on the funds including how the proceeds are used.

What Are Minimum Payments?

Minimum payments refer to the smallest amount you can pay on a debt and still be considered current with your payments. The term minimum payment is usually used in the context of credit cards. Even though you might think you're doing just fine paying the minimum, if that's all you pay, it can take you several years (and potentially thousands of dollars in interest) to pay off a debt.

What Are Payments?

Payments refer to the transfer of money or services by someone to fulfill his obligations to another party. In the personal finance area, payments refer to money given to creditors by the borrower to pay back loans such as credit cards, mortgages and student loans.

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