Budgeting and Personal Finance Terms to Know

Key Takeaways

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Compound Interest

Interest earned on previously accumulated interest as well as the principal
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Annual Percentage Rate (APR)

Yearly interest rate charged on borrowed money
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Annual Percentage Rate (APR)
Yearly interest rate charged on borrowed money. The rate is expressed as a percentage and indicates how much interest the borrower will pay over the course of a year.

Assets
Things a person owns (even if they still owe money against them).

Compound Interest
Interest earned on previously accumulated interest as well as the principal.

Credit Rating/Score
A number between 280-850, depending on the credit bureau meant to show how creditworthy an individual is/how likely a borrower is to repay a debt. Higher scores mean better credit, which can lead to financial benefits such as better terms on loans.

Credit Report
A record of a borrower’s credit history. It is produced by the credit bureaus and typically consists of four sections: personal information, financial account history, history of credit applications, and public records. The information is used to calculate a consumer’s credit score, which is one of the primary factors  considered in evaluating a credit application.

Budget
A plan for saving and spending based on expected income and expenses.

50/30/20 Budget
Budgeting method that divides a person's monthly after-tax income into three spending categories: 50% for needs, 30% for wants and 20% for savings or paying off debt.

Debt
Money that has been borrowed that needs to be paid back. For example, mortgage is a debt owed to the bank.

Emergency Fund
Money that is set aside in case of emergencies.

Expenses
Things that you spend money on, ex: bills, car payments, groceries, credit card payments.

Fixed Expenses
Expenses that remain constant.

Forecast
Estimating a business or person's future financial performance.

Gross Income
Total income before taxes are deducted.

Income
The money that is brought in on a regular basis through one's job, investments or other sources of money. In terms of making a budget, be sure to use your take-home pay, which is income after taxes, benefits and other deductions.

Interest
The cost of borrowing money.

Interest Rate
The cost of borrowing money, expressed as a percentage, usually over a period of one year.

Net Income
Total income after taxes are deducted.

Net Worth
The total value of a person or company, calculated by subtracting liabilities from total assets.

Principal
The amount of money that has been borrowed.

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