The ABCs of Finance: Terms You Should Know to Make and Save



It’s no secret that words have power, especially when it comes to explaining financial concepts. The more you know, the better you can understand a given situation. Don’t be fooled by tricky financial words. Use this as a useful and accessible guide next time you need to show off some financial knowledge. Here we’ll cover numbers through the letter C.

401(k): A salary-deferral program put in place by your employer into which you can make post-tax or pre-tax contributions from your paycheck. Your employer may have a matching program and a profit-sharing feature.

Accrued Interest: The interest on a loan or bond that has accumulated over time since the principal investment. This occurs when there is a difference in timing and measurement of cash flows. For example, if you receive a loan on August 1 and your lending company’s year ends on December 31, your loan will have four months of accrued interest.

ACH: The ACH, or Automated Clearing House, is a financial transaction network that processes large volumes of credit and debit transactions in batches. These include credit transfers, direct deposit and vendor payments.

APR: APR, or Annual Percentage Rate, is the annual rate charged on a loan or made through investing. It is a single percentage that represents the yearly cost of funds over the full term of a loan, including any additional fees or costs.

APY: Annual Percentage Yield (APY) is a normalized interest rate, compounded during a period of one year. APY allows you to compare different offerings of various compounding schedules to determine your best option.

Asset: An asset is something of economic value, owned by an individual or corporation, with the expectation that it will be beneficial in the future.

Balance Sheet: A balance sheet summarizes a company’s assets, liabilities and shareholders’ equity at a given time. Segmented into these three sections, the balance sheet tells investors what a company owns, owes and what is already invested by shareholders.

Balloon payment: Due at the end of an amortized mortgage or loan, a balloon payment covers the remaining balance.

Basis Point (BSP): A common unit of measure used for calculating changes in interest rates. One basis point equals 1/100th of 1 percent or 0.01 percent, and a 1 percent change equals 100 basis points.

Bankruptcy: A person or business unable to pay outstanding debts. It begins with a filed petition and then all of a debtor’s assets are measured and used to repay a portion of their debt. After successfully declaring and completing the process, the debtor is relieved of previous debt.

Cash Flow: The net amount of money moving in and out of a business. A company with positive cash flow has increasing liquid assets, while negative cash flow means a company’s liquid assets are decreasing.

Closing Costs (ex: when buying a house): Closing costs are paid during the final real estate transaction when the title of the property is transferred to the buyer.

Co-Signer: A co-signer acts as a guarantor for a signed contract, such as a promissory note or loan document. This may result in financial risk for the co-signer.

Credit: When a borrower receives something of value and agrees to repay the lender in the future, often with interest. When you use a credit card, you receive your purchase items and agree to pay for them via your monthly bill.

Learn more about Kasasa Saver

Blog Courtesy of Kasasa

More Posts

Get your Homebuyers Guide