Glossary

25 words we believe everyone should know

1. Asset – Any resource with economic value that an individual or business owns or controls, such as cash, stocks, property, or equipment.

2. Liability – A financial obligation or debt owed to another party, often in the form of loans, accounts payable, or other borrowings.

3. Equity – The value of ownership in an asset or company after subtracting liabilities; in public companies, this is represented by shares of stock.

4. Revenue – The total income generated from a company’s sales of goods or services before expenses are deducted.

5. Profit (Net Income) – The financial gain after subtracting all expenses, taxes, and costs from total revenue.

6. Loss – When total expenses exceed total revenue within a given period.

7. Investment – The allocation of money or resources into an asset, business, or project with the expectation of generating income or capital appreciation.

8. Interest – The cost of borrowing money or the return earned on savings and investments, expressed as a percentage of the principal.

9. Inflation – The sustained increase in the general price level of goods and services, which decreases purchasing power over time.

10. Stock – A type of security representing partial ownership in a company, entitling the shareholder to a portion of the company’s profits and assets.

11. Dividend – A distribution of a portion of a company’s earnings to its shareholders, typically issued in cash or additional stock.

12. Bond – A fixed-income investment where an investor lends money to a government or corporation in exchange for periodic interest payments and repayment of principal at maturity.

13. Credit Score – A numerical measure of an individual’s creditworthiness, used by lenders to assess the risk of extending credit.

14. Budget – A financial plan that estimates income and allocates expenditures over a specific time frame to manage money effectively.

15. Net Worth – The difference between an individual’s or company’s total assets and total liabilities.

16. Capital – Financial assets or resources that can be used to fund business operations, investments, or growth initiatives.

17. Liquidity – The ease with which an asset can be quickly converted into cash without significantly affecting its market value.

18. Diversification – A risk management strategy that involves spreading investments across various asset classes or sectors to reduce exposure to any single risk.

19. FICA – Federal Insurance Contributions Act; U.S. law that requires employers to withhold Social Security and Medicare taxes from your paycheck and send them to the government

20. ROI (Return on Investment) – A measure of profitability calculated as net gain from an investment divided by its cost, expressed as a percentage.

21. Compound Interest – Interest calculated on both the initial principal and the accumulated interest from previous periods.

22. Market – A platform, physical or virtual, where buyers and sellers exchange goods, services, or financial assets.

23. Supply and Demand – The economic relationship between the availability of a product (supply) and the desire for it (demand), which influences price levels.

24. Recession – A significant decline in economic activity across the economy, lasting for several months or longer.

25. Opportunity Cost – The value of the best alternative forgone when making a choice; essentially, what you give up when you choose one option over another.