Terminology can be confusing and frustrating. I have broken down a few key terms that will help you become a Brainy Chick.

401k – Big kid savings account for your retirement. Cap is $18,000 and has to be funded through your company. Should not touch this money until you are 65 1/2. Most people put 10-15% into their 401k. See also Roth 401k.

Assets – Money, items, etc that hold monetary value. Ex: home, art, guns.

Asset Allocation – What type of investments, mixture, and percentage you want.

Budget – The written form that helps you allocate dollar amounts to limit your spending. Most commonly used in Excel.

Bonds – Investment where you loan money to someone (like the gov’t) and they borrow for a certain amount of time at an interest rate.

Emergency Savings – a savings account stashed with 3-6months of income. Typically used for a major life event, like getting fired.

Fun Fund – a savings account where you stash money for something fun i.e. a girls weekend away

Index Funds – Fund that try to match or track an market index (like S&P 500). Have low operating expenses and more diversity.

IRA – An IRA is an account set up at a financial institution that allows an individual to save for retirement win addition to your 401k. Max it out at $5,500 if you are under 65. See also Roth IRA and Traditional IRA.

Mutual Funds – Type of investment that has a collection of funds that is managed. They give investors access to professionally managed, diversified portfolios, which would be quite difficult to create with a small amount of capital.

Rainy Day Fund – a savings account typically stashed with $1,000 for when karma is really being a b*tch.

Revocable Trust – Trust provisions can be altered or canceled dependent on the grantor.  Also referred to as a “revocable living trust”.

Roth 401k – Retirement savings taxed BEFORE it goes into the savings account. Benefit: taxing now means you will not be taxed on a larger sum in the future.

Roth IRA – Money is taxed now (“after-tax”) and your money grows tax free. When you take it out, you will not have taxes to pay.

Traditional IRA – Money is taxed later than when you contribute it. If you are in a lower tax bracket when you retire, the money will be taxed when you are lower.

Umbrella Policy –  Provides extra liability insurance. It is designed to help protect you from major claims and lawsuits and as a result it helps protect your assets and your future.

 

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