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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