Glossary

1031 Exchange: Allows taxpayers to defer all of the capital gains taxes resulting from the sale of investment property by investing in another  property within a determined period of time.

529 Plan: A plan that allows for the prepayment of qualified higher education expenses at eligible educational institutions. Also known as a “qualified tuition program.”

80-20 Rule: A rule that states that 80% of income should be used for all debt payments and living expenditures and 20% should be used for savings, charitable expenses, flex spending, and/or debt reduction.

Annuity: A contract or agreement in which one receives fixed payments on an investment for a lifetime or for a specified number of years.

Asset: Something of value that can potentially generate cash flow.

Attach: To take property by legal authority.

Baby Boomer: A person born in the U.S. between 1946 and 1965.

Beneficiary: A person that is designated as the recipient of funds or other property under a will, trust, insurance policy, etc.

Blind Trust: A trust in which the executors have full discretion over the assets in the trust.

Bonds: Loans to other entities in which the lender is paid a specific amount of interest on the loan(s) for a specific period of time.

Budget: An estimation of income and expenses over a period of time. Often used to estimate how much money one has to spend and what to spend it on. One who lives within their budget often has the ability to live below one’s level of earned income.

Cafeteria Plan: An employee benefit plan that allows employees to choose from a variety of benefits to formulate a plan that best suits their needs.

Capital: Financial assets or the value of financial assets, such as cash.

Capital Gains: Profit that results from the appreciation of a capital asset over its purchase price.

Cash Flow: The movement of money including all income and expenditures, whether realized, actual, or determined.

Cash Flow Management Statement: A worksheet that tracks monthly and annual cash flow needs (often used to create a budget).

Cash Margin: Additional amount of cash available after meeting monthly obligations (may be used to pay down debt).

Charitable Remainder Trust: A tax-exempt, irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to designated charity.

Children’s Trust: A trust where gifts are made to your children or grandchildren. Often used to reduce taxes.

Comfort Zone: Current level of contentment (lasting growth and change comes from stepping outside of one’s present level of comfort).

Compound Interest: Interest that accrues on the additional principle and the accumulated interest of a principle deposit, loan, or debt.

Conservator: One that is responsible for the person and property of an incompetent person.

Conservatorship: A circumstance in which the court declares an individual unable to take care of legal matters and appoints nanother individual, known as a conservator, to do so.

Construe: In terms of a Will, it means to give the meaning or intention of, to explain, and/or to interpret.

Contingency Savings: Liquid assets that can be immediately available and used for an emergency-type situation.

Credit Reporting Agency (CRA): An agency that collects credit information on individuals. The three main CRAs in the U.S. are TransUnion, Equifax, and Experian.

Debt Pay-Off Margin: Similar to cash margin where an additional amount of cash flow is set aside specifically to pay down debt.

Debt-to-Service Ratio: An estimate of debt payments to take-home pay. It is calculated by dividing total monthly debt payments by total monthly take-home pay.

Debt-to-Asset Ratio: Shows the percentage of your assets that are financed through debt. It is calculated by dividing total liabilities by total assets.

Debt-to-Income Ratio: Used by lending institutions to qualify clients for loans. It is calculated by dividing debt payments by gross income prior to withholdings.

Debt-Rap: Any item or purchase, which causes lingering debt and the accrual of interest.

Depreciation: A decrease or loss in value, as because of age, wear, or market conditions.

Diversification: Concerning investing, it is investing in a variety of securities (stocks, bonds, real estate, mutual funds, etc.) to protect one’s overall portfolio of investments.

Dollar Cost Averaging: A system of buying securities at regular intervals, using the same amount of cash for each purchase, over a period of time (regardless of the prevailing prices), that results in having bought the total at an average cost.

Eastern Expenditures: Concerning the Spending Compass, they are necessary expenses, such as food, clothing, shelter, taxes, insurance, utilities, etc.

Enrolled Agent: A federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.

Equity: The interest an owner has in common stock, in a corporation, or the excess of the market value of the securities over any indebtedness.

Executor: A person named in a decedent’s Will to carry out the provisions of that Will.

Exemption Trust: A trust created to drastically reduce or eliminate federal estate taxes for a married couple’s estate.

Expected Growth Rate: An anticipated interest rate on an investment.

Expenditure: An amount of money spent, as a whole, or on a particular thing.

Fiduciary: A person to whom property or power is entrusted for the benefit of another.

Financial Independence: A subjective term where, in one case, work is optional and recreation is affordable.

Financial Solvency: The ability to meet long-term financial obligations and to accomplish long- term financial growth.

Fixed Expense: Regular planned expenditures and payments.

Flex Expense: Regular or irregular expenses for non-necessities such as entertainment, eating out, cable TV, personal care, etc.

Formula for Wealth: (Time x Capital) + Knowledge = Wealth (Ownership)

Gift of Present Interest: An immediate, bona fide, existent gift claimed in the year in which it is given. It is used to reduce taxes.

Grantor: One that conveys property, or a right in property, by deed.

Gross Income: The amount of earned income prior to any tax deductions or employee-related expenses.

Gross Worth: The total amount of assets before deducting liabilities.

Home-Based Business (HBB): A business that one operates from their home.

Household Expenses: Regular expenditures for utilities, groceries, and various household necessities.

Incentive Trust: A legally binding fiduciary relationship in which the trustee holds and manages the assets contributed to the trust by the grantor.

Income: The amount of money received over a period of time either as payment for work, goods, or services, or as profit on capital.

Income Trust: An investment trust that holds assets which are income producing.

Index Funds: Mutual funds that attempt to copy the performance of a market index.

Inquiry: In regards to a credit report, any request, investigation, or query in determining credit worthiness where a credit score and/or report is pulled, monitored, or studied.

Inter Vivos: A Latin term meaning a gift or trust taking effect during the lifetime of the parties involved.

Intestacy: The condition of the estate of a person who dies owning property greater than the sum of his or her enforceable debts and funeral expenses.

Intestate: A person who dies without leaving a Will or the assets not disposed of by Will.

Invalid: In terms of a Will, the Will is not valid and it is without force or foundation.

Invested Asset: Any investments that are hopefully earning a profitable amount of interest.

Irregular Income: An amount of money received, but not on a regular basis, as payment for work, such as bonuses, refunds, interest received, etc.

Irrevocable Trust: A trust that cannot be modified or terminated without the permission of the beneficiary.

Joint Ownership: Ownership of an asset by two or more parties, such as property, land, etc.

Keogh: A tax-deferred retirement plan for the self-employed.

Land Trust: A trust that is used to protect multiple properties and to separate liabilities.

Leverage: The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.

Liability: Debts payable over a period of time, such as mortgages, loans, credit accounts, etc.

Liquid Assets: Assets that can be converted quickly into cash with minimal impact to the price received.

Liquidity Ratio: A ratio that represents the ability of an asset to be quickly converted into cash. It is calculated by dividing liquid assets by total expenses.

Living Trust: A trust with a pre-determined duration and can entail asset distribution to the beneficiary at any given time.

Living Will: A Will in which the signer, in the event of a terminal illness or accident, requests not to be kept alive by medical life-support systems.

Load Funds: Mutual funds with up-front sales charges and commissions that are added to the purchase price.

Market Index: An aggregate value produced by combining several stocks or other investment vehicles together and expressing their total value against a base value from a specific date.

Millionaire Mentality: A mindset that often characterizes that of a wealth builder (a specific way of thinking combined with a frugal lifestyle).

Multi-Level Marketing (MLM): A way of marketing a product or service where a product-based business is built by creating a down-line of others similarly involved in the business. It is also known as Network Marketing.

Mutual Fund: A form of collective investments that pools money from many investors and invests their money in securities.

Net Income: The net amount of earned income after deductions and/or employee-related expenses is deducted.

Net Worth: The net amount by which a company or individual’s assets exceed their liabilities.

Network Marketing: A way of marketing a product or service where a product-based business is built by creating a down-line of others similarly involved in the business. It is also known as multi-level marketing.

No-Fault Insurance: Insurance that will pay regardless of who is at fault. Often covers damage and medical expenses.

No-Load Funds: Mutual funds that are sold without a sales charge.

Northern Expenditures: Concerning the Spending Compass, they are assets that increase in value over time (whether relative monetary or material worth, merit, or importance).

Other People’s Money (OPM): OPM is often uses fund your investments. It is often used with a promise of return on the money.

Pay-to-Play: A business opportunity with high start-up costs and high overhead.

Personal Assets: Personal items of value, such as automobiles, home furnishings, jewelry, antiques, collections, etc.

Portfolio: The total holdings of securities and commercial papers of an investor.

Potential Wealth: Net worth that can be accumulated and augmented over time through proper financial management.

Power of Attorney: A legal instrument authorizing someone to act as the grantor’s agent.

Priority Debt: The first debt schedule for pay-off using the debt acceleration system.

Probate: An official proving of a Will as authentic or valid.

Probate Court: A court limited to the jurisdiction of probating Wills and administering estates.

Recapture: The taking by the government of a fixed part of all earnings in excess of a certain percentage of property value.

Retirement Parachute: A form of pension formerly offered to retired employees that included monthly payments and stock options.

Revocable Trust: A trust whereby provisions can be altered or canceled and are dependent on the grantor.

Rights of Survivorship: Ownership of property by two or more people in which the survivors automatically gain ownership of a descendant’s interest.

Risk Management: The process of determining risk and designing a plan to manage it.

Risk Tolerance: The degree of uncertainty that an investor can handle in regards to a negative change in the value of their portfolio.

Roadblock: Financially speaking, it is any obstacle blocking your path to financial freedom.

Rule of 72: A mathematical equation used to determine how long it will take to double one’s investment (72 is divided by an interest rate). For example, if an investment were made at 10% interest, it would take 7.2 years to double the investment (72 / 10 = 7.2).

Savings Incentive Match Plan for Employees (SIMPLE): A retirement savings plan (account) for small businesses of 100 or fewer employees.

SEP-IRA: A self-employed pension plan or a retirement account for small business owners.

Shares: A unit of ownership in a company or corporation, or a form of investment, which grants the owner of the share, a stake in the company and in its profits. Also known as stocks.

SMART Goal: Any written goal that follows the SMART method, which stand for specific, measurable, attainable, realistic, time-based goals.

Southern Expenditures: Concerning the Spending Compass, they are expenses that decrease in value over time (whether by depreciation or in general loss of relative monetary or material worth, merit, or importance).

Spending Compass: An illustration used to show where people spend their money. Each point on the compass indicates spending habits. North is for assets; East is for necessary expenses; South is for liabilities; and West is for unnecessary expenses. Refer to North, East, South, and
West Expenditures.

Stocks: A unit of ownership in a company or corporation, or a form of investment, which grants the owner of the stock a stake in the company and in its profits. Also known as shares.

Testamentary Trust: A trust set up under the terms of a Will.

Time-Specific Record: Any document of data collected over a specified increment of time (such as an annual report or monthly statement).

Title: A legal right to the possession of property.

Trust: A legal title to property held by one party for the benefit of another.

Trustee: A person appointed to administer the affairs of a company, institution, or estate.

Unit Price: Price per ounce or pound, which is often used in determining value when shopping.

Western Expenditures: Concerning the Spending Compass, they are unnecessary expenses for non-necessary items, impulse buys, vices, fast food, etc.

Withholdings: Concerning income, they are tax deductions and/or deductions for retirement accounts, medical benefits, etc.