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Financial Glossary 3
EFFECTIVE RATE
The amount of each dollar earned that goes to pay taxes. The ratio of total taxes paid to gross income.
FACE VALUE
The amount the insurance company promises to pay at death of insured.
FIDUCIARY
One who acts for another in financial matters.
FIXED
Refers to an
asset principal that cannot grow in value. You will never
get back more or less than you invested. Example: certificates of deposit,
cash value, and bonds. These assets are yielding in nature.
INDIVIDUAL RETIREMENT ACCOUNT (IRA)
A retirement provision established by law that allows an individual to deduct from his income a certain amount set aside for future retirement.
INFLATION
An increase
in the volume of money and credit relative to avail-
able goods resulting in a substantial and continuing rise in the general
price level.
INFLATIONARY SPIRAL
A continuous rise in prices which is sustained by the interaction of usage increases and cost increases.
INVESTMENT
The use of money for the purpose of making more money: to gain income, increase capital, save taxes, or a combination of-the three.
KEOGH OR SELF-EMPLOYED RETIREMENT PLAN
Similar to an IRA, but designed for the self-employed individual. The Keogh permits the setting aside of a specified part of current earnings for use as a retirement fund in the future.
LEVERAGE
The use of a
small amount of equity or assets to control or purchase an asset worth
substantially more. The value to the investor is that you
receive appreciation on the total worth of the asset, not just your equity.
Although leveraging increases your earnings potential, one is "at
risk" for the amount leveraged (the loan). Example: If you put $10,000
down and borrow $70,000 to buy an $80,000 home, you have leveraged.
LIABILITIES
All the claims
against you. Obligations you owe. Some may be
current (owed within the year), such as credit card loans; others may
be long-term, such as a home mortgage.
LIQUIDITY
(Liquid) The
state of assets readily converted to cash at their current fair market
value. (Will not lose value upon sale as a result of a lack of a
ready market.)
LONG-TERM ASSETS
(Nonliquid) Those assets that cannot easily be converted to cash or sold or consumed in a short period of time. Example: home, real estate, and land assets.
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