Terms and Definitions

Welcome to the first lesson in VisitMind's personal finance course, where we will begin to explore fundamental concepts of personal finance that will ensure you have the power to make informed financial decisions!

To build a strong knowledge base in personal finance, it's essential to understand 29 important terms that are fundamental to financial management.

These terms will aid your understanding of personal finance and are crucial to your understanding of the rest of this course. The terms are organized by module to make it as easy as possible for you to understand and refer back to!

Lastly, a slideshow has been linked at the end which can be used as flashcards for extra studying and memorization; we highly recommend you check it out!

Now, what are you waiting for? Let's officially begin your journey into the world of personal finance!

Module 1: Introduction to Personal Finance

• Budgeting: Creating a plan to manage your income and expenses
  • A way to ensure your finances are spent effectively
• Savings: The action of setting aside money for future needs, possible emergencies, or financial goals.
• Expenses: A cost required for goods, needs, or services
• Income: Money received through work, investments, allowances, or scholarships
• Debt: A sum of money that is owed
• Financial Literacy: The knowledge of how to make informed financial decisions
  • The understanding of financial concepts
• Interest: The price paid to borrow money OR the cost you charge to lend money
• Insurance: Protection against financial loss or uncertainty (ex: health insurance)

Module 2: A “Need” vs a “Want”

• Needs vs. Wants: Differentiating essential expenses versus discretionary expenses
• Financial Responsibility: The process of managing money productively
• Impulse spending: The buying of goods without planning in advance

Module 3: Setting Financial Goals

• Financial Goals: Setting objectives for short and long-term financial achievements
• Emergency Fund: Money set aside to cover unexpected expenses, such as emergencies (car crash, hospital bill, etc.)

Module 4: Developing Healthy Financial Habits

• Financial Independence: The ability to support one's lifestyle financially without aid or reliance on others.

Module 5: Income and Expense Tracking

• Paycheck: The amount of payment received from an employer.
• Cash Flow: The movement of cash into and out of a person or business finances.
• Net Worth: The difference between one's assets (owned) and liabilities (owed)

Module 6: Creating a Personal Budget

• Budget Deficit: Having more expenses than income = negative cash flow
• Budget Surplus: Having more income than expenses = positive cash flow
• Fixed Expenses: Expenses that remain constant from month to month (rent, insurance, etc.)
• Variable Expenses: Expenses that change from month to month (grocery bill, travel costs, appointments, etc.)
• Student Loans: Borrowed funds for educational purposes (repaid with interest)
• Inflation: The gradual increase in the prices of goods and services over time.

Module 7: Managing Credit Cards

• Credit Score: A prediction of how likely you are to pay a loan back on time (based on your credit reports)
  • Used by moneylenders (banks) to assess the risk of loaning to you
• Credit Card: A card that allows users to “borrow” money from a financial institution (up to a predetermined limit).
  • Repay at the end of the month (with interest)
• Credit Utilization: The ratio of your total credit to your total debts (on all cards)
  • The percentage of available credit being used
  • A higher percentage = a worse effect on your credit score

Module 8: Taxes and Credit

• Taxes: A compulsory contribution to state revenue levied by the government
• Interest Rate: Percentage charged on a loan OR the percentage earned on an investment
• Financial Aid: Assistance in the form of scholarships or loans to pay for educational expenses.