Dictionary 2017-01-23T08:54:45+00:00

Dictionary

I wanted to (finally) give you a money dictionary that doesn’t require a dictionary to understand the word’s definition. That doesn’t exist . . . so I made my own. You know how you explain a term to a friend who doesn’t “get” it? That’s the way it’s written here. Let this glossary be your go-to guide for definitions with a practical perspective whenever you need a little cheat-sheet. Some stuff changes over the years, but these basics never go out of style.

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B2B -  “Business to business”— this applies to businesses that do business with other businesses, like a photocopier company that services machines for corporations or a developer that creates software for businesses to run more efficiently.
B2C -  “Business to consumer”— this applies to businesses that offer products or services for the public rather than businesses. Most of your favorite clothing, electronic, and food brands are B2C because you’re the end user, not a business.
Balance Sheet -  Balance Sheet: The state of your financial union. It lists assets on one side and liabilities on the other. It’s called a balance sheet because assets must “balance” with liabilities. Assets - liabilities = net worth. So if your liabilities are greater than your assets, you have a negative net worth, which is bad.
Bandwidth -  Technically, this is the amount of data a network can successfully handle before it crashes. Slow Internet connection? You might not have enough bandwidth. In business, the term has also become synonymous with how busy people are. If you don’t have time to take someone’s call, you might tell them you don’t have enough bandwidth— aka current capacity— to do so at the moment.
Bank Account -  Bank Account: Where you stash your cash. At the most basic level, there are savings accounts and checking accounts. Savings and checking accounts at your local bank or online bank will usually require a minimum deposit to open the account and a minimum monthly balance. Since checking accounts are used only for transactions like deposits and withdrawals, they offer no interest. Savings accounts, however, will give you a teeny tiny bit of interest each month. (See also: Money Market Accounts, Certificate of Deposit)
Bankruptcy -  Bankruptcy: This is what happens when you can’t pay your debt. Filing for bankruptcy, also known as bankruptcy protection, stops your creditors from coming after your assets. Both people and corporations can avail themselves of this option. This might sound like a quick get-out-of-jail-free card, but be warned, your credit rating will go down the toilet for years.
Basis Point -  Basis Point: A fancy way to talk about decimal points in finance. “One basis point” is 0.01; “10 basis points” is 0.10; “100 basis points” is 1.00. I know what you’re thinking: Why not just say “one” instead of “100 basis points”? Well, once it gets down to little numbers every tenth and hundredth counts, and if you want to put your money where your mouth is, you don’t want it to be a mouthful.
Bearish -  Just like you have to get the animals straight in politics (Democrats are donkeys and Republicans are elephants), in business the bulls are positive and the bears are negative. If someone says they are “bearish,” they mean they are not particularly enthusiastic about something, while if they say they’re “bullish,” then they’re all in for it. (See also: Bullish)
Beneficiary -  Beneficiary: The person who stands to gain, or benefit, from a financial transaction. For example, the person you assign to inherit your money or the person who gets medical benefits from your health insurance plan.
Beta -  This is the test version of a product or service before it’s distributed to the masses. Tech companies often release a beta version of a program to a limited number of users for free in exchange for their feedback about what works and what may still need fixing, so that by the time they bring it to market they have better chances of success.
Beta Test -  A trial run of software or other product by an outside party before that product is made available to the public. Like a dress rehearsal, it should be as close to the “real deal” as possible to uncover any surprises or setbacks before the product is fully launched.
Black Swan -  An unexpected and nearly impossible to predict event, like a terrorist attack or the housing crisis, that can have unexpected consequences for a product, industry, or even entire market.
Blue Chip -  Blue Chip: A nickname for high-value companies (like the actual blue chips if you’ve ever played poker). “Blue chips” are the big guys, like McDonald’s and Nike. They are considered the biggest, strongest, most robust stocks of the bunch. They are often considered trendsetters: where the blue chips go, so goes the market. Examples of blue chips are the thirty stocks that make up the mighty, mighty Dow Jones Industrial Average, or “the Dow.” (See also: The Dow, S&P 500)
Bond -  Bond: When a company or government needs to raise money for, say, a shiny new machine or fancy bridge, it borrows money by selling bonds. Bonds have durations of ten years or more (durations of one to ten years are technically called “notes”). There are different kinds of bonds—typically government or corporate bonds—but generally speaking, if you invest in a bond, you’ll get paid back the full value (or “principal”) at the end of the bond’s duration (“maturity date”) plus interest payments (called the “coupon”). Bonds are considered safer investments than stocks, but have lower earning potential.
Bond Fund -  Bond Fund: An investment option that gives you exposure to a bunch of different kinds of bonds at the same time. There are millions of types of bonds, including municipal, government and corporate. With a bond fund, you can profit (or lose money) from a variety of them, depending on the exact one you sign up for. Remember, you don’t actually own all of them—the fund does. You are just buying a piece of the proverbial pie. (See also: ETF, Mutual Fund)
Book Value -  Book Value: The value of a company based on the numbers on the “books.” It’s the estimated worth of a company if the business were shut down and everything sold. Book value is the opposite of market value, where companies feel more valuable than their books would suggest. Buzzy tech companies like Apple experience a higher market value than what the underlying business is doing. The concept is analogous to valuing your car by Kelly Blue Book. There’s a value based on stats of age and mileage. But if, for some reason, Brad Pitt was seen in your car, what you could get for the car would go way up. (See also: Valuation)
Bottom Line -  Refers to the last line on a balance sheet, which reflects— and is synonymous with— an individual or company’s profit or gain. This is the money left over after all expenses have been accounted for that’s why colloquially (and at the end of all the steps in the book) it’s just like saying “at the end of the day” or “when all is said and done.”
Brand -  That magical way in which a company describes itself and differentiates itself from the rest of the market. (Tissues are a product; Kleenex is a brand.) Your personal brand is how you set yourself apart from the rest of the herd, as well as the compass used to point your personal, career, and business goals in the right direction.
Broker -  Broker: A company or person who executes your financial trans- action for you. No, regular folks like me and you aren’t allowed to actually buy, sell or trade assets, like stocks and bonds. You can place orders for them, but then you need a broker to execute them for you. For that, they will charge you either a fee per transaction, or a fee based on a percentage of your assets. There was a time when only the rich could have a broker. These aren’t those times. Today, there’s no lack of options for discount brokers who charge very small fees, allowing everyone the option to trade. (See also: Financial Planner)
Brokerage Account -  Brokerage Account: Also called an investment account, it’s the place where you hold financial assets. Examples of brokerage accounts would include your 401(k) or IRA, as well as nonretirement accounts.
Bubble -  Bubble: In finance, a bubble is not something that can be made from soap, but it’s about as durable. Bubbles form when a lot of market players chase a particular asset (for example: tech stocks in 2000, real estate in 2007), pushing prices up to unsustainable levels. Then something pricks the bubble and prices come crashing back down.
Budget -  Budget: A plan for how much money will be made and spent over a certain amount of time. You’re not the only one with a budget. Governments, companies, families, countries, etc. have budgets. Being on budget means you meet your plan’s expectations. Being off budget can be good or bad: you could have a surplus or a deficit. Understanding what you’re making and, especially, planning how to allocate your money, is the key to staying on budget. (See also: Balance Sheet)
Buffett, Warren -  Buffett, Warren: I wouldn’t say that you have to know about many people in the finance world, but Warren Buffett is a must. He is one of the greatest investors of all time. Oh, and one of the richest men in the world, too. His nickname is the “Oracle of Omaha,” which speaks to his ability to pick great value investments, whether choosing stocks or buying companies (from his home in Omaha).
Bullish -  Markets have feelings, too! And when they’re feeling “bullish,” it means that stock prices are rising. Similarly, when investors are bullish, they’re feeling confident about a particular stock, company, or the market. (See also: Bearish)
Bulls/Bears -  Bulls/Bears: In the finance world, bulls are aggressive and bears are skeptical. “Bulls” are people who believe a market or stock is going up (they are said to be “bullish”) and “bears” believe a market or stock is going down (they are said to be, you guessed it, “bearish”).
Business Development -  You’ll usually hear this referred to as “biz dev.” Typically, it will refer to forming relationships and making deals with the goal of getting more business.
Business Plan -  Business Plan: It’s a written roadmap that describes in detail what your business is and does. It outlines what the goals for your busi- ness are, how you’re going to achieve them, and a basic timeline for doing so. Typically you also include some ideas for marketing, hiring, and, of course, the nitty-gritty numbers of projected rev- enues and expenses. Having a business plan helps start-ups raise money because they can show potential investors their vision for the company. (See also: Seed Money, Venture Capitalist) Remember that course prospectus you got on the first day of class that explained what you were going to learn (and what your homework would be) for the entire semester? Your business plan is like a course prospectus for your business. A typical business plan starts with an executive summary or mission statement, aka a somewhat more detailed version of an elevator pitch. It should also include information about the market the business is in or planning to enter and how you plan to stand out in this field along with information on past growth and future strategies. It should include information about your management team, financial metrics, and projections. If you are asking for money, that should be in there as well.
Buy-in -  An endorsement from someone, be it your boss, work team, or an investor, when you have successfully persuaded them to accept an idea or proposal. Used in a sentence: “Nicole is excited that she got ‘buy- in’ from the committee to move forward with her event, after she presented projected earnings based on last year’s. Their support means the event has a better chance of crushing it.”