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.
C Corp -
Most major companies, especially the public ones, are C corps. The company itself is the one on the hook for any legal action or debt incurred by its employees because a C corp is essentially an entity on its own that can sue and be sued. With a C corp, the money going into the company is taxed and the money you get from it as income is taxed. (See also: S corp)
C-Suite: The top executives (C = chief) of a company, which can include the CEO, CFO, CMO and others.
Capital “Cap” Gains -
Capital “Cap” Gains: It’s exactly what it sounds like— you are gaining on capital (money). So when you buy something (a stock, a mutual fund, a house) and then sell it for a profit, you have a capital gain. (BTW, if you sell it at a loss, you have a capital loss.) If you sell before one year after the purchase, it’s called a short- term capital gain, and you usually don’t get any tax love. Investors want to be taxed at the long- term capital gains level (more than a year) for money they make because it’s way better from a tax perspective since capital gains are taxed at a lower rate than ordinary income. The highest personal tax rate is 35%, whereas the highest cap gains tax bracket is 20%— so by getting as much of their profits into the lower capital gain tax category bracket as possible, they get to keep more of their money.
Capital Investment -
Funds invested into a company to help it be successful, such as for building a new website, making a big hire, or expanding into a new market.
Capitalism: It’s a system of economics, where people have the freedom to buy and sell whatever (legal) stuff they want. Unlike communism, in which the government determines how you make money, capitalism lets people figure out how they want to conduct business. Above all, capitalism breeds (and thrives on) competition. That’s why we see so many different companies selling essentially the same thing: they’re fighting for your business—because they can. It’s economic survival of the fittest.
Carve Out -
An exception to an area of a contract. If an employment contract has demands that you work exclusively for your employer, you can “carve out” something that you might already be doing so that it will not be deemed to be in violation of that clause. For example, Annie is asking to carve out her side hustle of selling jewelry in her new employer contract; otherwise she will have to stop her side hustle or she will be deemed in breach of her contract. In this case, her employer will probably allow a carve- out to the exclusivity clause because they realize that if it’s important to her they might risk losing her altogether if they don’t make that exception.
Cash Flow -
Cash Flow: You probably already know that money can flow out of your hands like water. Cash flow measures how much cash you do—or don’t—have on hand. You can measure a company’s cash flow or you can measure your own, with cash inflows being things like your salary or alimony, and cash outflows being things like your expenses and credit card bills.
Cash Flow -
You probably already know that money can flow out of your hands like water. Cash flow measures how much cash you do—or don’t—have on hand. You can measure a company’s cash flow or you can measure your own, with cash inflows being things like your salary or alimony, and cash outflows being things like your expenses and credit card bills.
Cash Flow Positive -
When you have more cash coming in than going out. Think of it as that moment when you or your business has “arrived.”
Cash Reserves -
Cash Reserves: Your emergency fund, or cash you put away and can easily access for known near-term costs and also (perhaps more importantly) unforeseen problems and expenses. You should have six to nine months of cash reserves in a place you can get at when you need it, typically in a savings account, money market account, CDs, etc. Companies should have cash reserves, too—and if they don’t, just like you, they can face bankruptcy.
CEO: The chief executive officer runs the whole show; all of the other C-level executives report to her. (See also: C-suite)
Certificate of Deposit -
Certificate of Deposit: Also called CD, it is a step up from your regular ol’ savings account. You still open it at a bank, and it pays you interest for a set amount of time (three months, six months, one year, five years, etc.), after which you get your initial money back. You can’t pull your money out before that time, or you’ll lose the interest—and that defeats the whole purpose of getting it in the first place. It’s worth using only if the interest rates are better than your savings account, because you won’t be able to touch the money while it’s in the CD.
CFO: The chief financial officer runs all of the company’s finances.
Click- through rate (CTR) -
The percentage of users who visit a web page with your ad on it and actually click on that ad. The higher the CTR, the more successful the ad— and the more dollars (you hope) in your company’s pockets.
Inventory that is sold off at a reduced price. This tends to happen right before a new model of a product, like a car, comes out, and the dealer needs to make room on the lot. Companies like Ross or Marshalls are filled with closeout apparel from other brands, and flash sale sites like Gilt and Bluefly operate similarly online.)
Cloud Computing -
Using Internet- based computing rather than local networks or your computer’s own storage. Many companies like Amazon, Dropbox, iCloud, and Google offer cloud computing options which allow multiple users access to the same files and applications over the Internet.
CMO: The chief marketing officer is in charge of the company’s communications and marketing.
COBRA: A temporary health insurance plan that allows you to continue on the plan you had before, either through an employer or parent, after your circumstances have changed (e.g., leaving the company and becoming self-employed or graduating from college but not having a plan of your own yet).
Collateral: Something you use to back up yourself and your investments. It’s like when you go bowling and give the alley attendant your driver’s license in exchange for your bowling shoes; he knows that, since he has your license, you’re not going to walk out of there and take the shoes with you. So he feels more than safe giving them to you. When it comes to money, you might offer up your car or house as collateral for taking out a loan, or cash to get a secured credit card.
Commodities: Things you can see, touch, feel, and/or use for which there is a price. Some are old standbys (gold might fit the bill), some are modern necessities (oil, natural gas, and other energy commodities would fall into this category) and some are things you’d never think could be traded (like pork bellies, from which we get bacon). BTW, investing in, say, pork bellies doesn’t mean you actually get that object (ew), but you own stock in it that’s traded on one of about a dozen special exchanges for commodities like the Chicago Mercantile Exchange and the New York Mercantile Exchange. (See also: Stock Exchange)
Common Stock -
Common Stock: This is what most of us call stock, which is simply partial ownership in a company. But, just because you own some common stock in the company doesn’t mean you have a say in anything; the “common” part denotes that you’re on the bottom of the totem pole. In fact, if the company goes out of business, you’ll be among the last in line to get your money out. Likewise, if the company makes money, you’ll be the last—only after everyone else—(employees, vendors, bond holders, preferred stockholders) to see a piece of that profit. (See also: Preferred Stock, Stock)
The overall package of pay and benefits that you get from your employer in exchange for the work that you do, including not just salary but
also health benefits, and any additional perks (which hopefully you’ve negotiated for), like transportation reimbursement.
Compound Interest -
Compound Interest: A.k.a. the “snowball effect.” We know that interest is the money you make off an investment (or the money you are charged for a loan). Compound interest is the money you make off the interest on the money you are investing. That means it’s really “interest on interest” which will make an investment or loan grow at a much faster rate than regular ol’ interest. The exponential growth cuts both ways. On the investment front, it’s the most powerful force for increasing your wealth the fastest. In the race to make your money grow, if interest is a Vespa . . . then, compound interest is a Lamborghini. On the borrowing front, it can drive you into debt despair the fastest, too. For example, if you loan your friend $10 at 10% interest, compounded annually, she’ll owe you $25.94 after ten years. Don’t be naïve and think it’s just the simple percentage; com- pounding interest doesn’t just add up—it multiplies exponentially.
A “snowball effect” for your money. This is the money you make off the interest on the money you are investing. That means it’s really “interest on interest,” which will snowball over time and make an investment or loan grow at a much faster rate than regular ol’ interest.
This is how much of your business is dependent on a particular client or partner. It’s expressed as a percentage, and you want to keep it as low as possible so you don’t depend on too few clients or partners in order for your business to stay afloat.
Consumer Acquisition -
What happens when you successfully persuade a consumer to purchase your company’s products or services.
Contract, at- will -
If two parties sign an agreement that lays out certain terms, such as an employment contract, it is understood that the company can’t force you to work; that you are doing so “at will,” regardless of the terms of the contract. It also means they can fire you “at will,” even if the contract is for a set period of time.
Contract, implied -
Even without a signed agreement, two parties can enter into an implied contract by their behavior. For example, when you go to the dentist,
it is implied that the dentist will use her best knowledge to fill your cavity, even though she didn’t promise to do so in writing.
This is a law that protects intellectual property, giving creators of books, music, and films the exclusive right to publish, sell, reproduce, or otherwise use the material for a set amount of time. (Fun fact: All works published in the United States before 1923 are in the public domain, aka not subject to copyright. Works published after 1922, but before 1978, are protected for ninety- five years from the date of publication. For works created, but not published, before 1978, the copyright lasts for the life of the author or artist plus seventy years.) Anyone else who wants to use the material must pay a licensing fee to the owner of the copyright. When that set amount of time is up, the work is considered in the public domain, which means anyone can use it fo’ free.
Corporate Bond -
Corporate Bond: Debt (a.k.a. “paper”) issued by a corporation. You’re helping them do something they couldn’t do otherwise. So, they say “thank you” by giving you interest back. Corporate bonds typically have a higher rate of return than government bonds, because there is a greater risk that a corporation will fail than a government—so they make it worth your while. (See also: Bond)
Corporate entrepreneur -
An innovator who develops new businesses, products, services, or processes within a company that create value for the company while still operating within its existing structure.
Corporation: If you’re starting a business, you can do that without incorporating. But as your business grows, you don’t want to be held personally responsible should you-know-what hit the fan. You form a corporation (or “incorporate”) so that it’s your company—not you, as an individual—that is held responsible. A corporation is its own living, breathing thing: it can enter into contracts, hire employees, borrow and loan money, and pay taxes—all of that fun stuff you can do, but without dragging your personal name and assets along (that’s a good thing especially if it gets dragged through the mud).
If you’re starting a business, you can do so without incorporating. But as your business grows, you don’t want to be personally held responsible should the you- know- what hit the fan. So you form a corporation (or “incorporate”) so that it’s your company— not you, as an individual— that is held responsible. A corporation is its own living, breathing thing: it can enter into contracts, hire employees, borrow and loan money, and pay taxes— all of that fun stuff you can do, but without dragging your personal name and assets along (that’s a good thing especially if it gets dragged through the mud).
Cost- benefit analysis -
A method for making a sound business decision. First you determine what the benefit of an action— say, a software purchase— is, and then you subtract the cost to see if it’s worth it.
CPA (Certified Public Accountant) -
CPA (Certified Public Accountant): This numbers pro who will help you do your taxes and may assist in other areas of your financial life, like investing and retirement. If you’re an individual or smaller shop, you can likely handle these yourself (perhaps with assistance from software like TurboTax). But as soon as you grow large enough to have payroll, it’s a good idea to meet with a specialist and make sure you’re doing it right to avoid getting slapped with fines from Uncle Sam down the road. When looking for an accountant, make sure they
have this designation.
CPI (Consumer Price Index) -
CPI (Consumer Price Index): A number the government puts out based on how expensive basic things like milk and bread are com- pared with past prices to show how well or how poorly the economy is doing. If the CPI is high, this indicates inflation, which means you have to spend more dollars to get the same amount of stuff; if it’s low, you guessed it: deflation, which means you have to spend fewer dollars to get the same amount of stuff.
Credit Card -
Credit Card: A card that allows you to buy things before you actually pay for them. Provided that you pay off your credit card balance in total every month, credit cards offer you convenience, a short-term, interest-free loan, and typically other perks in the form of rewards. Trouble arises when you don’t pay off that balance and find yourself getting socked with compound interest and fees. (See also: Debit Cards)
Credit Report -
Credit Report: Your credit report is your financial report card. It breaks down your payment history into nitty gritty detail—every successful or missed credit card and loan payment—and then spits out an actual grade: your credit score. Lenders and landlords (some- times even employers!) use this report to gauge how financially responsible you are. You can check yours for free once per year at annualcreditreport.com. (See also: Credit Score)
Credit Score -
Credit Score: If your credit report is your financial report card, then your credit score is your actual grade. A credit score is a mea- sure of how reliable you are at paying your bills. If you are looking to borrow money, your score will determine your interest rate, or whether you can borrow at all. It measures how much debt you have versus how much debt you could have (so if your credit cards are maxed out, your credit score will be lower). Scores range from 300 to 850; 700 and above is considered a good score. (See also: FICO Score)
Credit Union -
Credit Union: It looks like a bank; it smells like a bank; but it is NOT a bank. A credit union is owned by its members. It’s basically the mom-and-pop version of the national banks. Instead of trusting your money to a huge national bank, you’re pooling your money with your neighbors. You don’t get all of the same bells and whistles as with a national bank, but you might get better interest rates and loans: after all, the lenders at these community banks know where you’re coming from (literally) and are therefore more willing to help you out.
The chief revenue officer is responsible for business development, or bringing in the deals that bring in the money so that the CFO can manage it.
Raising money from people online on sites like Kickstarter.
Getting info or news from a group of people, usually on the interwebs, e.g., asking your Facebook friends for recommendations for a small business accountant.
The chief technology officer is your business’s tech guru, overseeing everything from IT to web development.