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.
Fair Market Value -
Fair Market Value: What something is worth, or its essential value, were it to be sold in the open marketplace right now (not what you paid for it initially).
FDIC: The Federal Deposit Insurance Corporation. You’ve seen their stickers at the bank. The FDIC insures your bank deposits up to $250,000. It’s a corporation wholly owned by the federal government. Provided that you keep your balances under the insured amount, even if your bank fails you can sleep easy knowing that you will get your money back (at some point).
Federal Reserve -
Federal Reserve: The Central Bank of the United States; call it “the Fed” for short. The Fed sets interest rate policy (also called monetary policy) in the country. Its mission is to promote both full employment and low inflation, two often contradictory goals. In order to shield the Fed from short-term political influence, its members are appointed by the executive branch—yep, POTUS himself. The current chair (or “head”) of the Federal Reserve is Janet Yellen, the first woman ever to hold the position. (See also: Monetary Policy)
FICO Score -
FICO Score: Another name for your credit score. Named after Fair Isaac Corporation, the data company that dreamed up the equation for calculating the score. (See also: Credit Score)
Financial Planner -
Financial Planner: Someone who gives you financial advice and guidance to help you meet your long-term money goals. Financial planners may be certified or just have been at it a long time, but either way remember that you’re paying for their advice; it’s not free and unfortunately not always in your best interest. Typically, financial planners are specialized and knowledgeable in all of the different aspects of your financial life including taxes, estate planning and retirement. But at the end of the day, the most important thing is that you have a good rapport and they have your best interests in mind.
A good financial planner should be knowledgeable in all of the different aspects of your financial life including taxes, estate planning,
and retirement, but remember, they aren’t experts in those areas. Think of them as a manager of a band and you’re the rock star. They outsource to people who focus in those specific areas (e.g., accountant, investment manager), which means you have to pay them but also the specialists they might bring on. (See also: CPA, Wealth Management)
Finder's Fee -
A fee paid to someone who makes introductions between an investor and a business owner, resulting in an investment in the company or other
financial benefit (like a matchmaker for entrepreneurs and investors).
Fire Sale -
The type of sale you might have to undertake to sell off your company and all of its assets if it’s damaged, i.e., in major financial distress. The idea is to sell off all of the parts of the business that you can, piece by piece and often at heavily discounted prices, in order to recoup some of your losses, pay off your creditors, and close up shop. (See also: Exit strategy)
Fiscal Policy -
Fiscal Policy: The way in which the elected federal government manages its money. Spending and taxing are the most common kinds of fiscal policy. When you hear talk on the news of the government’s budget, or a new tax plan, what you’re hearing is a discussion of “fiscal policy.” Don’t confuse it with monetary policy, which is executed directly by the Federal Reserve and deals with setting interest rates. “Fiscal” and “monetary” are not synonyms.
Fiscal Year (FY) -
Fiscal Year (FY): It’s the special twelve-month calendar that a company or government uses for preparing financial statements and drawing up their accounting. Where the calendar year runs the same year in and year out (January 1 to December 31, duh), the fiscal year in the US runs from October 1 to September 30 of the following year. The fiscal year is written as the year in which it ends; so, FY2016 will begin on October 1, 2015, and end on September 30, 2016.
Fixed Costs -
These are costs that don’t change over time, such as your rent or mortgage. It’s the same payment every month. (See also: Variable costs)
Fixed Income -
Fixed Income: A set amount of income that doesn’t change, and that you can always rely on. The most common type of fixed income is a bond (corporate or government). Fixed income durations vary. For example, for US government fixed income, called Treasuries, the shortest is a bill (under a year); then a note (1-10 years); and finally a bond (10+ years). (See also: Bond)
Stands for “fear of missing out.” Seeing all of your friends’ vacation pics on social media can give you a wicked sense of FOMO. Seeing other Boss Bitches get ahead at work while you’re just spinning your tires should also give you FOMO.
Foreclosure: When a bank or creditor takes away your house because you can no longer make payments on it. Typically, they sell the house and then use the proceeds to pay off the outstanding loan.
Form 1040 -
The standard federal (IRS) tax return form for individuals.
The person who starts a business or company.
A type of license that allows a business owner to have access to a larger business’s secret sauce (processes, trademarks, and marketing) in order to carry out a subsidiary product or provide a service under the business’s name. The best example here is fast food: if you open a Pinkberry franchise, you are getting a license to run your Pinkberry with the larger company’s support in exchange for paying initial start- up and annual licensing fees (and agreeing to play by their rules).
FRM (Fixed-Rate Mortgage) -
FRM (Fixed-Rate Mortgage): A loan for a home in which the rate you’re paying the bank doesn’t change. A fixed-rate mortgage is amortized over a certain amount of time so that each of those “fixed” payments goes to paying back some of the principal and some of the interest each time. For example, a thirty-year, fixed-rate mortgage is one in which the borrower makes 360 (one per month) equal payments, after which the loan is paid off. (See also: ARM, Mortgage)
FSA (flexible spending account) -
You can put money in an FSA on a pretax basis to cover medical expenses not covered by your insurance, such as copays and contact lenses, as well as child- care expenses. The downside is that any money you don’t use on qualified expenses is lost, so you have to estimate carefully
what you think your health- care expenses will be throughout the year— and then make sure to use it all up before the year is out so you don’t forfeit your tax break. (See also: Health Savings Account)
Funding Round -
A start- up company gets its initial capital funding in rounds. If you’re lucky, you’ll get all you need to get up and running with a single round of financing, but many companies have to go back to investors for additional rounds as they grow and their objectives change. (See also: Capital)
Funemployment: No, it’s not making the most of an unexpected layoff from your job. It’s when you say, “I love my job. I love my life”—and you’re totally in control of both things. You might be making a little less money, but you’re being paid in happiness.
Futures: A contract for the right to buy or sell something at a later date by making the actual transaction today. A bakery, say, might want to lock in a price for the wheat for cookies they will need to make. The owner might buy a wheat futures contract today, so that there are no surprises in the price when she needs to buy it a year from now. She might spend a little bit to buy that contract, but it’s acting as insurance in case the price skyrockets. Futures can be used for commodities, like wheat, but also for stocks. In fact, S&P futures (futures on the S&P 500 index) are among the most actively traded.