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.
In the Black -
In the Black: “In the black” means your company is profitable. The opposite is being “in the red”—or in the negative earnings zone. The term Black Friday is typically the day that retailers hit their numbers, bringing them out of the red (negative earnings) and into the black (positive earnings = hooray!).
In the Blank -
Means your company is profitable— congrats! This term brings us to Black Friday, because it’s typically the day that retailers hit their target sales numbers, bringing them out of the red (negative earnings) and into the black (positive earnings = hooray!).
In the Red -
A term for when your company is in the negative earnings zone— not good, but also not necessarily bad as long as you don’t stay there too long. Sometimes companies need to go “in the red” to invest in longer- term growth, so they can kill it “in the black” later on.
Index: A means to measure a particular market, or section of a market. In the United States, the best-known stock market indices are the Dow Jones Industrial Average (DJIA, or Dow) and the Standard & Poors 500 (S&P 500 or S&P); the former contains thirty large- company stocks, the latter, five hundred. Other US indices include the Wilshire 5000 (pretty much every stock), the S&P Midcap 400 (medium-sized companies), the Russell 2000 (small companies), often hear newscasters talk about the Dow or the S&P because indices give us a quick look at what’s going on in the market. (See also: S&P 500, Dow)
Index Fund -
Index Fund: A type of investment designed to match or track the types of stocks found in a market index, such as the S&P 500. Instead of buying each stock in an index individually, it’s one-stop shopping that gives you exposure to the whole index by buying one share of the index fund. So when you hear commentators say “The S&P is up”/“The S&P is down” and you are invested in the S&P index fund, then you’re up or down for the day. (See also: S&P 500, Dow)
Inflation: The slow and steady upward creep of prices for goods and services, and, as a result, the decline of purchasing power. Stuff gets more expensive over time, and therefore people can’t buy as much. Inflation is expected to grow 3% per year, which is why making more than that by investing is so important; otherwise, your money will be worth less tomorrow than it is today.
A person with clout in a particular industry (e.g., Mark Zuckerberg in tech, or Diane von Furstenberg in fashion).
Initial Public Offering -
Initial Public Offering: An “IPO” occurs when a company sells stock to the public for the first time. It’s essentially the debutante ball for a private company announcing that it will let anyone buy into it. The buzzy ones tend to be well-known consumer platforms (“B-to-C,” which is business to consumer) like Facebook, but all sorts of companies go public that you haven’t heard of (“B-to-B,” where businesses sell to other businesses). It’s also a time when founders make actual bank and not “paper money” or equity that hasn’t been liquidated.
Initial Public Offering (IPO) -
An IPO occurs when a company sells stock to the public for the first time. It’s essentially the debutante ball for a private company
announcing that it will now let anyone buy into it. The buzzy IPOs tend to be well- known consumer platforms (B2C, which is business- to- consumer) like Facebook, but all sorts of companies go public that you haven’t heard of (including B2B, where businesses sell to other businesses). It’s also a time when founders make actual cash and not “paper money,” or equity that hasn’t been liquidated. (See also: B2B, B2C)
Innovation Lab -
A smaller start- up- type department within an existing company. This could be a department which is spearheading a brand- new product or
taking the company in a new direction, but still reporting to the same executive team (like Google’s department for Google Glass), or it could be an actual company under an existing company that has its own leadership, product, or software (like Current at General Electric, which is the company’s clean technology subsidiary).
Institutional Investors -
Institutional Investors: Unlike mom-and-pop investors, the big boys, by which I mean the folks who run mutual, pension, hedge and insurance funds (basically the people who move around large sums of money) are lumped into this category. When you invest money in a mutual fund, or an index fund, there’s someone on the other end managing the money. (See also: Mom-and-Pop)
No, not that thing you played in the fifth- grade band. In this case we’re talking about a financial product, like stocks. Think of it as an “instrument” for making more moolah! (See also: Stock)
Interest: It’s what you pay when you borrow and what you receive when you lend. Interest rates are determined by market conditions and the condition of the borrower (aka you or your company). The better the condition of the borrower, the lower the interest rate— which is why your credit score is vitally important when you want to do something like take out a mortgage or a business loan.
A trainee, often a college student, who works for job experience in exchange for a minimal salary or hourly rate or for school credit. Internships provide a way for businesses to hire help at no or low cost, and for young people to get some experience under their belts in an industry in which they’re interested: a win/win. Note: If school credit is not available for the intern, you must pay them at least the state minimum wage. Interns cannot work for free. This is against the law.
A short- term job, often during the summer, that allows students and recent graduates a chance to learn the ropes at a company for pay or college credit.
Investment Bank -
Investment Bank: A bank that doesn’t take deposits but raises capi- tal for businesses (often through stock and bond offerings) and sets up trades for institutional investors. Goldman Sachs and Morgan Stanley are the two prime American examples.
Intellectual intelligence (aka book smarts) as opposed to EQ, which is emotional intelligence (aka people smarts). (See also: EQ)
IRA: Stands for individual retirement account. The money you put in is tax-deductible now, but you will have to pay income tax on it when you make a withdrawal. Unlike a 401(k), which is offered through your employer, an IRA is yours—and will always be yours— wherever you go. [See also: 401(k)]
IRS (Internal Revenue Service) -
IRS (Internal Revenue Service): Your favorite guy: the Tax Man. The IRS is the government agency charged with collecting and enforcing taxes and coming up with all of those crazy rules and regulations. This is where your tax return goes on April 15 each year.
Itemized Deduction -
Itemized Deduction: This is what you save all those receipts for during the year. If your expenses amount to more than the standard deduction, then you’ll want to “itemize” your taxes (you can only do one or the other). Eligible expenses include mortgage interest; state, local, and property taxes; medical expenses; business travel and entertainment; home office equipment and supplies and char- ity donations (this all appears on Schedule A of your federal Form 1040). (See also: Deduction, Standard Deduction)
What you should always be doing, in business and otherwise. It means that you are continually repeating a process, tweaking it slightly each time depending on what you learned from it the time before, with the purpose to meet a desired goal, target, or result. You might iterate on an idea, honing the concept until you get it “just right,” or you might iterate on an entire business model, repeatedly improving upon it until you get to the most successful version.