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.
A tool that gives you extra weight in a negotiation, like using a job offer from another company to get your boss to give you a raise or promotion at your current job.
Liability: Something you’re on the hook for. You might think of liabilities as obligations that will need to be settled at some point. Spent a hundred bucks on your credit card? Well, you know you’ve got to pay it someday. That’s now a $100 liability. Take out a mortgage? That’s a liability, too. (But the house you bought with it is an asset, even if it might not feel that way.) Take out a business loan? That’s a liability, too. (Office space and equipment you bought with it are “assets,” even if they might not feel that way.) (See also: Asset, Balance Sheet)
LIBOR: It stands for the London Interbank Offered Rate, but don’t be confused: it’s not just a London thing. It’s the basic interest rate, or bare minimum, that you can borrow money for.
Life Insurance -
Life Insurance: How much is your life worth? No . . . really. Life insurance is an insurance policy that you take out to protect your loved ones in the event that you die. Your beneficiaries (typically your spouse and children) stand to receive the proceeds (tax-free) in the event that something happens to you, thereby helping to ease the financial impact (if not the emotional one) of your absence. (See also: Term Life Insurance, Permanent Insurance)
Liquidity: Your ability to pay now; having liquidity means you have cash. Note that even the wealthy can sometimes be illiquid if they own an illiquid asset (for example, real estate, sports teams, land) that can’t be turned into ready cash the moment they need it; after all, it takes a while to sell big stuff like a house!
A limited liability company is a business structure that is setup to shift the liability from you as an individual to your new business. Laws vary by state, but in general LLCs can be formed by any business or group of people. Members are not protected from the liability of another member. (See also: C corp, S corp)
A limited liability partnership. This type of business setup is generally restricted to professionally licensed individuals, such as lawyers and accountants. Members are protected from the liability of another member.
Loan: Money you borrow, usually from a bank or other financial institution. In exchange for giving you the money you need, you will need to pay them a percentage of that money as interest (on top of giving them back what you borrowed). Common types of loans are student, mortgage, auto and home equity.
Loan- out Corporation -
A popular way for actors, musicians, writers, and the like to get paid. It’s an arrangement where the person is technically an employee of
their own business (it can be an LLC, S corp, or C corp) and the company or person writing the check is doing business with that structure in exchange for “loaning out” your acting or performing services.
Long: When you’re long, you own something—a stock, perhaps— and are hoping that it will go up in price, when you can then sell it at a profit. It’s the opposite of short, where you think something will go down in price. (See also: Short)