Today's $$ Word: Inflation. The slow and steady upward creep of prices for goods and services, and, as a result, the decline of purchasing power. Stuff gets more expensive over time, and therefore people can’t buy as much. Inflation is expected to grow 3% per year, which is why making more than that by investing is so important; otherwise, your money will be worth less tomorrow than it is today.
Today's $$ Word: Liquidity. 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 (real estate, say) that can’t be turned into ready cash.
In short, a company that anyone can buy into. This company has already had its “coming out” party by joining the stock market via an initial public offering (IPO). The biggest advantage to “going public” is the ability to sell stock (which can make the company, its employees, and its shareholders a lot of money). But the downside is that it opens the door to increased regulations and less control for the company’s founders and majority owners.
Today's $$ 'Word': Wage garnishment. Wage garnishment: If you owe money on a credit card or a loan, and don’t pay it back, the lender can go to court to get an order that allows them to take a chunk out of your paycheck until the debt is repaid. This is called a “garnish” (I know, not cute like the other meaning of “garnish” as in to decorate). This is how bill collectors get paid whether you want to pay them or not.
Today's $$ 'Word': Corporate bond. Corporate bond: Debt (aka “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.
Today's $$ 'Word': Wealth Management. Wealth Management: This is kind of a one-stop-shopping financial services deal: you can get help with your taxes, investments, and estate planning all under one roof. For a fee, of course, usually a percentage of the value of the assets they are managing. Keep in mind, there is usually a minimum to get this service, which can be six figures. That’s why they call it “wealth management” and not just “money management.”
Today's $$ 'Word': Secured Debt. Secured debt: It’s the kind of debt you get when you take out a loan and back it by collateral, like your house, to reduce the risk associated with lending. For example, you could use your house as collateral to take out a mortgage. But if you don’t pay, the bank takes your house, instead. They will then sell it and use the proceeds to pay back the debt. The “security” for their debt will always win over your security. Ouch.
Today's $$ Word: Underwater. Underwater: That’s when the amount of a loan is more than the thing you borrowed it for is worth. For instance, if you get a $300k mortgage loan, but the real estate market crashes and your house now has a market value of only $250k, your mortgage is considered underwater.
Today's $$ 'Word': 529 Plan. 529 Plan: A college savings plan that allows your money to keep making money tax-free as long as you do one thing: use it to pay for college. You can use it for whatever college your little heart desires, but if you don’t, then taxes and penalties will come your way. What the heck does the number 529 have to do with college, anyway? About as much as 401 has to do with retirement; these plans are named for their numbers in Internal Revenue code. The IRS put it in the title because they definitely don’t want you [...]
Today's $$ 'Word': Asset allocation. Asset allocation: This investing strategy keeps you from putting all of your eggs in one basket, so to speak. The three main asset classes -- equities (stocks), fixed-income (bonds), and cash-- have different levels of risk and reward, so depending on what your goals are for investing you want to balance the risk/reward by investing in varying amounts of each. An aggressive investor may have an 80-20 asset allocation, putting 80% in stocks and 20% into bonds or cash, for example.