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.
401(k): A popular retirement plan offered by an employer. The cool- est thing about it is that you can put money in tax-deferred. That means you are able to save a bigger chunk of your paycheck up front (since you’re using money you’ve made before taxes are taken out), let that grow, and only pay taxes when you take it out, in other words, when you are ready to retire. It’s meant to help you when you’re old, so the IRS tries to hook you up with that tax incentive because you’re not supposed to use it until then. If you do there’s often a 10% penalty (on top of any taxes you now have to pay). (See also: Roth 401(k), IRA, Roth IRA)
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 whichever college your little heart desires, but if you use it for something else, then taxes and penalties will come your way.
AAA: Refers to a credit rating (not roadside assistance), and it tells you if a company, a state or local government, or even a country is likely to repay its debts. The grades help you decide if you want to take your hard-earned cash and invest in those places. The AAA is the best grade there is and it goes down from there, AAA-, AA+, AA, AA-, A . . . you get the point. Anything with a BB+ grade and below is so risky that it’s actually called “junk.” But this can sometimes be a good thing—“the higher the risk, the greater the reward.” In finance it might be good to have a little junk in the trunk. These grades help you make the choice to play it safe or take a gamble.
Accounts Receivable -
Money that’s owed to you for a good or service that’s already been used by your customer, but for which you have not yet been paid.
What happens when you buy a company that’s for sale (as opposed to taking over a company that isn’t for sale, as in the case of a hostile takeover).
AGI (Adjusted Gross Income) -
AGI (Adjusted Gross Income): AGI is literally the bottom line on the first page of your tax return (if you file your taxes yourself). It’s your gross income, or money you’ve made from all sources during the year, minus big deductions like educational expenses or losses from selling your home. Lenders care a lot about this number because it’s viewed as the most accurate report of your income.
Amortization: This is spreading a loss out over a fixed period. It has two meanings: 1. The breakdown of your payment between interest and principal when you pay off debt on a specific schedule. This applies mostly to home or car loans. In the beginning, you’ll mostly be paying off the interest. Then, as the payments near the end, they will eat mostly into the principal until (ideally) you’re all done repaying. 2. When you talk about depreciating something intangible (copyrights, patents, intellectual property, franchise rights) on your taxes evenly over the time you expected to use it for but didn’t (because it wasn’t as valuable as you thought). For example, “In order to pay off the enormous debt she incurred securing a patent for making milkshakes out of chicken (for which she realized there was zero market), Nicole will amortize her loss over the next few years.”
This is spreading a loss out over a fixed period. It has two meanings: 1) the breakdown of your payment between interest and the amount
you owe when you have a mortgage 2) For Boss Bitches, this comes into play when you talk about depreciating something in your business that’s intangible (copyrights, patents, intellectual property, franchise rights) on your taxes evenly over the time you expected to use it for but didn’t (because it wasn’t as valuable as you thought). For example, “In order to pay off the enormous debt she incurred securing a patent for making dresses for alpacas (for which she realized there was zero market), Nicole will amortize her loss over the next few years.” This means she’ll pay off those losses piece by piece, a little bit each month, instead of covering the loss all at once— way less painful to her bottom line. You will hear it used as part of (it’s the “A”) the acronym EBITDA. (See also: EBITDA)
Angel Investor -
An individual who invests in a start- up, often a friend or family member of the founder(s). Angel investors are so named because they’re typically more interested in helping an entrepreneur get her business off the ground than in earning a big payout for themselves, like most investors would be. (See also: VC)
Annuity: A steady stream of payments. It’s anything that pays you something at regular intervals, whether monthly, yearly, etc. An annuity can be a “life annuity,” which is like an alternative retirement program for yourself. Or, you buy an annuity as an investment, like you would buy stocks or bonds. Either way, annuity plans (there are millions) work like this: you put money in, you can let it grow tax deferred (so you pay tax only when you get the payments) then get a series of checks back. (See also: Variable Annuity)
Appreciation: The amount something increases in value over time. The opposite is depreciation, or the amount something decreases in value over time. Obviously, you can appreciate anything (I appreciate you for visiting my site), but in finance it mostly refers to “capital” like stocks, bonds, homes or other property like fine art. (See also: Depreciation)
APR (Annual Percentage Rate) or APY (Annual Percentage Yield) -
APR (Annual Percentage Rate) or APY (Annual Percentage Yield): The interest you will pay or receive for the entire year. APR is a simple calculation for the year, whereas APY (synonym: EAR) takes into account compounding interest, which makes it a more intricate (and, typically, more accurate) calculation. That’s the only difference. As you know, companies sneakily market interest rates all the time. If APR is 10% and APY is 10.5%, it would make sense that a bank that wants you to use its credit card will use APR (it appears lower) and then use APY (it appears higher) for savings accounts. Both essentially refer to the same thing. They are just different ways to present it.
ARM (Adjustable Rate Mortgage) -
ARM (Adjustable Rate Mortgage): A loan for a home that has an interest rate that will bounce around. Unlike traditional fixed mortgages, ARMs will reset to “market conditions” (they’ll get better or worse) after a stated period of time, usually three, five, seven or ten years. Think twice about signing up for an ARM just because the initial monthly payments look good. All that can change. A 3/27 mortgage is an ARM that stays fixed for three years, then bounces for the next twenty-seven years. (See also: Mortgage)
Asset: Anything you own that has cash value. Assets aren’t limited to what’s in your bank account. Your home, your car, your stamp collection: all assets. Assets that are cash or can be turned into cash quickly (like cash or stocks) are called “liquid assets,” whereas the ones that are difficult to turn into cash quickly (like a home or a boat) are called “illiquid.” (See also: Liquidity, Liability)
Asset Allocation -
Asset Allocation: The breakdown of where you’re putting your money. 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. For example, an aggressive investor may have an 80-20 asset allocation, putting 80% in stocks, which have greater potential for earnings but also greater risk, and 20% in bonds or cash, which have less earning power but are safer investments. The older you are, the less aggressive you’re likely to be since you’ll have less time over the long term to recoup any losses should any of your investments tank. (See also: Diversification)
“Business to business”— this applies to businesses that do business with other businesses, like a photocopier company that services machines for corporations or a developer that creates software for businesses to run more efficiently.
“Business to consumer”— this applies to businesses that offer products or services for the public rather than businesses. Most of your favorite clothing, electronic, and food brands are B2C because you’re the end user, not a business.
Balance Sheet -
Balance Sheet: The state of your financial union. It lists assets on one side and liabilities on the other. It’s called a balance sheet because assets must “balance” with liabilities. Assets - liabilities = net worth. So if your liabilities are greater than your assets, you have a negative net worth, which is bad.
Technically, this is the amount of data a network can successfully handle before it crashes. Slow Internet connection? You might not have enough bandwidth. In business, the term has also become synonymous with how busy people are. If you don’t have time to take someone’s call, you might tell them you don’t have enough bandwidth— aka current capacity— to do so at the moment.
Bank Account -
Bank Account: Where you stash your cash. At the most basic level, there are savings accounts and checking accounts. Savings and checking accounts at your local bank or online bank will usually require a minimum deposit to open the account and a minimum monthly balance. Since checking accounts are used only for transactions like deposits and withdrawals, they offer no interest. Savings accounts, however, will give you a teeny tiny bit of interest each month. (See also: Money Market Accounts, Certificate of Deposit)
Bankruptcy: This is what happens when you can’t pay your debt. Filing for bankruptcy, also known as bankruptcy protection, stops your creditors from coming after your assets. Both people and corporations can avail themselves of this option. This might sound like a quick get-out-of-jail-free card, but be warned, your credit rating will go down the toilet for years.
Basis Point -
Basis Point: A fancy way to talk about decimal points in finance. “One basis point” is 0.01; “10 basis points” is 0.10; “100 basis points” is 1.00. I know what you’re thinking: Why not just say “one” instead of “100 basis points”? Well, once it gets down to little numbers every tenth and hundredth counts, and if you want to put your money where your mouth is, you don’t want it to be a mouthful.
Just like you have to get the animals straight in politics (Democrats are donkeys and Republicans are elephants), in business the bulls are positive and the bears are negative. If someone says they are “bearish,” they mean they are not particularly enthusiastic about something, while if they say they’re “bullish,” then they’re all in for it. (See also: Bullish)
Beneficiary: The person who stands to gain, or benefit, from a financial transaction. For example, the person you assign to inherit your money or the person who gets medical benefits from your health insurance plan.
This is the test version of a product or service before it’s distributed to the masses. Tech companies often release a beta version of a program to a limited number of users for free in exchange for their feedback about what works and what may still need fixing, so that by the time they bring it to market they have better chances of success.
Beta Test -
A trial run of software or other product by an outside party before that product is made available to the public. Like a dress rehearsal, it should be as close to the “real deal” as possible to uncover any surprises or setbacks before the product is fully launched.
Black Swan -
An unexpected and nearly impossible to predict event, like a terrorist attack or the housing crisis, that can have unexpected consequences for a product, industry, or even entire market.
Blue Chip -
Blue Chip: A nickname for high-value companies (like the actual blue chips if you’ve ever played poker). “Blue chips” are the big guys, like McDonald’s and Nike. They are considered the biggest, strongest, most robust stocks of the bunch. They are often considered trendsetters: where the blue chips go, so goes the market. Examples of blue chips are the thirty stocks that make up the mighty, mighty Dow Jones Industrial Average, or “the Dow.” (See also: The Dow, S&P 500)
Bond: When a company or government needs to raise money for, say, a shiny new machine or fancy bridge, it borrows money by selling bonds. Bonds have durations of ten years or more (durations of one to ten years are technically called “notes”). There are different kinds of bonds—typically government or corporate bonds—but generally speaking, if you invest in a bond, you’ll get paid back the full value (or “principal”) at the end of the bond’s duration (“maturity date”) plus interest payments (called the “coupon”). Bonds are considered safer investments than stocks, but have lower earning potential.
Bond Fund -
Bond Fund: An investment option that gives you exposure to a bunch of different kinds of bonds at the same time. There are millions of types of bonds, including municipal, government and corporate. With a bond fund, you can profit (or lose money) from a variety of them, depending on the exact one you sign up for. Remember, you don’t actually own all of them—the fund does. You are just buying a piece of the proverbial pie. (See also: ETF, Mutual Fund)
Book Value -
Book Value: The value of a company based on the numbers on the “books.” It’s the estimated worth of a company if the business were shut down and everything sold. Book value is the opposite of market value, where companies feel more valuable than their books would suggest. Buzzy tech companies like Apple experience a higher market value than what the underlying business is doing. The concept is analogous to valuing your car by Kelly Blue Book. There’s a value based on stats of age and mileage. But if, for some reason, Brad Pitt was seen in your car, what you could get for the car would go way up. (See also: Valuation)
Bottom Line -
Refers to the last line on a balance sheet, which reflects— and is synonymous with— an individual or company’s profit or gain. This is the
money left over after all expenses have been accounted for that’s why colloquially (and at the end of all the steps in the book) it’s just like saying “at the end of the day” or “when all is said and done.”
That magical way in which a company describes itself and differentiates itself from the rest of the market. (Tissues are a product; Kleenex is a brand.) Your personal brand is how you set yourself apart from the rest of the herd, as well as the compass used to point your personal, career, and business goals in the right direction.
Broker: A company or person who executes your financial trans- action for you. No, regular folks like me and you aren’t allowed to actually buy, sell or trade assets, like stocks and bonds. You can place orders for them, but then you need a broker to execute them for you. For that, they will charge you either a fee per transaction, or a fee based on a percentage of your assets. There was a time when only the rich could have a broker. These aren’t those times. Today, there’s no lack of options for discount brokers who charge very small fees, allowing everyone the option to trade. (See also: Financial Planner)
Brokerage Account -
Brokerage Account: Also called an investment account, it’s the place where you hold financial assets. Examples of brokerage accounts would include your 401(k) or IRA, as well as nonretirement accounts.
Bubble: In finance, a bubble is not something that can be made from soap, but it’s about as durable. Bubbles form when a lot of market players chase a particular asset (for example: tech stocks in 2000, real estate in 2007), pushing prices up to unsustainable levels. Then something pricks the bubble and prices come crashing back down.
Budget: A plan for how much money will be made and spent over a certain amount of time. You’re not the only one with a budget. Governments, companies, families, countries, etc. have budgets. Being on budget means you meet your plan’s expectations. Being off budget can be good or bad: you could have a surplus or a deficit. Understanding what you’re making and, especially, planning how to allocate your money, is the key to staying on budget. (See also: Balance Sheet)
Buffett, Warren -
Buffett, Warren: I wouldn’t say that you have to know about many people in the finance world, but Warren Buffett is a must. He is one of the greatest investors of all time. Oh, and one of the richest men in the world, too. His nickname is the “Oracle of Omaha,” which speaks to his ability to pick great value investments, whether choosing stocks or buying companies (from his home in Omaha).
Markets have feelings, too! And when they’re feeling “bullish,” it means that stock prices are rising. Similarly, when investors are bullish, they’re feeling confident about a particular stock, company, or the market. (See also: Bearish)
Bulls/Bears: In the finance world, bulls are aggressive and bears are skeptical. “Bulls” are people who believe a market or stock is going up (they are said to be “bullish”) and “bears” believe a market or stock is going down (they are said to be, you guessed it, “bearish”).
Business Development -
You’ll usually hear this referred to as “biz dev.” Typically, it will refer to forming relationships and making deals with the goal of getting more business.
Business Plan -
Business Plan: It’s a written roadmap that describes in detail what your business is and does. It outlines what the goals for your busi- ness are, how you’re going to achieve them, and a basic timeline for doing so. Typically you also include some ideas for marketing, hiring, and, of course, the nitty-gritty numbers of projected rev- enues and expenses. Having a business plan helps start-ups raise money because they can show potential investors their vision for the company. (See also: Seed Money, Venture Capitalist)Remember that course prospectus you got on the first day of class that explained what you were going to learn (and what your homework would
be) for the entire semester? Your business plan is like a course prospectus for your business. A typical business plan starts with an executive summary or mission statement, aka a somewhat more detailed version of an elevator pitch. It should also include information about the market the business is in or planning to enter and how you plan to stand out in this field along with information on past growth and future strategies. It should include information about your management team, financial metrics, and projections. If you are asking for money, that should be in there as well.
An endorsement from someone, be it your boss, work team, or an investor, when you have successfully persuaded them to accept an idea or proposal. Used in a sentence: “Nicole is excited that she got ‘buy- in’ from the committee to move forward with her event, after she presented projected earnings based on last year’s. Their support means the event has a better chance of crushing it.”
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.
Debit Card -
Debit Card: Looks like a credit card but allows you to spend only money that you actually have in your checking account.
Debt: Also known as borrowed money. Not all debt is created equal. You can take on debt for legitimate reasons—to buy a home, to finance a business, to go back to school. But it’s also easy to borrow money for things you just want, like swiping your credit card out on a shopping spree or taking out a car loan. If you are responsible with your debt and make your payments on time, it can be a great way to live the life you want. But if you are irresponsible with it and make late payments (or don’t pay at all a.k.a. default) you can end up with interest payments, a bad credit score, and even bankruptcy. (See also: Default)
A presentation that you create, typically in PowerPoint or PDF, to present or pitch your idea or business to colleagues or investors in a cohesive, organized way.
Deductible: The amount of expenses (usually set) that you pay out of pocket before your insurer jumps in to pick up the rest of the tab.
Deduction: Any item or expense that you can subtract from your gross income to reduce the amount of money that Uncle Sam can tax you at the end of the year. These are good when it comes time to file as they typically mean more money in your pocket. The most common deductions are charitable contributions, anything related to running a business, home mortgage interest payments and medical expenses. (See also: Gross Income, Itemized Deduction, Standard Deduction)
Default: Failure to make payments on a loan. You’ll likely get charged big penalties and, if the loan was for a particular item like a car or a home, you could lose it. Seriously. Those loans are secured loans, where the item is collateral that the bank takes if you don’t pay up. Defaulting on unsecured loans can lead to wage garnishment which is when money is forcibly deducted from your paycheck to pay it.
Deferment: Financial procrastination, or delaying a loan payment. You might defer on, say, a student loan payment if you are still in school, or graduated recently but haven’t found a job yet. But it’s not a good idea to keep kicking the can down the road, as you’re getting hit with interest the whole time.
Deficit Finance -
Financing an endeavor or business by borrowing money (from investors, friends and family, or your own bank account).
The product or service that is the result of a specific project. For instance, if you promise a client that you will deliver six new widgets by the end of the month, those widgets are the deliverable.
A particular sector of the population, such as millennials or suburban housewives or female business owners. For our purposes, this will be your business’s target consumer.
Dependent: Someone who depends on you financially; usually a child, but it can also be another family member, such as an elderly parent.
Depreciation: When something loses value over time. Something that depreciates is typically an actual item like a car or computer—it loses value/relevance soon after you purchase it. (New cars depreciate 15-20% the second you drive them off the lot, and we’ve all felt the burn of buying a schmancy new gadget only to have a newer one come out a few months later.) (See also: Appreciation)
Just like you’d weaken a strong drink, when you weaken your ownership position by giving away too much equity to investors, you are diluting the power and control you ultimately have over the company.
Direct Reports -
The staff who report directly to you. Your direct reports may have people junior to them who report directly to them, and so on.
When you are so innovative that you shake up the status quo. It’s a good thing, as opposed to being disruptive, which is just annoying.
Diversification: Helps you to avoid putting all of your eggs into one basket, only to drop the basket and break them all. Like in the proverb, distributing your “eggs,” or investments, around into different “baskets,” or investments, reduces your risk of breakage, or in this case—breaking the bank! For example, let’s say you put 80% of your investing money into stocks. Don’t go all in on one stock; instead, invest in a variety of them, so if that one stock tanks it doesn’t tank your entire portfolio. (See also: Asset Allocation)
Dividend: One of the things a company can do with its profits is give them to the shareholders in the form of cash; this is called a dividend. Getting cash is nice and thus so are dividends. Even better, as earnings grow, companies can give out more dividends, which is even nicer. They can also cut them in bad times (which sucks). What do you do with that cash the company sends you? Best to reinvest it. Over time, reinvested dividends are a major source of stock investor returns.I often say that investing in yourself will pay dividends later on. You’ll hear it used in that context, and it means that the work you put into something now will allow you to reap the rewards later.
Domestic Partnership -
Domestic Partnership: So you share your house, your car, your dog, your bank account, your LIFE—but you’re not technically married: you’re in a domestic partnership. It’s a legal and/or personal relation- ship between two people who share the trappings of marital bliss without the official title.
Double Taxation -
In a C corp, both the business and the employees are taxed (double taxed). In an S corp or partnership, only the employees are taxed (not
Dow, The -
Dow, The: The Dow Jones Industrial Average, an index of the top thirty “blue chip” stocks, like Apple, Microsoft and Wal-Mart. It’s an index that is usually a good indicator of how the overall stock market is doing. If you hear “the market is up today” on the news, they are usually referring to The Dow. (See also: Index, Blue Chip)
Drop Ship -
Instead of keeping inventory, a retailer will take a customer’s order and pass it along to a manufacturer who will then ship the product directly to the customer.
Unlike an eagle, who is set to soar, a duck will complain about how much work sucks without making an effort to change anything, because “that’s how it’s always been done.” (See also: Eagle)
E-mail Marketing Service -
An online company, like MailChimp or Constant Contact, that helps businesses to create e- mail marketing campaigns targeted to users who are most likely to purchase a particular product or service.
EAFE: Another one of those financial acronyms, pronounced EEE- fee. The EAFE (the letters stand for Europe, Australasia, Far East) is a stock index that covers the major markets of the industrialized world, excluding the US and Canada; think of it as the S&P for the rest of the world. And while we’re on foreign stock indices, let’s mention the MSCI Emerging Market Index, which covers emerging markets like China, India, Brazil and the like. Some other country- specific foreign indices you might hear mentioned on the news include the TSX (Canada), DAX (Germany), CAC 40 (France), FTSE 100 (or “Footsie,” Great Britain), Nikkei (Japan), Shanghai (China, obviously), and the Hang Seng (Hong Kong).
Unlike an eagle, who is set to soar, a duck will complain about how much work sucks without making an effort to change anything, because “that’s how it’s always been done.” (See also: Eagle)
Earned Income -
Income that comes from wages, salaries, tips— in other words, money that you’ve earned and which is taxable.
Earnings: Not to be confused with revenue, this is the amount of profit that a company takes in over a given period of time after taxes, expenses, etc. So it’s effectively the amount of money the company actually makes (bottom line) versus revenue (top line), which is everything the company brings in. (See also: Bottom line, Revenue)
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) -
EBITDA is another way to look at profits. It’s a term you’ll hear a lot if you are starting a business, so know what it stands for (there are different versions, like EBIT and EBITA, depending on the business). The better this number is, the better the company is doing.
EIN (Employee Identification Number) -
It’s like a Social Security number for corporations, in that it ties together a company’s taxes, debts, contracts, etc.— and keeps a record of them over time. When you form a corporation, the federal government issues you one.
Elevator Pitch -
Your thirty- second description of your business, concept, or brand— something short and sweet that you can explain in the time it takes to
ride the elevator. Whether you’re starting a business or carving out your niche at work, you must have one of these.
Emotional intelligence, as opposed to IQ, or intellectual intelligence. EQ is all about understanding other people, reading their signals, and reacting appropriately. A high EQ is a must for any Boss Bitch, whether she’s born with it or proactively develops it over time.
Equity: Another word for stock. If you have equity in a company, it means you own shares in that company. You can have equity in a public or private company. Also known as having “skin in the game.” You invested money in the company in exchange for shares in that company, so you now have a stake in it (and how it performs over time). You can have equity in a public or private company. (See also: Stock, Bond)
Escrow: An account that is set up such that you can’t touch the money in it. When two parties are conducting a transaction, an escrow account is usually held by an impartial third party. If you buy a house, for example, you’ll be asked to deposit a certain amount of money into an escrow account until you and the seller have satisfied all of the terms of the sale.
Estate: All of your stuff. All of it: your house, your car, jewelry, all of your money, and legal rights—minus anything you owe (debt and liabilities). “Estate Planning” is a nice way of saying how to plan for what happens to your estate when you die, which includes setting up a will, power of attorney and tax planning for everything in your estate so that you leave your heirs with the best financial situation possible.
Estimated Taxes -
If you are a sole proprietorship, your clients will pay you in pretax dollars, which mean you’ll be on the hook to pay Uncle Sam quarterly
estimated taxes. Estimated is the key word here; it’s tough to predict how accurate these taxes are, especially during the first year or two of your business, so it’s a good idea to set aside 25% or so of each check you receive for the purpose of taxes. That way, if you end up with a larger- than- expected tax bill at the end of the year, you’ll have the funds to cover it.
ETF: Exchange traded funds are like mutual funds but they trade on a stock exchange. They are also cheaper to buy than mutual funds because they aren’t managed by professionals. It’s a way to get exposure to a bunch of different stocks by buying just one thing. So, you want exposure to technology stocks? You can get an ETF for that—many, actually. There’s an ETF for almost any type of investment you want to make. (See also: Mutual Fund)
Executive Compensation -
Executive Compensation: What it sounds like—how much the big boys earn in salary, bonuses and stock or stock options.
Exemption: A reduction to the amount of your gross income that would otherwise be taxed. The amount of the reduction is the same for everybody. There are two types of exemptions: personal and dependency. For example, if you are filing your own tax return and have two children, you have one personal exemption for yourself and one dependency exemption for each kid = three total exemptions. At the current amount of $3,900 per person, that’s $3,900 x 3 = $11,700 that you can take out of your gross income. (See also: Deduction)
Exit Strategy -
Your script for the final act of your business. This is the means by which you will cash out of your investment in your business, for instance, by selling to or merging with another company. This strategy can and will change over time as your business grows and objectives change, but Boss Bitches always have a plan for when it’s time to take a bow.
Expense Ratio -
Expense Ratio: The fee that a fund you invest in charges to do what it says it’s going to do. Expense ratios on index funds are typically very low, maybe 0.25% or less. An expense ratio of 0.25% would charge you $25 per $10,000 per year. So if you have $10,000 invested in that fund, think of the $25 as a service fee for the broker managing the fund to work it for you. A 1% expense ratio (typical for actively managed funds) would charge you $100 per year on $10,000.
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.
GDP: Stands for gross domestic product and is a way for economists to measure the strength of a particular economy. For example, US GDP looks at the total market value of all goods and services produced within the US, from cars to appliances to clothes to shoes. When US factories produce a lot, it usually means the economy is healthy because they have buyers for their products, and GDP will increase. When factories slow down production, it means there are fewer buyers, and GDP will decrease.
Going Public -
What happens when a privately held company has an Initial Public Offering (IPO), where it sells shares to outside investors for the first time.
Golden Parachute -
A contractual guarantee that an executive at a company will get hooked up with stock options and other perks even if they get fired.
The value of an organization’s reputation. Like your own, it’s priceless.
Google AdWords -
Google’s online advertising program, which features tutorials about targeted online marketing and tools for creating ads and tracking traffic. Kind of like your analytics dashboard, only for advertising (and making money!).
Green Mortgage -
Green Mortgage: A mortgage that sets money aside for home improvements that will increase the energy efficiency (and ultimate resale value) of the home. You can get one of these when you are buying a new house or refinancing a house you already own. A certified home energy rater visits your house and suggests improvements to make it more energy efficient; once you have made the improvements, the mortgage lender repays the expenses back to you. (See also: Mortgage)
Gross Income -
How much money you make before taxes. The salary you agreed to in your company’s offer letter is typically in gross income, so before accepting a job offer, you should factor in taxes to get the amount you will actually be taking home each paycheck. (See also: Net Income)
Gross Margin -
Subtract the cost of making something (manufacturing, etc.) from the revenue you get from that product, aka the markup, and voilà! Gross
Growth Stocks -
Growth Stocks: These stocks tend to be new and buzzy, and are growing faster than the average company. Growth companies tend not to pay dividends, as they’re re-investing their earnings back into their growing businesses. While you don’t get your money back right away, the long-term money you stand to make is typically pretty good. Growth stocks are especially common in certain industries (like technology and biotech). An example would be Twitter, which tends to bounce around a lot, versus a value stock like Johnson&Johnson, which is more reliable. (See also: Value Stocks)
Not some guy with a spear who wants to make soup out of you; this is a recruiter who has been hired to fill a position at a company.
Health Savings Account (HSA) -
Health Savings Account (HSA): An account into which employees can choose to put pretax money from their paychecks to cover high health insurance deductibles and other noncovered medical expenses, like copays and contacts. Unlike an FSA (flexible spending account), any unused money in the account rolls over to the next year and earns interest that is also tax- free. If you’ve got money left in your HSA when you turn sixty- five, you get to spend it on anything you want. (See also: flexible spending account)
To act in such a way so as to reduce risk.
Hedge Fund -
Hedge Fund: Hedge funds are pools of money collected together for investment purposes. They’re not regulated by the government, so they’re even riskier than publicly traded stocks, and they’re not open to everyone, usually only “qualified investors,” a term that most of us would define as “wealthy.” Hedge funds can and do invest in just about anything, and can be both long and short at the same time—hence the term “hedging,” or protecting yourself from the risk involved with that investment.
Home Equity Line of Credit -
Home Equity Line of Credit: This is like a home equity loan, but instead of giving you a lump sum, the bank holds onto it, allowing you to draw on it as you need it up to the maximum amount. (See also: Home Equity Loan)
Home Equity Loan -
Home Equity Loan: Also known as a second mortgage, this type of loan allows homeowners to borrow against the value of their home. The amount of the loan is based on the difference between your equity in the home and the home’s current market value . . . so basically you’re borrowing the amount that you could hypothetically stand to pocket by selling it.
Hostile Takeover -
When one company acquires another one by force, typically by bypassing management (or replacing management altogether) and going directly to that company’s shareholders. This can happen when they buy substantial amounts of stock, thus buying the company from the bottom up. The
key characteristic here is that the company being taken over (also called the target) doesn’t want the deal to go through, while the company doing the taking over (also known as the acquirer) is doing everything it can to make the deal happen.
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.
Joint Account -
Joint Account: If you’re looking to pool your finances with a significant other or business partner, a joint account is what you will need. You can get a joint checking or savings account through a bank, or a joint brokerage account through an investment company. It goes without saying that you should trust the person with whom you’re sharing a joint account, since you’ll both have access to the money.
Joint Venture -
When two or more parties join forces to achieve a particular goal, or when two existing businesses contribute equity toward a new business.
Like “going halfsies” in the business world. If you go into a joint venture with a friend or other individual, what you’re forming is called a general partnership. Just know that in this case, if your partner makes a bad financial decision, you’ll be on the hook just as much as she is.
Key (wo)man insurance -
A life insurance policy taken out by a company on the life of the founder or CEO or other person without whom the company could
no longer function. The policy is meant to pay off the company’s debts and provide severance to employees in the event that, God forbid, something happens to that essential or “key” person.
Key Rate -
Key Rate: It’s the rate that determines what banks charge on loans. You like low key rates when you’re borrowing money for investing in starting your own business or paying down your credit card. Conversely, you actually prefer high key rates when you’re being more responsible with your spending and putting your money in a savings account because that means you’ll get more interest on the money you put into the bank.
The most relevant and descriptive words to describe your business that will help steer search engine users to your website or advertisement.
Knowledge Capital -
Knowledge Capital: This is a way companies describe the value each individual employee brings to the table. For example, your own personal knowledge capital is made up of your experience, professional skills, knowledge of a particular industry, your ability to work with a team, your amazing ideas, etc. Obviously as a business you want the most knowledge capital as possible, so you hire the most skilled employees that you can find—and afford.
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)
M & A -
M & A: Stands for mergers and acquisitions. A merger is like a marriage in the business world. Sometimes two companies will merge to form one large company; it’s wanted by both parties, rarely arranged and mutually beneficial. An acquisition can be friendly (when management approves) or hostile (when management can’t agree on a merger or takeover and things get ugly. Either way, an acquisition is when a company takes over, or acquires another company). There can also be divorces, like the high profile one between AOL and Time Warner.
Macroeconomics: The study of economics that focuses on the performance of the economy in general, from unemployment to GDP stuff like milk over time to come up with overall spending trends for the entire country. (See also: Microeconomics)
The difference between the cost of making something and the price it’s sold for. In other words, it’s the markup.
Market Share -
The percentage of a market a business holds, such as iTunes’s 64% market share of digital music downloads.
Mass e-mail Senders -
There are two kinds: Free software allows you to send bulk e- mail and track which recipients opened it so you know who’s read your
note. Paid services also allow you to track people who unsubscribe and or click through any links inside the e- mail, which is a good way of telling if your e-mail was persuasive in getting recipients to do what you wanted them to do.
Maturity Date -
Maturity Date: When a bond you’ve purchased pays you the final interest payment and gives you your principal back. At that maturity date, you essentially get repaid for the loan you gave to the company or municipality you invested in, in addition to the interest you received.
Someone you know or just someone whose path or career or work ethic or vision you admire and inspires you to follow a similar path to achieve your own goals.
Microeconomics: The study of economics that looks at individual household or company spending or saving data to gather overall trends, like determining what types of things people are buying. (See also: Macroeconomics)
Minimum Viable Product -
A product which has just enough features to gather valuable insights from customers while still in development, aka while in the
beta version of that product. You often see this with the initial launch of a smartphone app: the simpler version comes out first, then once the company has seen how it does and worked out the kinks, a fancier (and often more expensive) version of the app follows. Also known as MVP (not the most valuable player . . . because that, of course, is you.)
Mission Statement -
A statement that defines your or your company’s goals.
Mom-and-Pop: You and anyone else who isn’t an institutional inves- tor. Sometimes called “mom-and-pop retail,” the term refers to the average folks in the street and their actions in the market, and is often used to differentiate the actions of normal people from more sophisticated investors. (See also: Institutional Investors)
A Boss Bitch mom who runs a business from home while raising her family.
Monetary Policy -
Monetary Policy: Policy that sets and controls interest rates. In the US, it’s the job of the Federal Reserve. Don’t confuse this with “fiscal policy”—it’s not the same thing and the terms aren’t interchange- able. “Fiscal” policy refers to the actions of the government (taxes, etc.), not the Fed.
Money Market Account -
Money Market Account: It’s similar to a regular savings account, but it usually gives you a better rate because you are letting the bank be more aggressive with what they do with your money. With a regular savings account, the bank can’t invest your money, but they can with a money market account. For that privilege, they give you a bit more interest in return.
Mortgage: A loan used to buy real estate in which the real estate is collateral for the loan. Interest is typically paid monthly. In the US, the standard, plain vanilla mortgage is the thirty-year-fixed, in which the borrower makes 360 (one per month) equal payments. After that, the loan is paid off. This kind of loan has a fixed rate for the life of the loan and is amortized—that is, each payment contains some principal repayment, so that the loan balance declines to zero over time. In practice, most thirty-year borrowers pay off their loans early, usually because they sell their houses. (See also: ARM, FRM)
Municipal Bond -
Municipal Bond: A bond issued by a city, county or state. “Muni” bonds (as they’re often called) are popular investments with individual investors, because in most cases the interest they pay is not subject to federal income tax. Within the state of issue they’re also not subject to state income tax, so many muni investors opt for homegrown bonds.
Mutual Fund -
Mutual Fund: Instead of just buying individual companies, a mutual fund is a basket of a bunch of different securities: stocks or bonds. Anyone can buy into a mutual fund, and it has a low barrier to entry compared with a hedge fund. It’s basically built-in insurance for investing because it’s diversified, so if one stock fails, you are (usually) propped up by another company in the fund to keep your returns slow and steady. And because you are pooling money with other people, you get exposure to a bunch of different investments you wouldn’t have the opportunity to buy into on your own.
NASDAQ: Short for National Association of Securities Dealers Automated Quotations, the NASDAQ is a stock exchange, like the New York Stock Exchange. But instead of having a trading floor, the NASDAQ exists in the ether. It is tech heavy and welcomes up-and-comers.
Net Income -
An individual’s or a company’s total income after deductions, credits, and taxes are factored in. In a few words: It’s the amount of dough you’re actually bringing home.
Net Worth -
Net Worth: A snapshot of what you’re worth on paper by subtracting your liabilities (everything you owe, like credit card debt and students loans) from your assets (everything you own, like cash and investments). A positive number is nice; a big positive number is better. (See also: Bottom Line)
As they say, “Behind every strong woman is a group of other strong women who have her back.” Your network is this group of women (and men)
with whom you have formed a connection to work and conspire with, and help each other in a professional (but also sometimes personal) capacity.
Getting out there and meeting other people who can help you achieve your business goals. Remain open- minded and you never know who you might meet— or the impact they might have on your career.
New York Stock Exchange (NYSE) -
New York Stock Exchange (NYSE): Also known as the “Big Board,” the NYSE is considered the largest stock exchange in the world. Based in New York City (duh), it used to be an actual exchange featuring a trading floor and a loud, crazy, open outcry system to buy and sell stocks. It still looks like that on TV, but the dirty little secret is that it’s just for show and more than half of all NYSE trades are conducted electronically.
This is a clause an employer may put in an employment contract to prevent you from working for a competitor for a fixed period of time after you leave (whether voluntarily or because you are fired), such as six months or a year after leaving the company.
Nondisclosure Agreement (NDA) -
Also known as a confidentiality agreement, this legal document tells an employee that they shouldn’t talk about confidential work stuff outside the office— and outlines the consequences for doing so.
Nonqualified Account -
Nonqualified Account: An account that gives you interest that you have to pay tax on. The most basic type of nonqualified account is an individual checking or savings account.
This is a clause built into an employment contract that prevents you from poaching the company’s clients and employees after you leave.
On Brand -
Making sure everything you do in your business— marketing, sales, talking to customers, even the colors you use— is relevant to the company’s goals or message.
Operating Costs -
The day- to- day expenses of running a business, including things like rent, payroll, software and equipment needs, and utilities.
Opportunity Cost -
Opportunity Cost: The amount of money you spend (on a swank new car, for example, or paying down debt) that could be doing something else potentially more valuable for you over time (like going back to school or investing in your business).
Ordinary Income -
Ordinary Income: Income that is taxed at ordinary rates (as opposed to capital gains) and is usually made up of salary, wages, commissions and interest from nonqualified accounts. (See also: Capital Gains)
Hiring people to do tasks for you so you can focus on your core business and make the most of your precious time.
P/E Ratio -
P/E Ratio: Stands for price-to-earnings ratio. It’s a way to measure stock value and is calculated by dividing the current stock price by earnings per share. The higher the P/E ratio, most likely the better the investment.
P&L Statement -
P&L Statement: P&L stands for “profit and loss.” We like the P but hate the L. It’s also called an “income statement.” Companies have P&Ls to show how much money they’ve made and how much money they’ve spent. Your online bank statement is like your very own P&L. Sometimes it can be very good or very bad. P.S. Sometimes people will confuse the abbreviation and say “PNL.” That doesn’t exist, so don’t be that person.
Partnership, Limited -
This is a slightly more protective option than a pure partnership. One of you is the general partner, responsible for running the business
and also handling any liabilities that might come your way; the limited partner does not have a say in running the business but does share in the company’s profits (as well as shouldering potential losses).
A government license issued by the US Patent and Trademark Office that gives an inventor or other patent holder exclusive rights to a new design or product or process for a specific length of time (twenty years in the US).
Permanent Insurance -
Permanent Insurance: This kind of life insurance has level premiums and pays a fixed amount of money to the beneficiary when the insured dies. But it also has an investment feature, which grows in value, which the policyholder (who is not necessarily the insured person, since you can buy a policy on somebody else’s life) can withdraw or borrow against. Unlike term life insurance, this kind of policy never expires. (See also: Life Insurance, Term Life Insurance)
A phone interview. That is, one in which you won’t have the advantage of using your body language to convey your ideas, so you need to make sure you’re on point and on message (and have strong cell reception!).
Sometimes the best strategy is to change direction on a dime, or pivot, to a more successful approach or idea.
Portfolio: The whole shebang of all your investments: stocks, bonds, mutual funds, CDs and all that good stuff.
Preferred Stock -
Preferred Stock: This is stock that gets more perks than common stock. Preferred stock dividends must be paid before dividends are paid to common stockholders (hence the name “preferred”). And, in the case where a company goes out of business, preferred stock- holders get their money first. (See also: Common Stock)
Premium: Refers to your monthly insurance payment, typically for health insurance. Unless you change your plan or the insurance rates go up (which unfortunately happens all the time) then it’s the same amount every month.
Pretax Earnings -
A company’s earnings after expenses have been deducted from revenue, but before taxes have been taken out. (See also: EBITDA)
Principal: The total amount borrowed on a loan, and/or the amount you still owe on that loan, separate from interest. So if you have taken out $10,000 in student loans at an interest rate of 4.66%, your principal for that loan is $10,000. A few years down the road, when you have paid off some of the loan and have $6,000 remaining, then $6,000 is your new principal.
Private Equity -
Private Equity: This is when investors (usually institutional rather than individual) put money directly into a company rather than buying shares on a public exchange.
Privately Held Business -
A company that is owned by one or more individuals rather than publicly traded on a stock exchange.
Pro Forma -
Think of it as looking toward the future. In investing, it’s a way of figuring out financial results based on current or projected earnings.
Pro Rata -
Giving something out proportionately. For example, let’s say you own 75% of your company, your friend owns 20 %, and your sister owns 5%. You guys get 100 bucks and decide to give it out “pro rata”: you would get $75, your friend would get $20, and your sister would get $5.
Profits: Repeat after me: profit = total revenue - total expenses. Once you have overcome the expenses, costs and taxes needed to sustain your business, the rest of the money coming in is profit. (See also: Revenue)
Proof of Concept -
Showing that your idea or business is viable and likely profitable over the long term, especially to investors. You want to do your homework ahead of time and go into any meeting armed and ready with proof.
Public Company -
Public Company: 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 of “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.
Publicly Traded Company, aka Public Company -
A company that anyone can buy into (i.e., buy shares of on a stock exchange). 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. (See also: IPO)
Purchase Order -
Also known as a “PO.” If you have an actual product, this is the amount of your product that gets ordered from a company who wants to
sell your stuff. While a big PO is usually a cause for celebration, start- ups often struggle trying to finance or fulfill a big order that could help them “make it big”— so don’t break out the bubbly too early. You’ve gotta fulfill the order first!
Purchasing Power -
Purchasing Power: How much stuff can you buy with $1? Purchasing power is the value of a dollar in terms of the amount of goods or services that one dollar can buy at a specific time. It’s heavily influenced by inflation, because inflation typically decreases the amount of goods or services you’d be able to purchase with that dollar. (It’s why $15 used to be able to get you a ticket to the movies, but that $10 could maybe buy you one third of one today.)
Quality assurance, i.e., the measures you take to make sure that the product or service you’re offering in the way it’s supposed to.
Qualified Account -
Qualified Account: An account that allows for a tax break on the contributions you make to it. Qualified accounts, like a 401(k) allow you to funnel a portion of your paycheck each month into the account, which reduces your overall taxable income— meaning you pay less in taxes at the end of the year. (See also: Nonqualified Account)
Measuring something by its qualities— characteristics, behaviors, overall performance— rather than how much of it is on the market.
Measuring something by its quantity— volume, frequency, market saturation— rather than how it behaves or how well it performs.
In finance, quarter refers to a quarter year. Companies tend to report earnings on a quarterly cycle. That’s why you see Q1, Q2, etc. when talking about the health of diff erent companies. When quarterly earnings reports roll around, the stock market often gets edgy. It also gets edgy when the government releases certain economic statistics every quarter, like GDP.
- Synonyms: First Quarter results were excellent
Quarter: In finance, quarter refers to a quarter year. Companies tend to report earnings on a quarterly cycle. That’s why you see Q1, Q2, etc. when talking about the health of different companies. When quarterly earnings reports roll around, the stock market often gets edgy. It also gets edgy when the government releases certain economic statistics every quarter, like GDP.
Quarterly Earnings Report -
Quarterly Earnings Report: Publicly traded companies tend to release information about their performance on a periodic basis, sometimes quarterly. A quarterly earnings report discloses information about the company’s net income, earnings per share, net sales, and more. This information helps industry analysts and investors to understand the overall health of a company better. Quarterly reports tend to be issued at the beginning of January, April, July and October and reflect past financial information. (See also: Quarter)
Quote: You’ll usually hear the word “quote” being used in reference to a “stock quote” or “quoted price.” Stocks and other securities that are traded on an exchange trade at different prices throughout the day. At any given point, the “stock quote” or “quoted price” is the most recent price at which a buyer and seller agree to acquire and sell the asset.
Ratios: Wall Street loves ratios, as you already know if you read the entry on the P/E ratio. Besides the price-to-earnings ratio, there’s price/book, which measures a company’s value in the market- place relative to its book value, debt/equity, a measurement of how indebted a company is, and many more.
Rebalancing: Buying or selling securities to maintain or change your asset allocation. Let’s say you had an 80/20 allocation of 80% stocks and 20% bonds and you wanted to play it a little safer and switch to 70/30. You would sell some of your stock and invest the money in bonds . . . thereby rejiggering or “rebalancing” your portfolio.
Refinancing: The process of transferring debt from a high-rate loan to a lower-rate loan. It’s like switching from overpriced cable service to something more manageable if you have the opportunity to do so. You still have to pay but it’s not nearly as pricey. Not everyone can do it, though. You have to have a good payment and credit history. A big reason for doing this is to have a little more cash readily available by reducing your monthly bills.
Getting a company name or brand name trademarked so that you can use it exclusively, which gives you an advantage over the others in your
market and legally prevents competitors from using your name or brand without permission.
Revenue: A term for the gross amount of money a business receives before expenses are deducted. Because a profit and loss statement starts with revenue, revenue is sometimes called the “top line.” (See also: Bottom Line, Profits, P&L Statement)
Reverse Auction -
A type of auction in which sellers bid for the prices at which they are willing to sell their goods and services. So let’s say you’re a whiz at photo editing. You might go on a site like Upwork and bid on the listings from people looking for freelance photo editing services by offering the amount you are willing to be paid for doing the work. At the end of the auction, the person who’s willing to do the same work for the lowest amount typically wins.
Risk Averse -
Risk Averse: Means apprehensive about taking chances. If this is you, you’d rather take a long walk than go cliff diving, and you’re more likely to invest your money in something safe like CDs or bonds rather than in the stock of a new internet start-up.
Roadshow: If you owned a company, and you decided you wanted to start selling shares of your company to the public, you would take your “show” on the road to try and “sell the sizzle” and look for money for the company. Typically, companies engage in road shows before an initial public offering, or “IPO.” It helps to spread the word about your company and get investor support.
ROI (return on investment) -
This is the money you make back after investing in something. It’s a good indicator for whether or not the initial investment makes
good business sense. You want this number to be as high as possible, because that means you’re getting the maximum bang for your investment buck. But the “return” part doesn’t always have to be tangible. If you invest in a kick- ass web developer who creates a site that helps to successfully launch your business, you can consider the investment in that person a great ROI (even if there isn’t an exact value to assign to the website just yet). Your favorite LBD (little black dress, duh) might also have a good ROI; if you wear it once per week and it makes you feel like a boss, then you’re likely getting a pretty solid return on that $150 you shelled out for it.
Rollover: If you leave a job where you have a 401(k), you can take the money with you—that’s right, “roll it over”—either to a 401(k) at your new job, or to an IRA. [See also: 401(k), IRA]
Roth 401(k) -
Roth 401(k): It’s just like a normal 401(k) in that it’s a retirement plan offered by your employer, but you pay tax on the contributions when they go in so you don’t pay taxes when you take the money out. [See also: 401(k)]
Roth IRA -
Roth IRA: Like a regular IRA, it stands for “individual retirement account.” But, unlike traditional IRAs where you are taxed only when you take your money out, Roth contributions are taxed up front but not later on. It’s a great deal if you qualify. The catch is that if you are lucky enough to make $125,000 if you’re single, or $183,000 if you’re married, it’s too much money to play the “Roth” game. (See also: IRA)
Money for your brainchild: If you write a book or an article or a piece of music, you will get a royalty for every purchase or download of your product for a set amount of time (depending on the way your contract is set up). So those car commercials featuring catchy tunes? Yep— they’re shelling out beaucoup bucks to those performers and the songwriters every time they air.
Rule of 72 -
Rule of 72: A nifty party trick and a good way to get a feel for com- pounded returns. Divide your expected return into 72 and you’ll get the approximate number of years it will take your money to double. Going to get an 8% return? Expect to double your money in 9 years (72 divided by 8). It’s a simple trick.
Russell 2000 Index -
Russell 2000 Index: An index measuring the performance of around 2,000 smaller companies in the Russell 3000 Index, which is made up of 3,000 of the biggest US stocks. Because it reps the “little” guys (who actually aren’t so little: the average market capitalization for Russell 2000 companies is between $300 million and $2 billion), the Russell 2000 serves as a benchmark for small, or “small-cap,” stocks in the United States.
S Corp -
The full name is Subchapter S corporation, named for the part of the IRS code that defines it. This is a way to incorporate your business (and shift the liability away from you and onto the business) without being double taxed as you would in a regular corporation, in which business tax comes out of the company and personal tax comes out of your income. Instead, profits and losses pass down to you as the shareholder, so you report them on your personal tax return. In other words, you pay taxes on every dollar the corporation earns (after all deductions have been calculated). A S corp must have no more than one hundred employees, and also be owned in the US of A; no foreign ownership.
S&P 500 -
S&P 500: The Standard & Poor’s 500 index of America’s 500 largest stocks. Some say this is the best indicator of the true pulse of the U.S. economy. (See also: Index)
Sarbanes-Oxley: Also known as “SOX,” the Sarbanes-Oxley Act of 2002 was named for two lawmakers who aimed to create new standards for boards, management, and accounting firms of pub- lic companies. The regulations are like “checks and balances” over companies the public can invest in. They are supposed to have your back if you’re an investor.
Schedule C -
It’s the page on your IRS Form 1040 on which you can list and deduct your business expenses— aka, the first place you hit up to brain- dump
those receipts you’ve been saving all year (ahem!).
Schmuck Insurance -
Not actually insurance, this is a way to structure the sales of a product or line of business while keeping your hand in the financial cookie jar by, say, keeping 10% or 20% ownership of that product in case the new owners do really well with it.
Your signature thing that makes you memorable and stand out within a crowd or industry.
SEC: Stands for the Securities and Exchange Commission. It is a federal government organization that is supposed to be the good guy. Their sole purpose is to “protect investors” from the bad guys (like shady brokers or fraudulent trading schemes). They put in regulations for “securities” markets or anything stock related. Investors feel like the SEC has their back while companies often think they are a thorn in their side.
Secured Credit Card -
Secured Credit Card: A credit card for people who have little or no credit, or the most dreaded of all: bad credit. They’re backed by a savings account, which serves as collateral on the credit available on the card. You deposit money into the savings account and it remains there, thereby backing the card and easing the lender’s fears about your credit-worthiness. The card’s limit is based on two things: your credit history (if you have any) and the amount you deposited into the account. So why would you get a card of this type? If you want to build credit, or rebuild bad credit. (See also: Credit Card, Debit Card)
Secured Debt -
Secured Debt: It’s the kind of debt you get when you take out a loan and back it with 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. (See also: Unsecured Debt)
Security: A general term to describe a position of interest in a company, such as a stock (ownership), a bond (a creditor position), or a derivative (the right to buy a stock, say). Think of a financial family tree where “security” would be the name of the family, and stocks, bonds, and derivatives would be types of securities underneath.
Seed Money -
Seed Money: A.k.a. “seed funding,” or the money to help you get your small business off the ground. You’ll likely get your seed money from friends and family who believe in you and your dream (that’s why your first round of fundraising is called the “friends and family” round). If you’re not lucky enough to have a supportive community around you, you’ll probably turn to your savings or your credit cards for money to make your company grow, baby, grow.
SEP IRA -
Stands for Simplified Employee Pension plan. It’s a variation of an IRA just for businesses. The most important difference between a SEP and a 401(k) is that 100% of the contributions are made by you as the employer, not your employee. As of 2016, you could contribute up to 25% of an employee’s compensation up to $265,000 for a maximum contribution of $53,000 (25% of $265K is $53K, so that’s the max you can put in).
Series A -
The first round of funding for a start- up after the initial seed funding, or friends- and- family round. (See also: Seed funding)
Compensation a company pays employees who are laid off or leave the company for reasons other than “for cause,” aka you didn’t fuck up but you had to go anyway due to a company reorganization or simply not being the best fit for the job.
Share: The amount, or “stake,” that you have in a company where you own stock; also the unit used to measure stocks. For example, if you own 1,000 stocks in a company, you own 1,000 shares. (See also: Shareholder, Stock, Stock Market)
Share Economy -
An economic model in which people share something they own with people who need it, and charge money for that transaction, such as renting out your home on Airbnb or offering the use of your vehicle on Lyft.
The owner of stock in a company. If the company does well, they stand to make moolah— and sometimes big moolah. But if the company does
poorly, then shareholders have the potential to lose money, too. Your stake in the company as a shareholder depends on how many shares in that company you own— the more shares you own, the greater your stake. The person who owns the majority of the shares is called the principal shareholder.
Short: “Going short” basically means you’re trying to make money off of something that you think won’t do well. It’s the opposite of “going long” or just buying a stock outright which is a vote of confidence in that company. It’s a more advanced trade because there is way more risk. If you buy the company outright, the most you can lose is 100% of the value. If you short it and it goes up more than 100% you can lose an unlimited amount of money—so be careful, and make sure that you think it’s going to go way down because you make the difference if you are right. You lose the difference if you are wrong. (See also: Long)
Side Hustle -
An additional job or passion project that you take on to make extra money on the side of your day job.
While the name makes you believe it’s “simple,” it’s not that much so. It stands for Savings Incentive Match Plan for Employees. It’s another cousin of an IRA, like the SEP. Unlike with a SEP however, the employer and employee (if you have one hundred or fewer employees who earned at least $5K or more in salary both contribute. The contribution limits are lower than with a 401(k): $12,500 if you’re under the age of fifty, and $15,500 if you’re over the age of fifty (so about $3,000 to $5,000 less than a 401[k] depending on how old you
are). (See also: SEP)
Small Business Administration (SBA) -
The US government agency set up to help entrepreneurs with loans, grants, and other forms of support.
Social Security -
Social Security: The big daddy of social welfare. The Fed rolled it out in 1935, and we’ve been living with and around it ever since. The program’s benefits include retirement income, disability income, Medicare, Medicaid, and death and survivorship benefits. Based on the year you are born, you can start getting retirement benefits as early as age sixty-two or as late as age sixty-seven. (That number is likely to get higher in the coming years, so you might not start collecting until age seventy or even older.) The amount of income you get from the government is based on the average wages earned over your lifetime. Spouses are also eligible to receive Social Security benefits, even if they have worked only part time or not at all. It’s been around for a long time, but factors like longer life expectancies, a large baby boomer population currently entering retirement age, and inflation have put it in serious danger in current times.
Solo 401(k) -
If you don’t have any employees, you can look at investing in a solo 401(k), which is really just a one- woman 401(k), but one that you control. If you work for yourself and you’re killing it, you should look at this as a great retirement vehicle for yourself. You control the costs and the investment options. But they are more advantageous than a regular 401(k) because there is a far higher contribution limit. In addition to the $18,000 you can invest annually as an employee— the same limit you’d have in a regular 401(k)— as an employer
you can add matching funds up to 25% of your compensation for a total of up to $53,000 in 2016. So you’re reaping both the employee and employer benefits for yourself (and your spouse, if you have one).
Standard Deduction -
Standard Deduction: A flat amount you can take out of your taxes. You can either choose to take a “standard deduction” or an “itemized deduction” to reduce your tax bill (but not both). If you choose the “standard deduction,” it makes doing your taxes a whole lot simpler because you don’t have to save every receipt. You just write the amount down ($6,200 for single people in 2015) with no questions asked. This might be for you if you don’t have a mortgage or have a lot of medical or business expenses that would act as good “itemized deductions.” (See also: Itemized Deductions)
A measure of how memorable a product or company name is to a consumer. You want your name and idea to be as sticky as possible!
Stock: A share, or stake, in a company. As a shareholder, you own part of the corporation’s assets and earnings—so you’re (technically) a part-owner! Your stake in the company depends on the number of shares you own relative to the number of total number of shares (so, sadly, your one hundred shares of Apple probably won’t get you into the next shareholders’ meeting . . .). Stocks are also the “meat and potatoes” of most investment portfolios and have outperformed most other investments historically. Publicly traded stocks have a ticker symbol to identify them and trade on—you guessed it— the stock exchange. (See also: Equity, Security, Stock Exchange)
Stock Exchange -
Stock Exchange: Where stocks are traded. It can be a physical place, like the New York Stock Exchange, or a computer system, like the NASDAQ, or any of the many other systems used to trade stocks. Overall, billions of shares of stock are traded every day. Once upon a time, when someone said “the stock market,” she meant the NYSE. But now there are many more exchanges where stocks are traded. (See also: Share, Shareholder, Stock)
Stock Market -
Stock Market: This represents all companies investors can buy into, sell or trade. To actually place a trade, investors use different stock exchanges, like the NYSE or NASDAQ. So when you hear on the news, “The stock market crashed after the President’s speech,” it’s referring generally to all stock trading. (See also: New York Stock Exchange, NASDAQ)
Stock Split -
Stock Split: This is when companies divide existing shares to lower the share price so that more investors can join the party. For example, let’s say that The Lapin Corporation of America has 10,000 shares selling at $100 a pop. The maximum capitalization is $1,000,000. If the stock split two for one, that means there are now 20,000 selling at $50 a pop. (The share price goes down, but the max capitalization stays the same.) The lower price can be more inviting to more investors. If you already owned one share of this company at $100, you would now own two shares at $50 each. A stock may split two for one, three for two, or any other combination. A reverse stock split is when a company lowers the number of its outstanding shares, which would be, for example, a one for two split. (See also: Stock, Share)
Stock, Common -
The lowest priority stock in a company. You may or may not see dividends (aka get money back) depending on what the company’s board
chooses to do. If a company’s assets are liquidated, common stockholders are the last ones to get paid. (See also: Dividend, Liquidity)
Stock, Preferred -
The highest priority stock in a company. If you have this type of stock, you get dividends paid out regularly, and they are usually of a fixed amount, as well as being guaranteed. (And yes, in this case you might actually be invited to that shareholder’s meeting). (See also: Dividend, Shareholder)
Sweat Equity -
Sweat Equity: It’s the best advice in business: outwork everyone. It’s how much you and only you invest in your company by working at it, not just taking cash from the outside and looking pretty. It’s said that your “sweat equity” will pay off most in the long run. It’s kinda like if you own a home, and you decide to go to Home Depot and redo your kitchen yourself before selling the house for a profit. You’ve added value by working at it.
A new trend that involves networking and exercise at the same time! Instead of grabbing a drink or scheduling a lunch date, meet your colleague for a run. You can talk biz and get your workout in— everyone wins.
When the combination of two ideas or companies results in great value and performance is better than the sum of the individuals or companies. This can apply to two departments or even two people working together for a better result, too— basically a fancy word for the old adage “Two heads are better than one.”
Tax Credit -
Tax Credit: Unlike deductions and exemptions, which reduce the amount of your income that is taxable, tax credits reduce the actual amount of tax owed. So yes, you would be correct: They. Are. Awesome. Sometimes the government will offer a tax credit to encourage certain behavior, like a credit for first-time homeowners to encourage people to buy a house and boost the housing market, or a credit for replacing older appliances with more energy-efficient ones that are better for the environment. The amount of the credit depends on what it’s for, and credits don’t necessarily apply to everyone: they can be offered to individuals or businesses in specific locations or industries.
Tax Day -
Tax Day: Any day you owe tax, typically thought of as April 15 of each year. Of course, providing you pay in almost all of what you owe, you can file your taxes as late as October 15. Corporations also have tax days, three months after the end of their fiscal year.
Tax Deduction -
Expenses like health insurance and contributions to tax deductible retirement plans like an IRA or 401(k) that are not subject to taxation.
If you deduct those payments from your taxes, you are essentially lowering your total tax liability, or amount of money for which you are on the hook to pay taxes. (See also: IRA, 401[k], liability)
Tax-Deductible: These are expenses like health insurance and contributions to tax-deductible retirement plans like an IRA or 401(k) that are not subject to taxation. If you deduct those payments from your taxes, you are essentially lowering your total tax liability, or amount of money you are on the hook to pay taxes on. (See also: AGI)
Tax-Deferred: An investment that lets your money grow unhindered by Uncle Sam. You pay the taxes on the returns only at a later date, instead of having taxes take a chunk out of the investment while it’s still growing. IRAs are the most common tax- deferred investments. (See also: IRA)
Tax-Exempt: Sometimes the US government will give a company “tax exempt” status, meaning that they are not subject to any tax from the government or regulator. Usually religious organizations, schools, social clubs and public charities are tax exempt—but they don’t get off totally scot-free. They have to adhere to special rules and regulations that go along with that privilege.
Taxable Income -
Taxable Income: Income that is subject to tax; just as bad as it sounds.
Term Life Insurance -
Term Life Insurance: A life insurance policy for a set amount (say, $1,000,000) for a fixed amount of time (say, twenty years). If you die within those twenty years, your beneficiary gets the money. Tax-free. Jackpot. If you live longer than that, the policy expires and no one gets anything (but the joy of you being alive). (See also: Life Insurance, Permanent Life Insurance)
TFRP (Trust Fund Recovery Penalty) -
This is what the IRS slaps you with if you as an employee willfully fail to withhold or pay employment taxes. The amount of the penalty is equal to the unpaid income taxes, plus the employee’s portion of the withheld FICA taxes. Aka you’ll pay way more than if you had just withheld taxes properly in the first place.
Ticker Symbol -
Ticker Symbol: An abbreviation of a company’s name that represents its stock on an exchange. FYI, stocks traded on US exchanges like NYSE have three or fewer letters (Wal-Mart = WMT) in their ticker and NASDAQ stocks have four letters (Google = GOOG). (See also: Stock Exchange)
The basic info interested people (i.e., investors, potential shareholders) get about a company before it goes public. (See also: IPO, Shareholder)
Trade: Pretty simple: selling, buying, or exchanging goods, services, and, in financial terms, stocks, bonds and the like. Buy a share of a company? That’s a trade. Sell it? Ditto.
A symbol or phrase that is recognizable as belonging to a specific brand, like the Golden Arches belong to McDonald’s. You have to research and
register for one, and it can be very expensive— but also very valuable should others try to enter your same market with a similar brand or idea. While your trademark is pending, you can use the ™ symbol next to your idea. Once that registration is approved and finalized, you can start using the ® mark. (See also: Registration)
Treasuries: Bonds issued by the United States federal government. When the federal government needs to borrow money—and it needs to borrow money all the time—it issues Treasuries, which are backed by the full faith and credit of the United States (and not subject to state income tax; you still have to pay federal tax on the income, though). There are several types of Treasuries: T-bills (maturities of one year or shorter), notes (maturities of two to ten years), bonds (maturities of ten to thirty years). Note: people tend to refer to all three of these types as “bonds,” but know that there is a difference based on duration.
Trust: “Trust” is the most important ingredient in a relationship, right? Well, a financial trust is just that: a relationship. Only it’s one comprised of money. A trust is formed when one party “trusts” property or assets to another party (typically a bank) for the benefit of a third party or beneficiary. For example, a parent might leave a trust for children under the age of eighteen, or for children who have mental disabilities that impair their ability to take care of their own finances. There are two types: a living trust, which is in effect during the trustor’s lifetime; and a testamentary trust, which is out- lined in the will of someone who has died. Once the beneficiary is deemed able to manage the funds on their own (for example, when children turn eighteen) they get full possession of the trust and use of whatever’s inside it.
Another way of saying net or total sales.
This is what happens when the amount of an outstanding loan is more than the thing you borrowed it for, is worth. For instance, if you take out a $300,000 loan to start up your business, but your idea flops and the value of your assets (including office space, equipment, and software) now has a market value of only $250,000, your company is considered underwater (by $50,000— eek).
A start- up with no track record that is valued at more than a billion bucks. Think Facebook, before it went public.
Unsecured Debt -
Unsecured Debt: This is the kind of debt that isn’t secured by any goods that can be repossessed if you fail to pay, like a car. Student loans and credit cards are examples of unsecured debt. (See also: Secured Debt)
Valuation: A valuation measures how much something is worth, now or in the future. There are different ways to value companies. Some are tied to profits, while some are tied to other metrics like users. In the tech world, you often see companies like Facebook or Twitter valued in the billions of dollars with no profits because their valuation is based on a strong user base.
Value Stocks -
Value Stocks: These are stocks that don’t have great earnings growth potential, but that trade at low valuations (low P/Es, for example). Value stocks tend to be more mature, settled, old-school companies like Coca-Cola or General Electric with steady earnings. They also tend to pay dividends.
Variable Annuity -
Variable Annuity: This is a type of insurance product generally sold to those who are preparing for retirement or are in retirement. An investor buys an annuity at a set price and then holds it without taking payments (though she can make additional investments) during a period known as the “accumulation stage.” Money is invested in open-ended mutual funds offered within the annuity and grows on a tax-deferred basis. After the accumulation stage, the holder of the variable annuity is able to withdraw money from the annuity or to “annuitize” it, in which case the insurance company sends the investor monthly income for life. For this reason VAs (as they’re sometimes called) are generally used for those seeking retirement income. The size and scope of these annuitized payments depend on the performance of the portfolio in which the variable annuity is invested, as well as the age of the investor and the current level of interest rates. (See also: Annuity)
Variable Costs -
These are the costs that change over time, like the price of gas or your monthly utility bill. (See also: Fixed costs)
Venture Attorney -
A lawyer who specializes in the ins and outs of getting a new business, or “venture,” off the ground. This person will help your budding business with things like incorporating and fund- raising.
Venture Capital -
Venture Capital: This comes after seed money. And if you need it, you will have to give up some control of your idea and company to the venture capitalist (VC) or a venture capital firm giving you the money. The VC will give you the money you need only if they think you have potential (i.e., ability to make them money). (See also: Seed Money)
Refers to a category of business. On my show, Hatched, each episode is a different product “vertical”: one week it’s pet food, one week it’s cosmetics, one week it’s food products, etc.
A schedule that a company gives you, for stock or matching funds in your 401(k), that you don’t see the benefits of all at once but rather accumulate them over a period of time. If you leave the company before that period, say five years, is up, you may only get a portion of the money you would have gotten if you’d stayed the whole five years and became fully “vested.”
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.
Wall Street Journal, The -
Wall Street Journal, The: Also known as simply the Journal, it is one of only two national newspapers in this country (the other is USA TODAY). If you want to know about the financial world, the markets, or anything business, you want to get a subscription pronto.
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.”
White Knight -
A company or person that swoops in during a hostile takeover to buy a company and does so on terms that are favorable to that company (like
letting the management stay in place) when another company attempts a buyout. (See also: Hostile takeover)
White Space -
Borrowing from the idea of a printed page, white space is where there is no print— in business, it’s the space in an industry or market for a new
business to enter. If the market is saturated, there is no white space. If there’s no one else doing what you’re proposing to do, then that white space is yours for the taking!
X: Mutual funds all have ticker symbols that end with X. That way you can distinguish them from other stocks. It’s good for them because they have more ticker options—lots get snatched up by other companies and you can’t have two the same! (See also: Ticker Symbol)
Year on Year -
Measuring the current value of something, such as a business, against its value exactly a year earlier, to see how (and ultimately why) the business
has performed as it has.
Yield: The interest rate you get paid when you buy a security, expressed by percent. With a bond, you’ll notice it has something called “YTM,” “yield” or “yield-to-maturity,” which tells you the rate of return you will receive if you hold the bond until maturity. For example, if you buy a ten-year $10,000 at 6% “yield,” you’ll receive $600 per year for ten years, on top of the $10,000 you originally invested. Stocks also have yields, often called dividend yields. Invest $10,000 in a stock with a 3% dividend yield and you’ll receive $300 per year in cash.
Zombie Company -
This ill- fated company needs to be put out of its misery: it keeps trudging along and draining resources, even when it’s basically done- zo
and looks like death.
Zombie Debt -
Zombie Debt: This is a debt you’ve had so long you may have spaced that you still owe it, and chances are the company you owe it to has given up on ever seeing it, too. But it can still come back to bite you if the debt gets turned over to a debt collector; those guys will hound you relentlessly until you pay up.