MONEY LANGUAGE

Gross Income

Also known as gross pay is the total earned (pay) before taxes or other deductions are taken out. 

Net Income

Also known as take home money is the amount that is paid to you after taxes and deductions are taken out. This is the amount that is reflected in your paycheck. 

Gross Annual Income

Is the total of money that you earn in a year before taxes or deductions. 

Disposable Income

Is the total income remaining after taxes and expenses that is available to be spent or saved as you wish. 

Debt To Income Ratio (DTI)

Debt-to-income ratio measures the amount of debt you have to your overall income. 

Net Worth

Measures your wealth. It is calculated as your assets (what you own) minus your liabilities (what you owe aka your debt).

Assets

There are two types of assets- liquid assets and illiquid assets. 


Liquid Assets-

Are possessions or investments that can be turned into cash pretty quickly with little or no loss of value (savings, checking, investments, certificates of deposits, stocks). 


Illiquid Assets-

Are investments or possessions that are difficult to convert to cash quickly (real estate, balance in retirement accounts, cars, partnerships in business).

Liabilities

Liabilities are debts. Anything from credit cards balance, car loans/notes, home mortgages, student loans, personal loans, business loans.

INVESTING LANGUAGE

Asset Allocation

Is your plan for investing, the way you distribute the investments in your portfolio between stocks, bonds & cash. You control the risk of your portfolio with asset allocation. 

Stocks

When you buy a stock, you're buying shares of a company.

Shares

Shares are what your stock is divided into. 

Fixed Income

Fixed income investments are typically considered conservative investments because you can expect a set influx of cash. Bonds are example of fixed income. 

Risk Tolerance

Is your reaction to potentially losing money. Low risk tolerance a.k.a risk averse means you're putting your money with lower yields like bonds (which are safer). 


Aggressive-

Means you're willing to take more risk because you have more time (usually your 20s).


Moderate-

Means you're willing to take some risk but want to keep it a bit more save (usually 40s-50s)


Conservative-

Means you want none to zero/low risk because you will need your money soon or want fixed income (usually late 50s-60s) when you're ready to retire. 

Compound Interest

The main reason why investing early and consistently go hand in hand with building wealth. It is earning interest on interest. Your money earns interest on the whole amount and not just on the principal. 

Capital Gains

Is when you make profit on your investments by selling it for more than you paid. That profit dosn't occur until you actually sell your investment. 

Vesting

Is something that is given to you BUT you don't own right away. Instead, it gradually becomes yours, a little bit at a time. 

There are 3 types of westing schedule: Immediate, Cliff and Graded. 


Immediate-

The money is yours as soon as your employer matches your contribution. 


Cliff-

You will get all the money as long as you wait the vesting period. 


Graded- 

A percentage of the employer match vest each year. Meaning you could get nothing on year 1 and start getting a percentage the following years.