11 Finance Terms Every Millennial Needs in Their Vocabulary

  1. 401(k) – We hear this word on the radio, TV and from friends. Basically, your 401(k) is a retirement account that is a hodgepodge of stocks, bonds, and other holdings. A chosen percentage of your paycheck will be delegated to this account to help buildup your retirement. Most companies provide some type of contribution to a certain limit to match your annual contributions. It is always recommended to max out your company’s matching.
  2. FICO – A 3 digit number that can save or cost you thousands of dollars! Dramatic yes but true at the same time. FICO score tells a company the likelihood of you paying back a loan on time and will give you certain interest rates based on that likelihood. Your score is a mix of credit history, credit utilization, timely payments, number of hard inquiries and credit mix. Having a higher score you grant you a lower interest rate the majority of the time, which can save thousands of dollars in interest.
  3. Keeping Up with the Joneses – So this may not be an official “finance term” but it is a must know in our day of social media. It is an idiom that refers to the comparison to one’s neighbor as a benchmark for social status. Rule of thumb here is do not keep up with the Joneses because they are either broke or can afford it. Keep to your own standards and do not seek to impress others.
  4. 529 plan – Being a millennial you know all to well about the costs of college tuition. The 529 plan is a college savings plan for your future/current children. It is operated on a state level and it’s main purpose is to set money aside for college costs. The money grows tax-free and will not be taxed when the money is taken out. Some states offer residents full or partial tax deductions for contributions to the plan.
  5. Compound Interest – This type of interest can work wonders for you or against you. The interest to the principal sum of a loan or deposit is called compounding. The compound interest is interest on interest. You will find compound interest in money market accounts or loans you have taken out. For more information to read on this click here (include compound interest blog).
  6. Dividend – If you own stocks you may already have received a sum of money quarterly that you have shares in. Dividends are paid quarterly to shareholders and the money can come out of company’s profits or reserves.
  7. Roth IRA – A type of individual retirement account that allows the contributor to set aside after-tax income. Great for young investors starting in their career. Withdraws are tax free after age 59.5 years.
  8. Money Market Account – This type of account is an interest-bearing account which means your money in this account will grow interest. In the early 2000s the rates were around 5% but since then have decreased significantly. A good interest rate for these accounts are 1% at this time. Talk to your bank to see what interest percentage you have in your account and switch if need be. Make your money work for you.
  9. Bear Vs. Bull Market – The concept of these types of markets is how investors describe the market at the time. We are currently in a bull market (A bull horns will strike up) which means investors believe the market is doing well. During this time stocks prices are on the rise and there is optimism about the economy. On the contrary in a bear market (A bear slashes down) investors believe the market is doing badly. A bear market will indicate signs the economy is bad and recession can’t be far behind.
  10. Mutual Fund – An investment program funded by shareholders where the funds are managed by a professional team of investors. Some programs offer low monthly deposits for beginners. Cons can include, charge fees and distributions are taxed at the long-term capital gain rate. The portfolio is diversified and the main goal is to beat the market.
  11. Net Worth – I saved the best for last! Your net worth is total assets minus total liabilities. It is used when figuring a company’s or a person’s financial value and is a great tool for self-evaluation. I strongly encourage you to figure your net worth and keep track of your progress.

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