A Home Equity Line of Credit (HELOC) is a type of home equity loan that establishes an account the borrower can draw upon as desired, with a maximum outstanding debt limit similar to a credit card.
A Guide to Understanding Hybrid ARMs: A mortgage offering both fixed and adjustable interest rate periods.
A Hybrid Pension Plan is a general term encompassing pension plans that incorporate elements of both defined-contribution and defined-benefit plans, offering versatility in retirement planning.
An income standard in standard costing refers to the predetermined level of income expected to be generated by an item to be sold. It is often applied to a budgeted quantity to determine the budgeted revenue.
An income stream refers to the regular flow of money generated by a business or investment, essential for evaluating financial health and planning future strategies.
Income tax is a tax imposed by governments on individuals and businesses based on their earnings within a fiscal year. Understanding income tax is essential for compliance and financial planning.
An incremental budget is prepared using a previous period's budget or actual performance as a basis, with incremental amounts added for the new budget period. It often fails to account for changed operating conditions.
An Independent Financial Adviser (IFA) is a professional who offers unbiased financial advice to clients and recommends suitable financial products from a wide range of providers.
Projects that are independent of each other in a comparative appraisal and are not mutually exclusive, allowing for the possibility of pursuing all given favorable circumstances.
An Individual Retirement Account (IRA) is a retirement savings account that provides tax advantages for retirement savings in the United States. It is designed to help individuals set aside funds for their retirement.
A provision of the IRA law enabling persons receiving lump-sum payments from their company's pension or profit-sharing plan due to retirement or other termination of employment to roll the amount over, tax-free, into an IRA investment plan within 60 days.
An Individual Voluntary Arrangement (IVA) is a formal, legally-binding agreement between an individual and their creditors to pay off debts over a set period, usually managed by an insolvency practitioner.
An insurance settlement involves receiving proceeds from an insurance policy. The terms of the settlement are outlined in the policy and may include options like immediate lump sums or periodic payments.
An Inter Vivos Trust, also known as a living trust, is a legal arrangement established during the lifetime of the grantor, typically for the benefit of another person, such as a child. This differs from a Testamentary Trust, which becomes effective upon the death of the trust creator.
Interest earned on dividends from a participating life insurance policy left on deposit with the insurance company and subject to taxation.
Refers to a period between the short and long term, with its specific duration varying depending on the context. For example, stock analysts typically consider it as 6 to 12 months, whereas bond analysts usually think of it as 3 to 10 years.
An Investment Advisory Service is a professional service providing personalized investment advice and financial planning in exchange for a fee. Investment advisers must register with the Securities and Exchange Commission (SEC) and comply with the Investment Advisers Act.
The time span from the acquisition of an investment to its final disposition. It encompasses all relevant investment contributions, cash flows, and resale proceeds, providing the best measure of the rate of return from the investment over its entire duration.
An investment objective is a financial goal that an investor aims to achieve, guiding them on the type of investment suitable for their needs. For example, an objective focused on capital growth might lead to investing in growth-oriented mutual funds or individual stocks, whereas an income-driven objective could direct investments toward income-oriented mutual funds or stocks.
An investment strategy is a plan to allocate assets among various investment choices such as stocks, bonds, cash equivalents, commodities, and real estate. An effective investment strategy considers factors like interest rates, inflation, economic growth, the investor's age, risk tolerance, available capital, and future capital needs.
An irrevocable trust is a type of trust that cannot be altered, amended, or terminated without the consent of the beneficiary or beneficiaries. It is typically set up to provide asset protection and tax benefits.
A level-payment income stream is a series of equal cash flows received or paid at regular intervals over a specified period. Often associated with annuities, it ensures a constant amount of payment or income in each period.
Life Assurance is an insurance policy that pays a specified amount of money on the death of the life assured or, in the case of an endowment assurance policy, on the death of the life assured or at the end of an agreed period, whichever is the earlier.
A life beneficiary is a party entitled to the use of or income from property during their lifetime. Upon their death, the property's benefits typically pass to another individual, often referred to as a remainder person.
The lifetime exemption pertains to the total amount of gifts and estate transfers one can make without incurring federal gift or estate taxes.
Loan amortization refers to the reduction of debt by scheduled, regular payments of principal and interest sufficient to repay the loan at maturity. It is a fundamental concept in financial planning, allowing borrowers to understand how their loan is repaid over time.
In life insurance, a lump sum refers to a single payment made instead of a series of installments. This is typically issued to beneficiaries upon the policyholder's death.
The difference between the level of activity at which an organization breaks even and a given level of activity greater than the breakeven point, especially the forecast level in a breakeven analysis. The margin of safety may be expressed in the same terms as the breakeven point, i.e., sales value, number of units, or percentage of capacity.
The master budget is the final coordinated overall budget for an organization, which includes functional budgets, the capital budget, the cash-flow budget, and the budgeted profit and loss account and balance sheet for a specific period.
Job expenses and other miscellaneous expenses that are deductible by individual taxpayers but do not fall under medical expenses, taxes, interest, charitable contributions, casualty and theft losses, or moving expenses.
Modern Portfolio Theory (MPT) is an investment strategy aimed at balancing risk and return by systematically constructing diversified portfolios. This involves including both risky and risk-free securities that exhibit some degree of counteracting performance.
Mortgage debt refers to the amount of money owed under a mortgage, which is a type of loan used particularly for financing the purchase of real estate.
A multi-tied adviser is a type of financial advisor who represents several financial institutions and can offer products from a limited range of providers.
Net Estate is the portion of a decedent's estate that is subject to estate tax after all allowable deductions such as debts, funeral expenses, and administration costs have been subtracted from the gross estate.
Net residual value is an important assessment in accounting, business valuation, and asset management, representing the final estimated value of an asset after accounting for depreciation and other expenses.
An operating budget is a comprehensive financial statement displaying projected revenues and expenses in a business. This budget helps in day-to-day decision-making and ensuring the effective allocation of resources.
Opportunity cost is the economic cost of an action measured in terms of the benefit foregone by not choosing the next best alternative. It plays a critical role in decision-making by considering the returns that could have been earned through alternative investments or actions.
Parking refers to the strategy of placing assets in a safe and liquid investment temporarily while evaluating other investment opportunities.
Participative budgeting is a budgeting process where various levels of management are involved in setting the budget. This method aims to boost ownership and accountability, ensuring that performance benchmarks reflect the input of those who are responsible for meeting them.
A private pension plan credit given to an employee’s past service with an employer prior to the establishment of a pension plan. Usually, a lower percentage of compensation is credited for benefits for past service than for future service benefits.
Past Service Liability refers to the obligations to fund an employee's benefits in a pension plan for their prior service before entering into the pension plan. It is a crucial element in pension planning and impacts the financing of future benefits.
Payday refers to the specific day set by employers on which employees receive their wages or salaries, typically in the form of paychecks or direct deposits into their bank accounts.
An arrangement between employer and employee whereby a specified amount of money is deducted from the employee's pay and invested for the employee in stocks, bonds, or other investments.
A Pension Freeze refers to the situation when a pension plan sponsor decides to eliminate future pension accruals for plan participants, although the plan itself remains in existence to pay out already accrued pensions.
The Personal Financial Specialist (PFS) designation is awarded to qualified CPAs (Certified Public Accountants) by the American Institute of Certified Public Accountants (AICPA). It signifies that the individual has met the requirements and demonstrated expertise in personal financial planning.
The Personal Financial Specialist (PFS) is a certification granted by the American Institute of Certified Public Accountants (AICPA) to CPAs who specialize in financial planning. It demonstrates expertise in areas such as estate planning, retirement planning, investments, and insurance.
PITI is an acronym representing the four primary components that make up a borrower's monthly mortgage payments: Principal, Interest, Taxes, and Insurance. Understanding PITI is crucial for both lenders and borrowers to ensure accurate financial planning and loan repayment.
A policy loan is a loan issued by an insurance company that is secured by the cash surrender value of a life insurance policy. The amount available for such a loan is contingent upon various factors.
In the world of finance, a portfolio refers to the collection of investments held by an individual or institution. This diversified set of holdings could include stocks, bonds, commodities, real estate, and other assets.
Pre-approval is a critical step in the mortgage application process where a lender agrees to provide a loan amount to a borrower under certain conditions. It signifies a preliminary agreement from the lender, boosting the borrower's bargaining power during home purchasing.
The precautionary motive is the cause of an action taken to prevent something undesirable from occurring. For example, a homeowner puts the car in the garage at night to prevent it from being stolen.
A predetermined overhead rate is an estimated rate used to allocate overhead costs to products or job orders before actual costs are known. This rate is usually computed in advance of operations and often covers a fiscal year.
The principal budget factor, also known as the limiting factor or constraint, refers to the element or resource that imposes a limitation on the organization’s budgeting process and overall production capabilities.
A critical component of an organization's operating budget, the production budget outlines the volumes and costs associated with producing goods within a set period, ensuring effective budgetary control.
A profit-sharing plan is an agreement between a corporation and its employees which allows employees to share in the company's profits. Contributions are made annually by the company to an account for each employee, accumulating tax deferred until retirement or departure. Employees may be able to borrow against these funds for major expenditures.
A comprehensive budget set for the purchasing function of an organization under a system of budgetary control, planning the volumes and costs of purchases to be made in a budget period, typically analyzed by material and accounting period.
Purchasing power refers to the quantity and quality of goods and services that a given amount of currency can buy. Changes in purchasing power are influenced by inflation and deflation. This concept is crucial for both businesses and consumers as it impacts economic decisions and financial planning.
Refi, short for refinanced mortgages, refers to the volume of mortgage loans originating from the refinancing of existing debt. This financial process involves replacing an existing mortgage with a new one, typically to achieve better interest rates, reduce monthly payments, or alter loan terms.
A type of life insurance policy that allows the insured to renew the coverage without providing evidence of insurability, regardless of physical health.
An invitation from an insurer to continue an insurance policy that is about to expire by paying the renewal premium. The renewal premium is shown on the notice; it may differ from the previous premium, either because insurance rates have changed or because the insured value has changed.
The period over which a product or fixed asset will need to be replaced owing to obsolescence.
Retirement involves withdrawing, leaving, or departing from a particular activity or situation, often referring to the conclusion of one's career.
Retirement is the act of leaving active employment permanently, with income for the remaining years of life typically coming from sources such as Social Security, pensions, and personal savings.
A revenue center is an area within an organization designated for generating income without being responsible for costs associated with production or service delivery.
Risk vs. Reward is a financial concept that attempts to compare the potential fluctuations, especially the downside, with potential benefits to determine whether the proposed investment or cost is worthwhile.
A rolling budget, also known as a continuous budget, is a financial planning method that is regularly updated by adding a further budget period, such as a month or a quarter, while concurrently excluding the earliest month or quarter.
The Rule of 72 is an approximation used to determine the number of years required to double the principal at a fixed annual rate of compound interest. By dividing 72 by the annual interest rate, one can estimate the length of time it takes for the initial investment to grow twofold.
A sales budget is a financial plan that outlines projected sales volumes and revenues for a specific budget period. It serves as a critical component of the budgetary control system and aids in strategic planning and performance evaluation.
The term 'save' refers to the act of setting aside resources for future use, particularly in the context of finances and data storage.
Self-insurance refers to the process of protecting against loss by setting aside one's own money rather than purchasing insurance from a third party. This can be systematically done by establishing a reserve fund.
A Series EE Bond is a type of U.S. government savings bond that earns a fixed interest rate for up to 30 years and is guaranteed to double in value if held for 20 years.
Single Life Distributions are monthly annuity payments made to a retired employee for life from a retirement plan. These distributions are taxed when received.
Single Premium Life Insurance (SPLI) is a type of life insurance coverage where the policyholder makes a one-time lump sum payment to fully fund the policy. After this initial payment, no further premiums are required for maintaining the coverage.
Money used for the purpose of small current expenses; also called pocket money. This term often refers to a small amount of cash on hand for incidental expenses or discretionary use.
A trust fund created to provide financial maintenance for another while securing it with restrictions to guard against its unwise use. Spendthrift trusts are often created by parents for their children.
A static budget is a type of budget that remains unaltered even as the activity levels or revenue and expense volumes change throughout the budget period. It is commonly used for fixed costs and for assessing management performance.
The process of distributing a tax charge among different sources of income to ensure appropriate tax liability allocation.
A Tax Deposit Certificate is issued by HM Revenue and Customs (HMRC) to a taxpayer who has made an advance payment for future liabilities such as income tax, capital-gains tax, or inheritance tax. It offers an interest-bearing option for managing tax obligations efficiently.
A tax exemption refers to a statutory provision which reduces or eliminates the obligation to pay a financial charge (tax) that would otherwise be imposed by a governing body.
A tax exile is an individual who relocates to a country with more favorable tax conditions to avoid high taxation in their home country.
Tax Rate Schedules provide predefined percentages applicable to various income ranges, crucial for the taxation process of individuals and entities. These schedules must be utilized by taxpayers with taxable income of $100,000 or more, while others typically use detailed tax tables.
Tax selling involves selling securities, usually at year end, to realize losses in a portfolio, which can be used to offset capital gains and thereby lower an investor's tax liability.
An investment option where accumulated earnings are not taxed until the investor takes possession of the assets.
A tax-effective procedure is one that aligns with tax legislation and leads to a reduction in the tax burden, offering financial benefits through strategic planning.
A tax-free designation refers to any payment, allowance, or benefit that is not subject to taxation, providing financial advantages to recipients without impacting their taxable income.
Termination of a plan refers to the cessation of a pension plan, done either through a standard termination or a distress termination method. Each approach has specific legal and financial implications.
A tied adviser refers to a financial adviser who is connected to a single institution or a limited number of financial institutions, limiting the range of products and services they can offer.
The time value of money (TVM) concept, key to discounted cash flow calculations, posits that cash received earlier is worth more than the same amount received later due to the potential earning capacity of money. Conversely, future payments are valued less than payments made in the present.
A Totten Trust, also known as a payable-on-death (POD) account, is a type of trust where the assets are designated for a beneficiary, but the grantor retains control and the right to reclaim the assets. When the grantor dies, the assets pass to the beneficiary, but not until they have been included as part of the grantor's taxable estate.
A trust fund refers to real property or personal property held in trust for the benefit of another person. The trust fund's principal or body is called the corpus.
A trust instrument is a legal document that creates a trust and stipulates its terms, trustee, beneficiaries, income, and corpus disposition.
Unearned income refers to income that is not derived from active work, such as wages, salaries, or professional fees, but from investments, savings, or other passive sources like dividends, interest, and rental income.
The Uniform Gifts to Minors Act (UGMA) is a legislative framework adopted by most U.S. states to govern the distribution and administration of assets gifted to minors. It allows minors to own assets without requiring the services of an attorney to establish a special trust.
An uninsurable risk is a risk that is considered too extreme or too difficult to quantify, thereby making it undesirable for insurance companies to provide coverage.
A life insurance policy that combines the features of universal life insurance and variable life insurance, allowing policyholders to direct excess interest credited to the cash value account based on investment results in various separate accounts such as equities, bonds, and real estate.
Upfront charges are fees that are charged to homeowners at the time of closing a real estate purchase. These include various costs such as points, recording fees, mortgage title policy, appraisal, and credit report.
Usage rate refers to the speed at which a commodity, raw material, or other resource is used up. It measures consumption over a specific period and is crucial for managing inventory, production schedules, and financial planning.
Variance Analysis identifies the deviations in financial performance by analyzing the differences between planned financial outcomes and actual results, helping organizations make informed decisions and improve their operations.
A Voluntary Accumulation Plan is a financial strategy subscribed to by a mutual fund shareholder to accumulate shares in that fund over time. The shareholder decides both the investment amount and the investment intervals.
A voluntary plan, short for voluntary deductible employee contribution plan, is a type of pension plan where the employee elects to have contributions (which, depending on the plan, may be before or after-tax) deducted from each paycheck.
