401(k) Plan A retirement savings account partially funded by employer contributions (often referred to as a company or employer “match”) which allows employees who contribute to postpone or “defer” paying the income tax on their contributions and earnings accumulated by those contributions until they take out or “withdraw” that money after retiring. Without the company match, a 401(k) may not be as good as an IRA that you have yet to contribute the maximum to. (Historical reminder: Buying your employers stock with your retirement money is probably not a good idea. Remember what happened with Enron and Worldcom. The people who made millions off their employers stock are the exception (it doesn’t happen very often), not the rule. More often it’s the people who invest in their employers stock in their 401(k) or receive their employers stock as a matching contribution for retirement or allow their employer to pay them in stock options that the day comes when they (the employees) realize what they have in their account is basically worthless and there’s no turning back the clock to correct what has become a devastating financial loss for those who naively let it happen.
Asset Anything that makes you money can be considered an asset. If it brings you a positive cash flow, it’s an asset. If it puts money into your pocket it’s an asset. Some examples of assets would be Real Estate that provides you with a positive cash flow, your savings in your bank, debt that someone owes you and pays you with interest, etc. You get the idea. (Note: A person can be an asset to a team or group effort by the contribution of their talents or skills rather than providing a financial benefit.)
Bank a financial institution, often insured by the FDIC, to store or save your money that may or may not earn much interest.
Budget (or Budgeting) A means of controlling your spending and creating responsible personal financial habits so as to reach some desired goal. Often the best reason for saving money through a personalized budget is to create capital that can then be grown through wise investing (obtaining an ROI that will beat inflation and taxes enough to also create a surplus of money thanks to the fact that you did your moneymaking homework by researching to find great investments) to create wealth. This way you don’t have to live out your retirement years in a place that has so much junk in the front yard that people drive by always thinking you’re having a yard sale but are too scared to get any closer to see just exactly what it is that’s possibly for sale.
Budget Priorities To make sure you are budgeting the right things in the right order for the greatest chances for financial success. For the highest success, budget to pay tithing first (ideally you'll pay at least ten percent to your favorite church or charity), then you'll pay yourself by creating needed savings and investment accounts (emergency savings, then retooling and retirement accounts), then budget taxes, then insurance (primarily miscellaneous health insurance needs including dental) and then budget for living expenses and all other needs. Those who put savings last never seem to save enough to handle life successfully or learn that they probably need to earn more to save more and thus enjoy more of their own money.
To be truly financially self-reliant and charitable (by paying tithing), it is best to plan on pursuing employment that will bring in at least a half a million dollars a year. Pursuing entrepreneurial endeavors that most effectively utilize your talents (those things you seem to be naturally good at doing and/or most passionate about) while making the world a better place and praying to God for guidance to know you're on the right track for accumulating your wealth in the right ways and for the right reasons is the best and fastest way to achieve the financial success you desire. Seek to help others in your success and give God the credit for all of your blessings and the rights he so benevolently bestows upon us and miracles will happen for your good. Then teach others to do and experience the same. (And don't give up on doing what you know and feel is right for you to do when obstacles get in the way. When you make sure you're on God's side, things eventually work out.)
Business Owner Also known as an entrepreneur, when someone owns a business (usually a large business) but has a system in place that is proven reliable for 4 or 5 years, then the business owner who created the company and its system may eventually leave the business to run on its own and yet make even more money because he or she (the business owner) is not there but is out either opening anther franchise of that business or starting a different one while someone trustworthy keeps the first business running profitably.
Often times a business owner recognizes he or she has a good idea (such as Dave Thomas – the founder of Wendy’s fast food burger franchise) but cannot be the expert in everything nor can he or she be everywhere all the time. So, with the example of Dave, he hired accountants to help him track his money, employees to make burgers and drinks etc, attorneys to help with the legal aspects of owning and running a business, investment advisors to counsel him on how to protect and invest his profits etc. Usually the person with the idea for a business will have an active role in creating the system for the first 4 or 5 years or longer and then eventually lets go (yet still maintains ownership) by delegating responsibilities to others so that he or she may grow the business in other ways.
Once you have a proven business system in place (where it shows steady growth for the first 5 years or more and you know who will handle what responsibilities to keep it running smoothly etc) then you can begin to look into expanding by adding more locations. By the time Dave Thomas had over a dozen successful Wendy’s restaurants in operation, it became clear that the opportunity for Wendy’s restaurant franchises was his future. Owning successful franchises is a key to making tens of millions to hundreds of millions in profits. McDonalds is certainly an extreme example of this. (See also Entrepreneur)
Capital Money you invest or any form of affluence that is used to create more affluence.
Capital Gains Tax Taxes on profits from the sale of an investment such as stock.
Charitable Self-reliance This is a form of self reliance where you actually practice one-on-one, face to face charity rather than passing the buck by sending someone in need to someone else. The primary reason so many churches and other charitable non-profits go into the red in their local charitable budgets is because too many people have been passing the responsibility to care for those in need to someone else. When we work with the goal of becoming wealthy enough to be in an economically independent position to personally provide money and other assistance generously to the poor on a one-on-one, face to face basis –– of our own free will, without being pushed to do so by someone else and especially without expecting reimbursement for it (because we don’t need reimbursement)–– then we are practicing charitable self-reliance. It’s this practice that keeps local churches and charities in the black with their charitable budgets and better able to care for those in need when no one else is available or willing to help.
It’s better to give to someone that asks for help rather than to withhold in skepticism because if you don’t give to someone that asks for help and claims a need because you think they are lying BUT then you find out from God after you get old and die that the person who asked really was telling the truth and really did need the money or help for good reasons, then God will blame you and hold you accountable if you decided not to help someone in need when you could have helped them. If you are in a position of power to help them, such as having the money they need, but you don’t help them then you could be at fault in God’s eyes for whatever challenges the person in need had because you withheld your help.
On the other hand, if someone asks you for help, such as for money, and you help them and if they were lying then that’s on them and they’ll have to answer to God for lying to you. You’ll get a stamp of approval from God for following the Christian virtue of generous charity. You’ll get a stamp of approval for treating them with kind belief rather than cold skepticism because kind belief is charitable.
So by giving to someone that asks you for help, when you can give them whatever help you can, you can’t be wro
ng. That’s an important way we can ‘love one another.’ It’s the best route to take because you can’t go wrong by helping. But you can be wrong if you don’t help when someone really needed it but they may not have had the time or the circumstances or ability to prove they were telling the truth and needed the help they were requesting. So just help when you can. Besides it’s the true Christian thing to do. (You may want to remember that the next time you pray for the Lord’s generous blessings in your life and you don’t want Him to turn you away –– especially when you’re asking for forgiveness of sins.)
Company (Business) A group of people that handle the running of a commercial or industrial operation.
Contract A legal document (usually expensive pieces of paper because of the combined cost of expertise and needed paperwork to make it enforceable by law) that outlines an agreement often between two or more competent people (or companies) that offers rewards for doing what you agree to do and consequences for breaking the rules. A contract is ultimately a binding agreement used for two or more people who are trying to work together to achieve a basically unified goal. Contracts are a large part of doing business in the world of money and investments.
Debt Money owed to an individual or business. But you probably already knew that. Ultimately, those people that are the most financially successful and live with integrity have no debt. None. They don’t owe anyone any money ever.
But if you have to use debt, keep in mind that there is good debt and bad debt. Good debt has a low interest rate and the money is used to eventually increase your net worth – such as a small business loan or a college loan or a mortgage with a large up front payment (at least 50% up front or a.k.a. “the down payment”) to buy a home. Bad debt is usually in the form of those plastic cards in your wallet known as credit cards when you only pay the minimum balance on them. Bad debt often has high interest rates and the money is often used to pay for things you really don’t need and that often depreciate in value. Really bad debt is when you purchase on your credit card 10,000 Rubber Ducky Sponge Bath collectors items “just in case.” (“Just in case” of what – I don’t know.)
Defined Contribution Plan Created decades ago to primarily save money for employers, defined contribution pensions put the burden of saving for retirement primarily on the employee (who often do not earn enough money to properly assume the tremendous responsibility of saving and investing for their own future retirement). Because defined contribution plans limit the level of contributions that can be made to the plan, unless the investments get absolutely stellar returns on a continual basis (such as a minimum 16% or more ROI) the employee simply will not be able to accumulate a sufficient amount needed for a secure retirement (primarily because the employee can't contribute enough 1) due to rule limits and 2) because of the employees insufficient income during his or her working years.
But even with a stellar return of 16% ROI it is still not enough to overcome the eroding power of taxes.
Although defined contribution plans are often praised for allowing employees the choice of where to invest their account, this isn't always the case since many employers make the primary decisions about the account choices and since the employer is looking to save money for themselves, this often results in poor account selections for employees. Also, even when employees are given the choice, too often they are not educated enough in matters of investments to recognize what makes a good investment for their unique circumstances (as every person must be considered unique in order to get the best financial advice) and when they do pick the right account for their needs, they too often don't earn enough to begin with to save enough each year for retirement.
So although the older practice of employers providing defined benefit plans that didn't offer the option for employees to participate in the account selection process, employees didn't need to participate (and often weren't educated enough in matters of financial literacy specific to investment decisions to best do so) since the employer paid often for the best experts to help them to get the math right so that faithful employees who gave their best work for several decades of loyal service wouldn't feel ripped off after such dedicated service to their employers. But since defined contribution plans are far more common today, many employees no longer expect their employee retirement plan to accurately reflect their value as an employee after several years of loyal work for their employer.
Common defined contribution plans of today are the 401(k), 403(b) and 457 plans. The choice by companies to move the liability of successful retirement savings and planning onto employees via the concept of the defined contribution plan may prove to be one of the biggest contributing factors to what may very likely be seen as one of the largest financial catastrophe's to have ever hit multiple generations (beginning with the baby boomers) since the Great Depression.
The fact that most major corporations have switched to offering more defined contribution plans to save money begs the question that, if a major multibillion dollar corporation can’t afford to pay for an effective retirement plan for an employee then where is the logic in thinking that the average lower income employee can afford it? If big companies can’t afford to set aside the minimum twenty five percent or more needed to ensure a sufficient retirement income for each employee, then where is the logic in thinking that the average employee, who earns no where near the billions that big companies do, can afford it?
This is yet another reason for people to do all that they can to find the entrepreneurial spirit within them to create their own wealth through career choices that make the world a better place and allow them the greatest chance to earn six figures or more (ideally a half a million dollars or more per year) and to give back by tithing first and teaching others to do likewise through their own efforts towards true financial self-reliance as only the power of entrepreneurism can bring.
Dental Insurance An insurance policy that covers or pays for a portion of various dental related procedures and services such as cleanings, fillings, extractions etc. Dental costs in any given month can be the most expensive health related costs a family can face, paying easily four to five times the amount compared to other typical doctor related expenses such as seeing a doctor for flu related symptoms or keeping a doctor’s appointment to deal with a skin rash. If you’ve ever had a really bad toothache, you know how important dental insurance is to have when you least expected you’d need it. Word to the wise: If you don’t have enough (or any) dental insurance – get it as quickly as you can.
Remember, the first stage of effective digestion to optimize your chances for obtaining the maximum nutritional benefit possible from any meal, begins in the mouth. (And most dentists will probably tell you it’s best to floss daily the teeth you want to keep. Usually that’s all of your teeth.)
Disability Insurance Insurance that covers you by providing money in the event you become unexpectedly disabled (like from a car accident) and cannot work. It’s a good idea to have a good disability insurance policy (as well as good health insurance) as a part of your emergency preparedness plan (which includes having at least six to twelve months of emergency savings to cover all of your personal or family living expenses in the event you become unemployed or temporarily disabled) before you start to save money for investing.
(Reminder: Your emergency savings is never to be used for investing. Ideally it is after you have twelve months of income and needed supplies set aside for emergencies that you would then begin to set aside money for investing.) If you are not self-employed (where you own your own business) many times you can get disability insurance at a discount through your employer. And if you’re one of those people who thinks “I could never become disabled. That would never happen to me…” then you’re like a lot of people and should therefore go back and read the previous definition of bankruptcy –– especially the last few lines of it.
Living your life without disability and health insurance and then getting into an accident or getting a crippling disease
is a great way to have your life fall apart financially for years in ways that are incredibly difficult to overcome. You’d be surprised how many people are in homeless shelters or are living out of their car because they got sick unexpectedly (after previously having great health) and were not prepared financially. Don’t let that be you.
Emergency Savings Something people too often don't save and plan adequately for. Unexpected financial emergencies are a key factor in why many people unrepentantly become homeless. Emergencies that are 'unexpected' are considered such usually because of either denial or a lack of intelligence (or more accurate understanding) regarding proper personal financial planning and budgeting. Common unexpected life problems that are often expensive to solve are: medical (health) problems, a loved ones unexpected major needs (spouse, child, parent etc), property damage (home or car), income loss (job loss, death of spouse, divorce, investment losses) and legal problems (litigation – prosecution or defense needs) are some of many problems that can occur in life when you least expect it or worse, when you can least afford it. It is imperative that an adequate emergency savings be in place at all times throughout life.
Because most of us are not wealthy, we must do our best to work towards greater financial self-reliance so we can properly support ourselves during an emergency and teach others to do the same. For some, the least amount needed for an emergency savings is roughly sixty-five thousand dollars and it could go up to one hundred and sixty-five thousand dollars or more. Every time money is used for an emergency that money needs to be replenished as quickly as possible. The two primary reasons most American's do not have a sufficient emergency reserve in place is due to an inadequate annual income earnings (low paying employment) and because people make the financially fatal mistake of putting the goal of savings at the bottom of their budget to be done last if at all.
So to solve the problem of emergency savings deficiencies, earn enough income each year (ideally five hundred thousand dollars minimum or more), live frugally and put savings for emergencies (as well as for retirement and retooling) near the top of your list right after tithing (which should come first). Just make sure that your emergency savings are 'highly liquid' which means it's easy to access and use (like cash or gold) or easy to convert into cash such as money market fund shares or US Treasury bills. Using 'illiquid' investments is a mistake for emergency use since illiquid investments (such as stocks, bonds or commodities that are not actively traded on the market) are harder to sell quickly without experiencing a large loss.
Those that earn a sufficiently high income and save enough for all emergencies are basically self-insured. Those Americans that are wealthy enough to be self-ensured through honorable career and budgeting efforts tend to sleep better at night than those that struggle to pay their own bills due to their low income and high debt.
Employee Someone who works for someone else.
Employer Someone who hires someone to work for them.
Entrepreneur One who owns a business and therefore often assumes any risks in that business. Entrepreneurs make up a significantly large portion of the demographics for millionaires and multimillionaires. If you are an entrepreneur, you choose your own hours of when you work and you choose who you work with. Although it provides great freedom in many ways, it comes at the price of risk. If you are careful with your spending, planning and time, and if you do your research and work with the right experts to increase your chances of success (making calculated risks) by following their advice, you will enjoy your work more because you will have a greater likelihood for success. Entrepreneurs are many times good for the economy as they provide more jobs –– especially when they provide better paying jobs.
An Entrepreneur who focuses on making the world a better place is one who practices higher, more noble strategies as an entrepreneur who earns their income with integrity and high moral values. Honorable entrepreneurs provide products and/or services that truly bless the lives of others such as improving medical technology (for both humans and animals), providing high quality education (including high quality financial literacy), advancing automotive safety technologies, supporting families, and helping people to become better in as many good and noble ways as possible (such as strengthening their faith in Jesus Christ) and gives back to his or her community by donating to good causes or through creating philanthropic programs that truly bless the lives of others and make the world a better place.
This usually means they avoid selling destructive products and services such as alcoholic beverages, tobacco, gambling, violent entertainment (such as extremely violent video games or extremely violent movies) or things that are sexually explicit in any way or support the adult entertainment industry through pornography etc. (See also Self-employed Business Owner)
Familiarity Something you must have with any investment you are thinking of putting money into. Yes, this usually means doing your profit producing homework to make sure it’s a good investment that you’re comfortable with and have some confidence in. A good example might be choosing to invest in a large oil and gas company versus a snow boarding and athletic apparel company. If you snow board regularly, know the brand names that are the best, read up on what’s new and basically live and breathe the snow boarding lifestyle because you love it – yet the only thing you know about the oil and gas industry is that it somehow is connected to the convenience store where you buy snow boarding magazines and gas for your car so you can catch the next fresh powder of snowfall – then you might want to stay away from the oil and gas industry and look more closely at considering the industry you already love: that of winter recreational activities such as snow boarding and the industries related to it (winter athletic apparel, snow boarding manufacturers, winter ski resorts etc).
The same principle applies to real estate versus commodities. If your dad managed a gold mine for 30 years and you worked there for a few years before graduating college, you may be more up to date on gold as it relates to the commodities market. If this were the case then you may be more comfortable and confident in your decision making regarding gold related market trends and investment opportunities than any real estate investing that you’ve never ever done before.
Fee Only Advisor Professional advisors who charge an hourly rate for services and make no money on clients who follow their plan. Not commission based advisors.
Financial Literacy A concept whose time has come! To be sufficiently educated about money and investing for the purposes of being truly financially self-sufficient with integrity and being able to teach others (such as your children and your children’s children etc) to do the same. It’s a great ulcer prevention program when understood and applied correctly. It can be taught at almost any age but ideally it should be taught as early in life as possible; the sooner the better.
Fixed Income Investments Another way of describing an investment bond.
Fund A pool of money. (i.e. A mutual fund, insurance fund or pension fund etc)
Gain Money made as profits on the sale of an asset. When you sell a bond, stock, mutual fund or other financial investment for more than the purchase price a gain is realized.
Gold A mineral that’s considered a precious metal. It has intrinsic value which means it can never be worthless. (See also Precious Metals)
Health Insurance An insurance policy that usually pays a portion of your health related expenses such as doctors bills, prescriptions and inpatient or outpatient hospital expenses. Since medical bankruptcy is one of the leading forms of bankruptcy in the U.S., it is very unwise to live without sufficient medical insurance through an insurance company that is truly reliable meaning they actually have a good track record of honoring and paying the claims their clients submit (unlike some companies that are unethical in that they take your money but then suddenly tell you they won’t cover your medical needs once a real life-or-death emergency arises – such as Cancer.)
Homeless When you don't have a place to live on a regular basis becaus
e you can't afford to pay for your own housing. People who are homeless are often the most vulnerable to becoming victims of a variety of crimes. Many people that are homeless actually have a full-time job. They are known as the working homeless.
Hope – Something that gives promise for the future; an expectation of a fulfilled dream or promise. Hope is something each of us must have in order to exercise proper faith for both our temporal (financial) salvation and spiritual salvation. Do your best not to let anyone tear you from hope unless your expectations are extremely unrealistic. True friends help us to recognize realistic hopes vs. unrealistic hopes but tend to lean more towards optimism because miracles still happen. Many times miracles still happen even when doubters tell you something isn’t possible.
Generally speaking, when someone doubts a truly realistic possibility for an expectation for success that you feel justifies hope, the doubters either don’t understand the subject matter (of your hopes and/or dreams) well enough to see how it could work, or they don’t know (or believe in) God and His miracles very well or – worse – they don’t want you to succeed because if you succeed in reaching your dreams then they may no longer have a justifiable excuse for their own mediocrity. (And the worst of the worst is that they don’t want you to succeed because then they will lose a degree of power over you if they have aspirations against your freedoms or a lack of belief in your potential to wisely handle whatever freedoms you may receive in your success.)
Do well with your life and treat others with the proper kindness and respect and you’ll prove to them that you’re very capable of being responsible and noble with your independence. This often results in finding others who are also good, successful people (responsible with their wealth) who will support you in your freedom and success. It already takes a lot of determination to succeed even with a cheerleader, but you have to especially be one tough and determined person to make it financially when you feel that you yourself are your only cheerleader. Do what you can to surround yourself with those who give you the right hope and cheer you on to fulfill your noblest of aspirations and you’ll be far more likely to succeed.
Income A financial increase or gain that usually comes from labor (such as working at a job), or owning a business or from investment property (such as owning an apartment complex).
Individual Retirement Account (IRA) An account or fund that is tax-deferred and is used to save and invest money for retirement planning. IRA’s can be opened whether or not you are employed and are separate from a 401(k) and thus do not receive any employer matches or contributions. IRA’s, like 401(k)’s, have tax savings but IRA’s have more investing options than 401(k)’s (with IRA’s you have the whole market to choose from). As with most retirement accounts there are limitations to how much money can be put in (based upon your income) and there are fees and penalties for early withdrawal of funds. But be sure to check the tax laws to make sure they haven’t changed how an IRA is defined or operates.
Inflation A fact of life we all live with when consumer demand increases as it relates to the supply of goods or services which then causes a rise in prices of goods and services. Lots of demand and low supply brings inflation. An example would be that if the supply of toilet paper suddenly dropped (maybe because everyone at the toilet paper factories went on strike) to the point where only a few rolls could be sold to a single family per month – then the cost of toilet paper would rise higher than normal since there are more people with money to buy it than there are rolls to sell. (Probably Kleenex, napkins and paper towel costs would rise too since any one of them could be used as a substitute for toilet paper in an emergency.)
Not having your national currency backed by gold (or a bimetallic system) and then having a government print money and increase the national debt is a major cause for excessive inflation that can impoverish (create poverty among) the masses and impoverish a nation. To understand the risks of hyperinflation that historically quickly collapses (destroys the value of) a national currency, study to understand the practice of Quantitative Easing or Q. E..
Insurance A way for an individual or company to have a guarantee of protection or safety (usually financially – but not always). Insurance is something you get in writing (a “policy”) that provides coverage through a contract where your insurance provider (i.e. State Farm, Allstate or Geico etc – companies that are in the business of insuring people or property) agrees to guarantee you against a specified loss. Insurance can also be referred to in a specific total amount such as if a person says: “I have $1,000,000 in life insurance with a company and I need to increase it because it’s not enough to support my family long term in the event I die.” There are a number of different kinds of insurance. Examples of some are: life insurance, auto insurance, health insurance, homeowners insurance, renters insurance, fire or flood insurance and various forms of business insurance (such as medical malpractice insurance and Errors and Omissions (E&O) insurance).
Interest This is not the kind of interest you express in a new game you want to play or the kind you express when you really like someone. Again, like all of the other definitions here, this one has to do with money. There are basically two kinds of interest affecting what’s in your wallet or bank account. The first has to do with debt where the interest is a charge for borrowed money that is usually a percentage of the amount borrowed (i.e. Money is loaned through ABC bank with an interest rate of 15%). The second has to do with investing where the interest is the return received by money (or capital) on its investment (i.e. “I just had a great last quarter with my portfolio because I earned 18%!”). If you’ve ever heard the saying, “Those who understand interest earn it, and those who don’t understand it pay it” now you know why that is so often quoted by people who are working to be an Enlightened Millionaire in the making. (See also the definition of R.O.I.) Another meaning for ‘interest’ can refer to one’s ownership in a business or their opportunities to profit from a business.
Intuition This is often described as a feeling you get when you’re making a decision and you feel it’s either a good choice or a bad choice. It’s also called a “gut feeling.” This is something you should always listen to and never ignore. Just as with anything else, in the world of financial investments, your intuition can be helped along by learning all that you can about what you’re considering doing or investing in.
An example may be of when you’re about to sign an investment agreement to buy a thousand shares of a certain company’s stock, and you get an uneasy feeling and the thought comes to you of something like, “I still haven’t had the time to look at the company’s income statement, balance sheet, and cash flow statement –– especially since looking at its balance sheet and cash flow statement is a big factor in knowing if the company I’m about to invest in is actually viable (having a good chance for success). I really need to do that.” If you were to hypothetically get a thought like this –– especially if you’re also feeling hesitant –– that probably means you should wait to sign and hand over your money until you’ve looked at the things that you were thinking about (the company’s income statement, balance sheet and cash flow statement –– especially the balance sheet and cash flow statement) and then make your decision after you’ve finished your profit producing and loss preventing homework (research) on those things.
Whether it relates to money matters, moral matters or any other matter, when you follow through on your thoughts or intuition with serious decisions that make a big difference in your life or the life of others, you increase your chances of having a happier and more successful life as well as reduce the number of experiences of decisions made that you’ll regret. Intuition has a close cousin that is known as a “conscience” (also phrased as “having a conscience”) to help you decide in moral matters of right and wrong. It’s a great blessing when you listen to it and make right or good decisions. It can help you live a life with far fewer regrets.
Invention The creation of something (like
a device) after a lot of research and experimentation. A few examples are: the light bulb, the computer, air conditioning, the heart-lung machine and mobile phones (cell phones). Creating a new invention that makes the world a better place is a great way to help others while creating honorable wealth. Making improvements to existing inventions (such as smaller GPS devices for helping parents to keep their children safe in ways that are hard for child predators to identify or tamper with) is another way to create wealth honorably.
Invest When you invest, you are usually providing and committing money so that you’ll earn a monetary (or financial) return (profits). You can invest anywhere from $1,000 in an investment all the way up to millions or even billions of dollars (such as when buying an established successful company). An example might be when someone says, “I just invested $100,000 in my neighbor’s home business and she’s promised that in return she’ll pay me 10% on my money.” Or “My Mom invested $150,000 in Hologic stock in 2008 and she is going to show me how her investment has done over time.” When you invest a specific amount regularly (such as $200 a month into a mutual fund) then you are using the power of "Dollar Cost Averaging" which means that when the price of the stocks are high you'll buy less but when the price is lower you'll buy more. This can help reduce the average cost you're paying per share over time. Dollar Cost Averaging (DCA or a constant dollar plan) may be useful in reducing the risk of investing a large amount at the wrong time.
Investment (a. k. a. Security) – Money (as a sum) used for the purposes of creating income and/or profits. It can also be property (an asset) that’s bought.
Liability Anything that takes money away from you is a liability. If it doesn’t bring in money or profits for you, it’s a liability. Some examples of liabilities are: paying your electric bill, paying debt with interest (mortgage loan, credit card debt, medical bills, auto loans etc) making repairs to your car, buying a new TV or home stereo or new clothes etc.
Life Insurance A guaranteed amount of money to be paid upon an insured persons death to a specific beneficiary or beneficiaries (or person or people who will receive the benefits) by a company who is insuring that person according to a contract agreement (insurance policy) that the insured purchases from an insurance company. An example would be: “My dad pays every month for a life insurance policy of $2 million dollars in coverage since my mom wants to remain a fulltime choosing home mom if he dies and there are four young children in our family – one of which is disabled (my brother) and he will need care for the rest of his life. So when my dad passes, he’ll make sure that my Mom gets at least $1,600,000 and any of his children that are over the age of 18 can get $100,000. My mom also has a life insurance policy on her for my dad if she passes before he does. My parents really care about the financial future of our family.”
Loss Where the cost is higher than the selling price; opposite of profit.
Mompreneur A choosing home mom that also owns her own home business so she can be an entrepreneur while still remaining close to home to raise her children. There is a rising trend of mompreneur millionaires who have family as their top priority and manage to work their business around the needs of their family – a home and happiness success trend that doesn’t seem to be going away anytime soon. They learn from the best and follow the advice they receive and that’s the recipe for their success. It shouldn’t come as any surprise to learn that nearly all mompreneurs follow the enlightened path to millions by making sure they give back to others and their communities while still providing prosperously for their families in the process. Many of them either donate to their favorite charity or create a charity to bless the lives of others. And the moms who go the extra mile to only provide honorable products and services are often far more successful than those who choose a lesser path to wealth. Good for you!
Mortgage A legal document (another term for describing an often expensive piece of paper) that provides a transfer of rights to a piece of property commonly used as security (or collateral) for the payment of a loan or debt which becomes void when the debt is paid. If you aren’t paying a mortgage for the house you’re living in and you’re over the age of 18 then what you’re paying is a rent or lease (which is usually a waste of money – unless it’s a lease with an option to buy where at least a portion of the payments go toward the purchase of the home and then it’s not quite as much of a waste of money).
But for those that want to avoid getting into enormous debt then renting or leasing a home or apartment is a way to avoid huge debt for housing.
Those who have a high enough amount of steady income along with a good credit history (or good credit score) can get a mortgage. It’s true, you can get a bunch of tax breaks as you pay off your mortgage but it’s not truly an asset yet.
Anything you have to make payments on that does not bring you any profits (ROI) or residual income is, in my opinion, a liability. Although many people in the mortgage industry believe it’s acceptable for someone to use over ten percent of their income to pay for a mortgage, it’s a fast way to kill your budget and make you poor as you live paycheck to paycheck. Getting a mortgage often leads to greater dependence upon other debt such as credit card debt, car financing and payday loans. Although many in the mortgage industry will usually disagree, getting a mortgage is a terrible idea unless you pay a high percentage down (such as over 50%) and pay off the mortgage as quickly as possible –– such as within fifteen years or less. If you own property (a free and clear property title) that brings in positive cash flow then it’s an asset.
Mutual Fund A management company (open-end management company) that creates and maintains a diversified portfolio of investments that is actively managed, and then continually issues new shares and redeems old shares representing ownership in the portfolio. Other funds are passively managed and are often referred to as index funds. An example is an S&P 500 index fund that has very low fees and buys all the stocks in the S&P 500 index and holds them. If I put $200 a month into that fund then I could see how well it does over time because the man or woman who manages the fund ("manage" meaning he or she makes sure the right stocks are bought to produce the highest profits possible for the fund) will often provide a quarterly report (through the company they work for) that details why they made some of the decisions they made that could affect profits as well as forecasts of things that may affect the fund in the future so that investors can have confidence that the fund manager is always trying to get the best ROI for their clients (investors).
Passive Investing Investing money into an index fund (a mutual fund that duplicates a market index to try and assure the investment results are no worse (but possibly also not much better) than the overall market. Passive investing may increase profit potential since index funds charge less than active investments (such as ordinary mutual funds).
Patent A great way to amass wealth if you've invented something that can easily be sold and used to help improve the lives of millions of people. A patent gives you an exclusive legal right for a set period of time to use a process or to sell or make a specific product. Patents in the U.S. are issued by the Patent and Trademarks Office. As of 2009, utility and plant patents are good for twenty years and design patents last for fourteen years unless laws have changed those limits.
Pension Money paid to a person on a regular basis (monthly or annually) who is retired from service or from working for a company. Defined benefit pension funds are going the way of the dinosaur. Although that usually means it’s not good for average investors and employees, there may be circumstances where it may be a good thing since you might have more say in how the money in your 401(k) is diversified (for those wise enough to do their profit producing and money saving homework). Otherwise, a defined benefit plan may be better. Keep in mind that the 2006 Pension Protection Act can be a bit deceptive just judging by its name. One of the concepts behind it of automatic enrollment in your employers 401(k) can be a bad thing since it doesn’t encourage any real involvement in t
he decisions of your 401(k) regarding the allocation of your retirement capital (money).
Remember, letting your employer invest your money in company stock, generally speaking, has historically proven to be a big, naughty no-no. Historically speaking, more employees have lost their retirement money that way than those who have made it big. And also be aware that if your company has target-date funds as the default investment (also via automatic enrollment and instead of their own company stock) this “one size fits all” way of investing is not the best idea. It can cost you more than you realize. Just make sure you take an active hands-on approach with your money by doing your homework (research) and being more involved in the allocation of your retirement money. (See also Defined Benefit Plan and Defined Contribution Plan)
Philanthropy (Tithe) Financial donations used to fund nonprofit programs (often created by privately held companies) that help humankind to have a greater chance for success for good in various ways (such as increasing chances for true financial self-reliance through financial literacy and other educational opportunities or aiding people in overcoming challenges of health, domestic violence problems etc) If you’re worried about getting scammed by an organization that claims to be a support worthy not-for-profit, consider going online to see which charities are honest and actually give as they claim by checking out Give.org or CharityNavigator.org. Another way to get a good idea of how honorable a charitable organization is (although it’s not totally foolproof) is to consider donating to the church you attend or to a charity that you’ve volunteered with or have personally benefited from. Many people strive to donate ten percent of their income to their favorite church every month.
Portfolio Owning a combination of more than one asset (commodity, stock, bond, cash equivalents or real estate investment) by an individual or institutional investor usually in an effort to reduce risk of loss through diversification.
Portfolio Manager A professional who is accountable for handling the portfolio of securities owned by an individual or institutional investor.
Poverty The state of being poor; it's a lack of money (or a lack of material things). When someone says, “They live below the poverty line,” the term “poverty line” is a way that the government measures a level of family (or personal) income. To say that someone lives below that line is to say that he or she is poor. One of the largest indicators that our nation needs a variety of good financial literacy programs is the fact that approximately 94% of people continue to retire in poverty in the U.S. Sadly, poverty occurs right here in the most powerful and one of the wealthiest nations on the earth – the U.S. But by learning what we need to about money and taking personal responsibility for our financial security and independence, poverty can be significantly reduced and eventually become a thing of the past. Financial security happens one person at a time, one family at a time, one day at a time, one choice at a time (such as frugality or increasing income). Financial security can happen for you if you choose it by taking the right actions with integrity a little at a time, day by day by day.
Profit Another word for “gain.” Most people see it as the money made from an investment; a valuable return. It’s also considered to be the surplus of the selling price of goods over their cost or the money you make from selling something of value over the cost of the item sold.
Prosperity Thriving financial success.
Re-tool – To learn what you need to about business, money and investments so that you can achieve true and lasting financial self-reliance when your current ‘tool’ of employment does not adequately provide for your needs (even when you’re frugal with your money). Most people who have gone to college chose a career without doing the math to see if the career choice they made would truly be able to sustain them in life through both good times and bad. For those who got their degree and then struggled to make ends meet – even while living frugally – it’s time to retool for more income. Aim to earn six figures or more (about half a million dollars) if you want to be self-reliant enough to support a family and be charitable to others.
To earn that kind of money you have to pick the kinds of careers that pay enough – such as real estate investing, becoming a doctor (specialist), or a CEO of a large corporation etc. Do your best to find or create employment for yourself that best utilizes your talents (find that one thing that you’re really good at or passionate about) and will earn you enough to thrive financially. If you don’t think you have any talents – you’re wrong. God sends each of us to earth with at least one talent that if nurtured and developed (and ideally used to help make the world a better place) can be turned into a form of employment that can help you thrive and be a blessing to your family and others.
For most adults today, retooling is a must do – not a should do – if they’re going to make it financially. Otherwise, kids, it’s time to plan on earning a significant amount of money consistently throughout your adult life so that you can not only provide well for your own family (marriage and kids) but provide money for your parents too. For many baby-boomers, their retirement will only be prosperous with the help of their own children (many of which, unfortunately, never learned what it takes to be truly financially self-reliant either – so they’re likely struggling too.)
Real Estate Investor A person who invests in either residential real estate (homes or apartments), commercial real estate (office buildings usually in commercially zoned locations) or raw land (undeveloped land where no homes or buildings have been built yet). Another aspect of Real Estate investing is the opportunity to invest in Notes and Tax Lien Certificates (paper). Real estate investing has often been one of the fastest ways to accumulate wealth.
Residual Income This is one of the best ways to ensure real, lasting financial success. The concept here is you do the work needed just one time and then get paid over and over and over again for a long time even though you only did the work once. The best example of this is how God does it. He creates one apple tree but the apples from the tree each have multiple seeds in them to provide the benefits of literally an entire orchard of fruit trees. Another example is when a movie producer sells a movie in theatres across the nation and then as DVDs. Other examples of this are when music artists, photographers, novelists, inventors and franchise creators make a product to sell for several years to come. One method of receiving residual income is through payments as royalties in perpetuity.
Many multimillionaires and billionaires have achieved their great financial success because they have multiple honorable sources of residual income. They maintain that success by adding new residual income sources regularly (such as several times each year).
Retirement A time in life when you stop working at your career and therefore no longer work to earn money. Retirement has often been seen as a stage in life you enter at or around the age of 65. Most people who successfully support themselves during retirement do so with money they have put into an investment when they were much younger (such as starting in their early twenties) to grow their money over the years (usually over several decades) to prepare them for being able to retire by having that investment begin (when he or she is 65) to provide the person retiring with money to pay for their needs and wants until they die.
You may have heard your parents say, “Your grandfather is retired, so he doesn’t go to work anymore.” This is the time when many children realize that grandpa doesn’t work at the country club’s golf course. He actually just plays golf all day long. But for many baby boomers and the younger rising generation who have become multimillionaires, retirement is a period of time that is reached earlier in life and is planned to be a time for realizing lifelong dreams beyond golfing all day long.
For those with a more noble perspective, one would never really “retire” from “working” since their “work” isn’t really work as much as it is fun because they do what they love (by best using their talent(s) and in the process are making the world a better place by serving others. Doing what you love an
d getting paid well for it while helping others is a concept that is far better than retirement and is becoming a more preferable option and happier reality for more and more people.
Retirement Funds (Also called “Retirement Savings” or “Retirement Portfolio”) An investment you put your money into over the years that hopefully earns a high enough rate of return to eventually pay for your retirement.
Return On Investment (ROI) A percentage amount earned on an investment. R.O.I. is a good way to compare companies to see how well they are managed and how successful their products are.
Risk a vulnerability (or exposure) to potential injury or loss. In the world of finance it’s the possibility that an investment will lose money or value. Different investments have different levels of risk. (See also Calculated Risk and Risk Tolerance Test.)
Risk Tolerance As much risk as you may be comfortable experiencing from an investment.
Risk Tolerance Test A test you can take where you answer a series of questions that will provide an investment risk tolerance profile of you based on your answers. The test basically shows how educated you are about financial planning and various investment strategy scenarios so that both you and your financial advisor know how much risk you can comfortably stand to achieve with your investment goals for your current stage of life. There are portfolios that claim to invest based on certain levels of risk such as an aggressive portfolio strategy, moderately aggressive, moderate, moderately conservative and conservative strategy. The more conservative you are, the less risk you can handle. The more aggressive you are in your investment style, the more risk you can handle. (See also Calculated Risk and Risk.)
Roth IRA Also an account used for retirement but are different from traditional IRA’s and 401(k)’s in that contributions made to a Roth IRA are with after-tax income and are therefore not tax deferred. The good news here is that in a Roth IRA you don’t have to pay taxes on your investment gains. Just follow the rules created and your earnings in the Roth IRA are totally untaxed (tax-free). Since you’ve already paid taxes on your contributions, the rules are less strict for withdrawals. You can withdraw the full amount any time without paying penalty fees. (Historical note: This is very similar to how the 401(k) began several decades ago but then the government changed the rules for the worst simply because they could. Time will tell how long the Roth IRA will remain in this nearly ideal investing form.) Roth IRA’s are even better when you’re starting out young (with time on your side to grow your money) and are in a low tax bracket.
Saving To put aside money as a reserve often to be used at a later date for a specific purpose. You may be used to thinking of saving as something you do with an extra piece of pie to be enjoyed later, but the sooner you start thinking of saving in financial terms, the more pie you can enjoy later. Start getting into the habit now of saving enough money and you can enjoy more of any kind of pie you want. And for those who would like to save others from poverty or some other bondage (be it emotional or spiritual etc) the same principle applies. If you want to be a great philanthropist, begin a habit of saving and stick with it. Unless you do this, your philanthropic dreams will remain just that – dreams – and never become a reality. Always save money as a part of your wise investment strategy while diligently increasing your income with integrity (since saving and living frugally are not all we can do to be financially self-reliant). Remember that to save a modest amount does not mean to save an insufficient amount.
Self-employed Business Owner This is the man or woman who has the “do-it-yourself” mentality. Although many business owners and entrepreneurs begin their business this way, it can have its drawbacks since the only way for these people to make money is to show up for work. If he or she gets sick, who will do the work that needs to be done to make money? The Self-employed Business Owner cannot create nearly as much wealth as a Business Owner can. Some examples of self-employed business owners are: doctor’s (dentists, surgeons, pediatricians etc), artists, actors, athletes, teachers, delivery drivers, etc. (Compare to Business Owner.)
Self-funded Philanthropy – A great way to donate to causes you care about since the more successful your for-profit business endeavors are, the more empowered you are to start your own nonprofit charity to help others.
Self-reliance The ability to provide what you need for your life in the way of food, water, clothing, shelter, transportation etc. It is another way of describing financial independence. To be self-reliant means you don’t need your parents to give you money or provide food or anything else for you. It also means you don’t need bank debt or credit card debt or any form of government grants, welfare or loans. It’s the ultimate lifestyle choice for financial freedom and nearly all other freedoms.
Social Security If you’re an employee then you may have noticed on your paycheck stub that it’s an amount of money taken out of your paycheck (FICA taken from your earnings) to be paid into Social Security. Social Security is basically a program developed by the government once upon a time, long, long ago, that our grandparents could depend on to provide money for them in their retirement so they could have something else to rely on other than their pensions. This program is believed by many individuals to be no longer sufficient to rely on.
Stock A small piece of a company often sold as “shares.” You can become a partial owner of a business by purchasing shares of a company (as evidenced by stock certificates essentially expensive pieces of paper). In order to have any decision making influence on a company you own shares of stock in, you usually must own at least five to ten percent in stocks first (often as common stock). This basically buys you a seat at the company’s annual meeting. You’ll probably have to provide your own doughnuts though if you were hoping for anything beyond the reports, budgets, investment plans and forecasts often discussed at these meetings. Ideally you’re hoping for the stock to rise and make you more money in honorable ways and where possible, also pay you a dividend. This should be your primary focus rather than looking for ownership opportunity to tell them you think the carpet on the 4th floor in the presentation room should be blue rather than beige.
Remember: The only amount of money you should have in stocks or bonds is only the amount you can afford to lose.