Individual Financial Planning, LLC.

Debit Card: A debit card is issued by a bank to allow an individual access to his or her funds without having to physically go to the bank. A debit card can be used to withdraw cash from an automated teller machine (ATM) or to make purchases at merchant locations. At the time of use, funds are immediately deducted from the checking or savings account linked to the card.

 

Debt: Debt is the legal obligation, written or oral, to deliver a product, service, or cash.

 

Debt-to-Equity Ratio: The ratio of total debt to total shareholder equity indicates the level of capability for repayment of outstanding creditors. In addition, long-term debt as a function of shareholder equity indicates the degree of leveraged money to improve shareholder rates of return.

 

Decreasing Term Insurance: This term insurance policy has a death benefit that decreases over time. Decreasing term insurance is often used in conjunction with a mortgage or other amortized debt. For example, a holder of a 30-year mortgage may also hold a 30-year decreasing term insurance policy to cover the mortgage if he or she dies before it is paid off.

 

Deed: This document identifies legal ownership of real estate, and it used to transfer ownership from a seller to a buyer.

 

Deferred Annuity: This type of annuity pays an income or lump sum at a future date, as specified in the terms of the contract.

 

Defined Benefit Plan: This employer-funded retirement plan is designed to pay a predetermined benefit based on an employee’s years of service and salary or wages. Employer contributions adjust annually on an actuarial basis, and the employer is responsible for all investment selections and decisions.  

 

Defined Contribution Plan: Through this retirement plan, an employer sets aside a certain amount or percentage of salary each year for the benefit of employees. In contrast to defined benefit plans, the employer contribution is fixed, but the employee benefit is not. Some plans allow employees to make voluntary, individual contributions and to choose the investment mix of their individual monies. 

 

Deflation: The opposite of inflation, deflation is the reduction in the price of goods and services. Deflation can be caused by a decrease in the supply of money or credit, or by a reduction in spending by individuals or the government.

 

Dependent: A dependent is a person who relies on another for financial support. A taxpayer who supports a dependent is allowed to claim dependent exemptions.

 

Deposit: A deposit is a portion of funds used as security or collateral for the delivery of a good. It is also defined as a transaction involving the transfer of funds to another party for safekeeping, such as money put into a bank account.

 

Depreciation: Depreciation is the decrease in value of a fixed asset during its projected life expectancy. The Internal Revenue Service permits several processes to calculate annual depreciation amounts over asset life expectancy, resulting in certain tax consequences. Depreciation can also refer to the decrease in value of one currency in relation to another.

 

Derivative: The characteristics and value of this financial instrument depend on the value of an underlying instrument or asset, typically a commodity, bond, equity, or currency. Examples include futures and options. 

 

Direct Rollover: A direct rollover is the tax-free transfer of money or property from the trustee or custodian of one qualified retirement plan or account to another.

 

Disability-Income Insurance: This policy pays a portion of the insured’s income in the event that temporary or permanent total disability prevents the insured from working.

 

Discount Broker: A discount broker buys and sells securities at lower rates than a full service broker. Discount brokers generally do not offer all the services of full service brokers, such as research and advice.

 

Diversification: This investment strategy is designed to reduce the risk of investing in a single industry/market sector or a small number of companies by spreading the risk over several industries/market sectors or a larger number of companies. The operating assumption is that diversified investments are unlikely to all move in the same direction, allowing gains in one investment to offset the losses of another.

 

Dividend: A dividend is a distribution of earnings to a shareholder of a corporation or mutual fund, or to mutual life insurance policyowners, generally paid in the form of money or stock.

 

Dollar Cost Averaging: This method invests a fixed dollar amount in securities at set intervals, regardless of market prices. With this approach, an investor buys more shares when prices are low, and fewer shares when prices are high. This generally results in a lower average cost per share than if the investor had purchased a constant number of shares at the same periodic intervals. An investor should consider his or her financial ability to continue through all types of market conditions. Dollar cost averaging will not assure a profit or protect against loss in a down market.

 

Double Taxation: Double taxation is the result of tax laws that cause the same earnings to be taxed twice. Business profits and income of sole proprietors, partnerships, and S corporations receive taxation only at the individual taxpayer level. However, C corporations experience taxation at the corporate level, and shareholders pay taxes on dividends.

 

Dow Jones Industrial Average (DJIA): The Dow Jones Industrial Average is the price-weighted average of 30 actively traded blue chip stocks on the New York Stock Exchange (NYSE). The DJIA represents approximately 15% to 20% of the market value of NYSE stocks.

 

Early Withdrawal: An early withdrawal is the removal of funds from a fixed-rate investment before the maturity date or from a tax-deferred investment or retirement savings account before a pre-determined time. One example would be a distribution from an individual retirement account (IRA) taken before age 59½. Early withdrawals may be subject to a penalty.

 

Electronic Banking: Many banking institutions provide computerized network services that provide account holders access to their accounts by personal computer. Customers may make payments directly to stores, credit card accounts, mortgage companies, utility companies, and other creditors. Individuals having two or more bank accounts may also transfer cash between accounts.

 

Electronic Commerce: Electronic commerce, also called ECommerce, refers to the use of the Internet by an individual or business to conduct business, buy or sell goods, or provide or purchase a service.

 

Electronic Funds Transfer System (EFTS): Funds may be electronically transferred between accounts of buyers, sellers, and other individuals. This service allows for direct deposits or withdrawals without processing written checks.

 

Employee Retirement Income Security Act (ERISA): Most pension and retirement plans became subject to government overview and the establishment of several federal limitations and practices under ERISA in 1974.

 

Employee Stock Ownership Plan (ESOP): This employer-sponsored program encourages employees to purchase shares of their companies, thereby aligning the interests of a company’s employees with those of its shareholders. An ESOP may be part of a bonus or retirement package, and it may allow employee-shareholders to participate in the management of the company.

 

Endowment: An endowment refers to any assets, funds, or property that is donated to an individual, organization, or group to be used as a source of income. 

 

Equity: Equity can be defined as anything that represents ownership interests, such as stock in a company. Equity also generally refers to the difference between an asset’s current market value and the debt against it. For example, if you own a car valued at $15,000, but owe $10,000 on a car loan, your equity in the car is $5,000.

 

Equity Loan: This type of loan allows a homeowner to borrow against the accumulated equity in his or her home using the property to secure the debt. An equity loan may be structured as a line of credit the homeowner can access with a check or credit card.

 

Escrow: This independent third party agent or account assumes possession of a contract, a deed, or money from a grantor until completion of any outstanding obligations or commitments. Upon the satisfaction of all parties, the agent delivers the property held in escrow to the grantee.

 

Estate Planning: This process plans for the orderly administration and disposition of a person’s assets after he or she dies.

 

Estate Tax: These federal and/or state taxes are levied on the assets of a decedent (person who dies). Estate taxes are paid by the decedent’s estate rather than his or her heirs.

 

Excess Compensation: In a pension plan integrated with federal old-age, survivors, and disability insurance (OASDI), excess compensation is the amount above the specified amount upon which calculations for future benefits are based.

 

Executor: This person is named under a will to administer the distribution of the deceased’s assets as directed by the will. An executor is often a family member, a trusted friend, or a bank trust officer.

 

Family Limited Partnership (FLP): This partnership of family members can be a valuable tool for business and investment purposes. FLPs can help arrange for generational transfers, maintain control within the general partners, and reduce potential liability to the transferor and transferee. For financial planning purposes, FLPs may help preserve wealth, minimize taxation, protect against creditors, and facilitate estate planning.

 

Federal Reserve System (The Fed): This seven-member Board of Governors oversees Federal Reserve Banks, establishes monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed by the President, subject to Senate confirmation, and serve 14-year terms.

 

Fiduciary: A fiduciary is an individual who provides investment advice for a fee or who exercises discretionary authority or control in managing assets. Also, a fiduciary can refer to an individual, company, or association responsible for holding assets in trust and investing them wisely for the benefit of a trust’s beneficiary. Examples or fiduciaries include trustees, bankruptcy receivers, and executors of wills and estates.

 

Financial Aid: Financial aid refers to the financial support a student receives from federally and privately funded sources to attend college. Financial aid includes loans, grants, scholarships, and work-study programs.

 

Financial Statement: In terms of a business, a financial statement is a written record concerning the financial circumstances of a company, firm, or organization. Such a statement generally includes balance sheets, changes in retained earnings, profit and loss statements, cash flows, and other forms of financial analysis that are beneficial to management.

 

First-to-Die Life Insurance: This type of life insurance policy covering two or more people pays the death benefit when the first person dies.

 

Fixed Annuity: A fixed annuity is an investment contract sold by a life insurance company that guarantees regular payments to the purchaser for a specified period of time, or for life. The purchaser generally pays a premium either in a lump sum or in installments.

 

Fixed-Rate Mortgage: A fixed-rate mortgage has a set interest rate that will not vary for the life of the loan.

 

Floating Debt: Floating debt refers to the use of government Treasury bills or short-term corporate bonds, which, when continually renewed, pay off current liabilities or finance cash flow.

 

Flood Insurance: This insurance covers against losses that are a direct result of flood damage. Flood insurance is required by lenders if a property is located in a flood zone.

 

For Sale By Owner (FSBO): When the sale of a home is attempted directly by the owner, the owner assumes all fiduciary responsibilities involved with the execution of all legal contracts, documents, and transactions.

 

Foreclosure: A foreclosure is the legal procedure by which a mortgage holder, such as a bank, savings and loan, or private individual, can seize the property of a borrower who has not made timely payments on a mortgage. The lender must obtain a court order to seize the property, which it may then sell to satisfy the debt.

 

Forfeitures: Employees who terminate from an employer’s pension plan are forced to forfeit nonvested employer contributions. These forfeitures may be applied as credits to remaining employee accounts or used to offset future employer contributions, depending on the pension plan.

 

Franchise: A license may be granted by a business or company allowing a designee to sell and market its products or services in a fixed geographic area. Usually consummated with an initial cash requirement, the agreement may offer consultation, financing, promotional assistance, or other stated benefits on an arranged percentage of sales basis.

 

Fringe Benefits: Fringe benefits are opportunities and services offered beyond wages or salary in compensation for employment. They are not generally taxable to the employee, but they may have tax benefits to the employer. The employer contribution may be full payment, partial payment, or merely providing the opportunity for employee involvement. Some common fringe benefits may include paid holidays, sick days, paid vacation days, insurance coverage, or retirement plans. Other less common benefits are a company car, an expense account, and stock options. Fringe benefits are important in attracting and retaining key employees.

 

Front-End Load: This sales fee (load) is paid up-front by investors at the time they purchase an investment. The front-end load is deducted from the investment amount, thus lowering the size of the investment.

 

Futures: A future refers to an agreement to buy or sell a specific amount of a commodity or financial instrument at a set price on a specific future date.

 

General Ledger: The general ledger contains all the financial accounts and statements of a business, including its debits, credits, and balances.

 

General Partner: A general partner is presumed to be the authorized agent of the partnership and of all other partners for all purposes within the scope and objectives of the business. The term general partner refers to all the members of a general partnership, as well as all general partners of a limited partnership.

 

Gift: A gift is a voluntary transfer of assets or property from the transferor to the transferee with no compensation. The transferor cannot retain any incidence of ownership (e.g., control, possession, enjoyment, right to income, or power to designate persons who will receive benefits of ownership) after relinquishing control in the transferred gift.

 

Gift Tax: This tax is levied by the federal government, and some states, on assets transferred from one person to another. The tax rate increases with the value of the gift. The donor pays the tax, not the recipient.

 

Golden Boot: The golden boot refers to the offering of lucrative financial incentives or an extension of benefits usually to persuade an older employee to exercise the option for “early retirement.” This voluntary election by an employee helps avoid any conflict with age discrimination codes.

 

Golden Handcuffs: Additional benefits given to a valued and productive employee as an inducement to remain with the company are known as golden handcuffs.

 

Golden Parachute: A golden parachute refers to a benefits package secured by top executives if a layoff occurs due to a corporate buyout or takeover.

 

Government Bond: A government bond is a debt security issued by the US government. Two common types are savings bonds and marketable securities; both tend to have low default risk. Government savings bonds are not traded on any exchange; therefore, they are immune to market fluctuation. In contrast, "marketable" U.S. government securities, such as U.S. Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation-Protection Securities (TIPS), are commonly traded.

 

Grace Period: The grace period is the period of time after the due date of a payment during which the overdue payment may be made without penalty or lapse in contractual obligations.

 

Gross Estate: A person’s gross estate at the time of death is the total dollar value of his or her assets before taxes and other debts.

 

Gross Monthly Income: Gross monthly income is the total monthly income from all sources, before taxes and other expenses.

 

Group Life Insurance: This life insurance policy insures a group of people. Group life insurance is often provided by employers as an employee benefit, or by a professional association for its members.

 

Guardian: A guardian is an individual who has been given legal responsibility for a minor child or a legally incapacitated adult.

 

Health Savings Account (HSA): Commonly called HSAs, health savings accounts offer individuals covered by high deductible health plans (HDHPs) tax-favored opportunities to save for medical expenses.

 

Highly Compensated Employee (HCE): For benefit plan purposes,  a highly compensated employee receives compensation in the top 20% of all employees, is a 5% owner of the business, and exceeds certain annual compensation levels. This category is used in performing nondiscrimination tests.

 

Home Equity: Home equity refers to the difference between a property’s current market value and the sum of all claims against it. For example, a homeowner with a house currently valued at $200,000, and carrying a $150,000 mortgage, has $50,000 in equity.

 

Hope Credit: This federal tax credit gives families a tuition credit per student per year for the first two years of post-secondary education.

 

Household Income: Household income is the combined income of all household members from all sources, including wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest, and dividends.

 

Housing Ratio: Also called the front-end ratio or payment-to-income ratio, this ratio compares the monthly housing payment to total monthly income.

 

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