All financial industries use acronyms for words that are anything but common, and they can be confusing. There are so many, and it can be very intimidating if you don’t understand. It can also be the cause of financial errors that can raise your personal costs. I find these acronyms to be overwhelming when not clearly defined. So I’ve made a CHEAT SHEET to share with you! The most common banking and financial acronyms broken down.
APR – Annual Percentage Rate
NAV – Net Asset Value
P&L – Profit and Loss
GNP – Gross National Product
IRA – Individual Retirement Account
Deflation – the result of sustained price decreases in an economy; indicates that the economy is weakening (contracting)
Economic Depression – extended major recession that significantly impacts an entire economy; expected to last at least a year along with a big reduction in GDP
Inflation – the degree to which there are sustained price increases for certain items within an economy; leads to a reduction in the buying power of money
Negative Equity – a situation in which someone owes more money on an asset than it is worth; sometimes referred to as “being upside down”
Bear Market – refers to economic conditions in which stock prices are dropping; tends to occur when an economy is shrinking (contracting)
Bond – a debt-based investment that represents a promise to pay from the bond issuer; the bond issuer owes money to bond investors on a certain date
Bull Market – refers to economic conditions in which stock prices are rising; tends to indicate what investors would consider a healthy or sound market
Gross income vs Net income:
Gross Income is the amount of money that a business makes by selling the product or service. For individuals or employees, it is the income without deducting (subtracting) the expenses. Another term for this gross profit is the profit before other expenses are taken into account.
Net Income, on the other hand, is gross income – total expenses. For individuals, net income is defined more loosely and can refer to gross income net expenses (or your take-home pay). For cash flow purposes, net income is the equivalent of net pay. This is the total amount you’ve earned during a pay period, minus the following deductions and taxes:
- Social Security taxes
- Medicare and Medicaid taxes
- Health Insurance
- Retirement contributions
- Wage garnishments
- Child support
Adjusted gross income (AGI) is the figure used by the Internal Revenue Service to determine a taxpayer’s eligibility for certain tax benefits. AGI is calculated by adding together all qualified income and subtracting all qualified deductions. It is in the taxpayer’s best interest to get their adjusted gross income as low as possible. Lower AGI qualifies the taxpayer for more tax benefits and ultimately results in a smaller tax bill.
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