Must-Know Financial Terms Part 2

Financial literacy is vital to confidently and effectively managing your finances, no matter the situation. Having a good base of financial knowledge can help make meeting a goal that much less stressful. Taking the first step in learning important financial terms can greatly assist in helping you avoid financial pitfalls—and Steve Lynch Wealth Management is here to help you take that first step.

As part of an ongoing series, we’ve defined a few must-know financial terms to get you started toward a more responsible financial future. Familiarize yourself with some of these terms below, and reach out to our team to get started. No account minimums means you can start small but think big!

Capital Gains: Capital gains is the increased value of an investment, asset, or personal purchase that occurs when sold. The realization of capital gains isn’t finalized on paper until the investment, asset, or purchase is sold and taxes are deducted from both short-term and long-term gains.

Amortization: Amortization is a series of scheduled payments used to lower a loan’s amount to eventually close out the balance. Amortization helps to delegate a budget in order to pay off debt based on the set amount, interest, and the schedule depending on the amount of time needed to pay off the loan.

Defined-Contribution Plans: Defined-contribution plans are tax deferred retirement plans such as the 401(k) or 403(b). They are offered by employers and are dependent on regular contributions from the employee, which are then grown until the set retirement date.

Cash Flow: Cash flow refers to the movement of net worth for incoming income and investments, and outgoing expenses a person or household has. 

Adjusted Gross Income (AGI): Adjusted gross income (AGI) is the total amount of income after deductions from any loans, payments, or contributions are made, and aids in calculating total taxable income for end-of-year taxes. AGI can also affect the amount of tax deduction eligibility depending on certain types of retirement plans such as a Roth IRA.

Liquidity: Liquidity is a measure of how easily cash can be pulled out of an existing asset without affecting its current value. Held assets, like housing or investments, each have varying degrees of liquidity with cash being the most—as you can simply buy immediately with cash—whereas housing takes longer to liquify depending on market conditions.

Annual Percentage Rate (APR): Annual percentage rate (APR) is yearly interest generated by lenders that needs to be paid in order to borrow the money. This number can then be used by a potential borrower to compare between separate lenders, credit cards, or investments in order to find the best possible rate, and to figure that interest into an existing budget.

Collateral: Collateral is what a lender will accept as a security measurement for a loan. Collateral may be real estate or other assets held by the borrower, where failure to make a payment on the loan results in the lender taking ownership of the collateral in order to resell for losses.

While these terms will help you get started towards better understanding your finances, it’s important to have a financial plan in place as well. That’s where Steve Lynch Wealth Management is ready to step in—we’ll help you work toward your goals with assistance from our knowledgeable financial advisors in Albuquerque. Turn to us, and when you’re ready, we’ll help you get started toward a better financial future.