Money is a concept that evokes strong emotions. Making matters worse is that fact that terms associated with money and money management can be confusing.
If you don’t speak personal finance, this blog post will help you to navigate through some of the financial jargon that too often clouds our judgment and renders us incapable of making informed decisions.
Especially if you are just embarking into the world of business, here are your top ten must-know money terms de-coded.
- Discretionary Expenses
These are the costs that you incur that are not fixed or mandatory. Discretionary expenses often include eating at restaurants, entertainment or hobbies. Think about these as things you want, rather than need.
- Return on Investment
This term refers to the benefit you realize as a result of money that you have spent. More specifically, ROI measures the profitability of your investment by dividing the gain realized by the cost.
- Registered Education Savings Plans (RESPs)
While this is a personal (not business) consideration, it is important to understand. In an RESP account, earnings can grow tax-free for up to 25 years, or until the funds are withdrawn. If RESP funds are used for qualified tuition, the income earned is then taxed in the hands of the student, who may in fact be in a lower tax bracket than the parent who was contributing to the RESP. Additionally, the Canadian government provides a grant of 20 per cent on the first $2,500 of annual contributions towards RESPs, and that grant can be higher for low- and middle-income families.
- Registered Retirement Savings Plans (RRSPs)
Contributing to an RRSP allows you to both save for retirement and also receive a tax break. Income earned is usually exempt from tax as long as funds remain in the RRSP plan.
Insurance is protection against any kind of eventuality – a fire, an accident, illness, etc. When determining your financial plan, you should always consider purchasing a responsible amount of insurance to protect against risk.
- Balance sheet
A balance sheet is an itemized financial statement that lists all major assets and liabilities of a company at a certain point in time. A sheet is ‘balanced’ because the two columns (assets and liabilities) offset one another.
- Bottom line
This is a bit of a slang term that refers to the profit, or earnings, of a company. This is usually reflected in the bottom line of a profit and loss statement, hence the term. It generally refers to profit before tax.
A budget is a financial plan that indicates projected revenues and expenses over a specified period of time. Usually, a budget is used for control purposes, to ensure that practices line up with intentions.
These are the amounts that an organization owes, such as accounts payable, taxes, and wages that are normally to be paid in the course of a year.
- Working capital
Working capital is the current assets owned by the business, less the liabilities.
We could have easily built this list out to 100 terms. There is a lot of confusion when you begin to plan financially for yourself, and your business. If you need help navigating through the jargon, do not hesitate to contact Miller Bernstein for your free consultation.