Want to buy your own home? Start your own business? Take time to travel? None of this is possible if we’re not in control of our finances—or working toward these goals financially.
I don’t know about you, but I didn’t learn anything about money growing up. We’re not taught money-management in school, and as women, we never discuss money—and this is a problem because so many of us don’t have the financial-know-how we need. This means we have to start figuring things out—and we mean STAT.
As in so many things in life, knowledge is power—so that means we need to understand our finances in order to live the lives we want and deserve. Luckily, Ellevest, a unique digital investment platform for women, launched “The Go-Getter’s Guide To Investing,” a free guide that breaks down investing for a female audience (Yasss!), providing a money cheat sheet for all of us newbies.
“Money is power, independence, freedom, and living the lives that we want — lives that our mothers and grandmothers couldn’t have imagined,” Sallie Krawcheck, co-founder and CEO of Ellevest, tells Style Salute. So, no matter what stage you are in your life, there are ways to take your finances into your own hands.
To help you understand money terms, we’ve sifted through information from the Ellevest Resource Center, Nasdaq, Investopedia, Turbotax, and more to create a short list of all the words you’ve probably come across when managing your money—and what they actually mean. Ready? Let’s get into it!
Here are the basic money terms every single woman should know (because independence feels pretty incredible).
Basics: Investing vs. Saving
INVESTING: 10% is the average annual return the stock markets have produced since 1926. This includes the lowest lows: The Great Depression, the massive slide after September 11th and the financial crisis of 2008. Source: The Basics for Investing in Stocks.
SAVING: …and the average interest rate on most savings accounts is actually below 1% — about 0.06%. People tend to think of saving as the “safer” route, but it’s not that simple. Source: CNN Money.
When You Start Thinking of Gains
Albert Einstein once said: Compounding is the 8th wonder of the world
“Returns” are what they sound like — the money that comes back of you from market gains or losses. Leaving gains in place gives you the opportunity for compounding: earning money on top of the money you earn.
*It’s unclear if Albert actually called compounding the “8th wonder of the world” or “the most powerful force in the universe.” Source: CBS News.
When You Want to Budget Your Income
50% to Needs: Half of your pay should cover the essentials: food, home, clothes, etc.
30% to Fun: Seriously. The stuff that gives your life texture: shows, trips, dinner out with friends, whatever makes your life all yours.
20% to Savings/Investing: This what Ellevest defines as money for “future you.” Her needs and wants should be covered too.
When You Want to Understand Stocks
Your stocks, bonds, and alternatives should be diverse too. You want broad exposure across different markets so you have a better chance to ride out the volatility among any one of them.
DIVERSE STOCKS: Think about stocks from different-sized companies, in different industries, and from different countries.
DIVERSE BONDS: Think about domestic and international government and corporate obligations.
DIVERSE ALTERNATIVES: These can include foreign and domestic real estate, natural resources, and even commodities like gold and wheat.
When You Check Out a 401(k) Plan
Roth 401(k): A retirement plan offered that’s by your employer where you can set aside part of your salary. Money put in this account is taxed when it’s withdrawn, which is presumably when you retire. Source: RothIRA.
Rollover: In financial speak, a rollover is a transfer of funds from one retirement plan to another, meaning when you transfer funds from one retirement fund to another. This often happens when you change jobs and your new employer offers a different retirement plan. Source: Nasdaq.
Roth IRA: IRA stands for “individual retirement account.” Roth IRAs are essentially a tax-efficient way to save for your retirement. In financial speak, it’s a special retirement account that you fund with post-tax income. Source: RothIRA.
Standard Deduction: A “no-questions-asked” tax write-off that reduces your taxable income. Standard deductions make it so that all taxpayers have at least some income that is not subject to federal income tax. Most people (two-thirds) opt for this kind of tax deduction rather than itemizing every expense. If you forgot to save receipts from the year, this option is for you. Source: TurboTax
Withholding: In financial speak, withholding tax is income tax withheld from your’ wages and paid directly to the government by your employer, and the amount withheld is a credit against the income taxes the employee must pay during the year. It also is a tax levied on income (interest and dividends) from securities owned by a nonresident as well as other income paid to nonresidents of a country. In lamens terms, it is the amount of money held from your wages each paycheck to cover your Social Security taxes each year. Source: Investopedia.
And Finally, When You’re Ready to Invest
Bond: Bonds are money you loan to a company or government, with the promise that they will pay you back in full, with regular interest payments. Source: Nasdaq.
Market value: The price a security (stock) is trading and could be purchased or sold for. It’s what investors believe a firm is worth. Source: Nasdaq.
Average yield: The average yield on an investment or a portfolio that results from adding all interest, dividends or other income generated from the investment, divided by the average of the investments for the year. Basically, it is the income return on your investment. Source: Investopedia.
Float: Float is created when a bank credits a customer’s account as soon as a check is deposited. It is the number of a company’s shares that are available for trading. Source: Investopedia.