Money Words: G to O
The vocabulary Rich Sense is built from, explained the way someone would explain it to you rather than the way a bank would.
Gross
A total before anything is taken out.
Gross pay is what you earned. Net pay is what arrives. The gap between the two surprises people their whole lives.
Index fund
A fund that simply holds everything in a market index rather than trying to pick winners.
Cheap to run, which is why the fees are low, which is a large part of why it tends to beat more expensive alternatives over long periods.
Inflation
The general rise in prices over time, which means a given amount of money buys less than it used to.
Money sitting in a very low interest account is quietly losing purchasing power even though the balance is unchanged.
Interest
The cost of borrowing money, or the payment you receive for lending it.
You are on one side of this or the other almost constantly. It is worth knowing which.
Liability
Something you owe.
The mirror image of an asset. Your net worth is what you own minus what you owe.
Liquidity
How quickly something can be turned into cash without losing value in the process.
A savings account is highly liquid. A house is not. In an emergency, liquidity matters more than total value.
Margin
Profit expressed as a percentage of the selling price.
Often confused with markup, which is calculated on cost instead. The same sale produces two different percentages.
Market capitalization
The total value of a company's shares, calculated as share price times number of shares.
Shorthand for company size. It tells you nothing about whether a company is profitable.
Markup
The amount added to your cost to arrive at a selling price, expressed as a percentage of that cost.
Double your cost and you have a 100 percent markup and a 50 percent margin. Mixing these up loses real money in wholesale deals.
Mutual fund
A pooled investment where many people's money is managed together across a range of holdings.
Check the expense ratio before anything else. Fees are the most predictable thing about any fund.
Net
What remains after deductions.
Net income, net pay, net worth. Whenever you see the word, ask what was taken out to get there.
Net worth
Everything you own minus everything you owe.
A single number that tells you more than your income does. It can be negative, and for most people it is at some point.
Opportunity cost
What you give up by choosing one option over another.
Money spent on one thing is not available for another. So is time, which is the version people account for least.
Overhead
The ongoing cost of running a business that is not tied to producing any particular thing.
Rent, insurance, software, utilities. Overhead is why a busy business can still be unprofitable.