Napkins Archives – Napkin Finance

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Active vs. Index Investing

Pick Sides

Active and index investing are two different ways of choosing individual investments. With active investing, investors try...

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FICO vs. VantageScore

Settle the Score

FICO and VantageScore are two of the most common credit scoring models. Contrary to popular belief, you...

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Estate Tax

Death and Taxes

An estate tax is an amount that may be paid from your assets to the government after...

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Growth vs. Value Investing

Moves Like Buffett

Growth and value investing are two different approaches to investing in stocks. Growth investors aim to invest...

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P/E Ratio

At Any Price

The price-to-earnings ratio (or P/E ratio) is a way to evaluate whether a company’s stock is cheap,...

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Term vs. Permanent Life Insurance

Life Sentence

Term and permanent policies are the two main types of life insurance. With both types of policies,...

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Quantitative Easing

Easy Money

Quantitative easing is when the Fed (or another country’s central bank) buys up large amounts of bonds....

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Technical Analysis

Off the Charts

Technical analysis means using stock price charts to try to predict future stock price movements. It involves...

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HMO vs. PPO

Bill of Health

HMOs and PPOs are two different types of health insurance plans. HMO (or Health Maintenance Organization) plans...

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Sticking to a Budget

In It to Win It

Budgeting can be a lot like dieting. You start out with big hopes for dramatic changes in...

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Risk Tolerance

Appetite for Destruction

Risk tolerance describes how much risk you can (or should) be taking on with your investments. Investing...

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Paying Off Student Loans

Take a Load Off

It might seem like there’s only one way to pay down your student loans (namely: slowly, painfully,...

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Paying For Retirement

Into the Sunset

Retirement may seem like an abstract, far-off goal (unless you’re already independently wealthy or a 401(k) ninja,...

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Invisible Hand

Helping Hand

The “invisible hand” is an economic theory developed by Adam Smith. It proposes that when people act...

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Game Theory

Roll the Dice

Game theory is an economic model for predicting people’s decisions in tricky situations.

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Financial Aid

Lean on Me

Financial aid can refer to any of a number of types of assistance that help students afford...

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Filing for Unemployment

Pink Slip

Unemployment insurance is a government program that gives you money if you lose your job. Sometimes, life...

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ESG Investing

Do the Right Thing

ESG investing means investing in companies that do good (or at least don’t actively do harm). With...

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Credit

Permanent Record

Credit is, simply put, your financial reputation. Your credit history describes your record as a borrower, including...

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Business Plan

Best-Laid Plans

A business plan is a document that outlines your vision for your business. It describes your big-picture...

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Paying Down Debt

Get Low

Paying down debt can make you more financially secure and give you more flexibility when deciding what...

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Venture Capital

Nothing Ventured, Nothing Gained

Venture capital (or “VC” for short) is a type of financing for startup companies. Venture capitalists invest...

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Target-Date Funds

Bullseye on Retirement

A target-date fund is an investment fund that’s based on your expected retirement date. These mutual funds...

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Fiscal vs. Monetary Policy

Tax and Spend

Fiscal and monetary policy are two tools the U.S. government can use to help the economy stay...

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Market Capitalization

Size it Up

Market capitalization (or just “market cap”) is a measure of a company’s total value. If you ever...

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Recession Shapes

Give Me a V

A recession is an economic downturn that lasts for at least several months and ripples throughout the...

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Medicare

Free for All

Medicare is a health insurance program for retirees that is sponsored by the federal government. It is...

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Roth IRAs

Road to Retirement

A Roth IRA, or Individual Retirement Account, is one of the most common types of retirement savings...

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Campaign Finance

Follow the Money

Campaign finance describes the way political candidates raise and spend money to run for office.

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Income Taxes

Pay the Piper

Personal income tax is money the government collects from people based on how much they earned or...

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SBA Loans

Helping Hand

SBA-guaranteed loans (or just “SBA loans”) are business loans backed by the U.S. Small Business Administration (SBA)....

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Volatility

Rocky Road

Volatility describes how much an investment bounces around in price. More volatile investments zigzag in price more...

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Rollovers

Roll With It

A rollover is when you move funds from one retirement account into another, such as from a...

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Emergency Fund

Cash Cushion

An emergency fund is your stash of just-in-case money. Along with your insurance coverage, it’s a vital...

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Partnerships

Passing Through

If you’re starting a business with someone else (or multiple people), the partnership is the most basic...

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Valuing a Company

What’s it Worth?

A company’s value is the dollar figure that it might sell for if a person or another...

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Hard vs. Soft Credit Inquiries

Extra Credit

Banks, lenders, and others use your credit report and scores to determine your creditworthiness. In other words,...

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Incorporating

Limited Liability

A corporation is one type of formal business structure that entrepreneurs can choose to use when starting...

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Estimated Taxes

Four Times the Fun

Estimated taxes are payments to the government that some people have to make four times a year....

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Buying a Home

Happy Homeowner, Happy Life

Buying a house is one of the biggest steps you can take in your life. But it’s...

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Futures

Looking Ahead

A futures contract is an agreement to buy a specific investment at an agreed-upon price on an...

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Forex

Hard Currency

The foreign exchange, or forex, markets are where investors go to buy and sell currencies. Unlike the...

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Retirement Savings for Contractors

Squirrel Away

If you’re a contractor, saving for retirement can be much more complicated than it is for employees....

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FSAs vs. HSAs

Health is Wealth

Health care FSAs and HSAs let you save money for out-of-pocket medical expenses (basically the things your...

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Asset Classes

Building Blocks

An asset class is a group of similar kinds of investments. It’s a generalization, not a detailed...

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Financial Advisors

Get Some Help

Financial advisors are experts who can provide financial advice and help you manage your money. Some people...

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Financial Planning

Ducks in a Row

Financial planning describes the process of mastering your money. It means figuring out where you actually are...

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Taxes for Contractors

Welcome to the Gig Economy

A contractor, or freelancer, can be anyone who works for clients on a contract basis rather than...

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E-Filing

Signed, Sealed, Delivered

E-filing means filing your taxes online. You’ll still need all the same documents you’d use to file...

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Asset Allocation

Divide and Conquer

“Asset allocation” is a way of describing what you own in percentage terms. If you’ve got $1,000...

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What Is an ICO?

The Wild West of Finance

An ICO, or Initial Coin Offering, is a way for startups to raise money by inventing and...

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IRA vs. 401(k)

Nest Eggs

IRAs and 401(k)s are two popular types of retirement savings accounts. Most people who work in the...

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Entrepreneurship

Change the World

Entrepreneurship is building a new business from the ground up. It means coming up with an idea...

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Budget

Nickels and Dimes

A budget is a plan you can use to better manage your spending and saving. When you...

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Debt

It All Adds Up

Debt is money that you owe to another person or a financial institution. When you borrow money,...

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Inflation

On the Up and Up

Inflation is when prices of things rise over time. For example, in 1980 you could buy a...

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Credit Cards

Swipe Right

A credit card lets you buy now and pay later, all without the hassle of counting out...

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Banks

Bank on It

Banks are institutions that take deposits, cash checks, and make loans. They are essentially home bases for...

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Tax Deductions

Cut Rate

Tax deductions, such as for donations to charity or interest on student loans, are amounts that you...

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Diversification

Spread Your Bets

Diversification is the practice of dividing your money among lots of different types of investments. It’s the...

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Tariffs

Barriers to Entry

A tariff is a tax charged on goods coming into or out of a country. When a...

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Cryptocurrency

Tales of the Crypto

Cryptocurrency is digital money that can be sent electronically anywhere in the world.

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Rebalancing

Move Your Assets

Know how self-help gurus are always talking about “finding the balance” in your personal life? That same...

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Apple

The Big Apple

Apple was the first business in history to be valued at $1 trillion—the largest value ever recorded...

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Revocable vs. Irrevocable Trusts

In Good Hands

A trust is a legal agreement allowing one person to transfer their assets to someone else via...

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Kylie Jenner

Lifestyles of the Rich and Famous

When it comes to money moves, Kylie Jenner knows what’s up. A Forbes profile of the youngest...

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Bitcoin

Not So Silky Road

Bitcoin is the world’s first type of digital money, or cryptocurrency. Unlike traditional paper money, Bitcoin only...

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Bull or Bear Market

Into the Wild

Wall Street may be a bit of a rodeo, but there are no literal bulls or bears....

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529 Plan

Higher Ed, Higher Returns

A 529 plan is a tax-advantaged college savings account sponsored by a state government or education institution....

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Savings

One Penny at a Time

Savings represent that portion of your income or earnings that is put aside and not spent. Life...

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Compound Interest

Make Bank

  The most powerful force in the universe is compound interest. — Albert Einstein

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Interest

Pay Up

Interest is the cost of borrowing money. For a borrower, interest is the price of taking on...

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GDP

Grossly Underrated

Gross domestic product, or GDP, measures the size of an economy. In essence, it puts a dollar...

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Break-Even Point

Point Break

A company is at its break-even point when its revenue equals its expenses. It is neither making...

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IRR

Crunch the Numbers

The internal rate of return, or IRR, is a measure of an investment’s or a project’s profitability....

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Private Equity

Members Only

Private equity is money invested directly into a private company. Private equity funds pool money from many...

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Financial Statements

State of Affairs

Financial statements are reports a company puts together to measure how it’s doing. Companies create their financial...

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Crowdfunding

Pound the Pavement

Crowdfunding is a way to raise money from many people, thanks to the power of the Internet....

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Robo-Advisor

Autopilot

A robo-advisor is an investment management company that uses a computer program instead of a live human...

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Long Term Care Insurance

Senior Moment

Long-term care insurance is a policy that helps cover the cost of assistance with daily activities if...

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Yield

Make Coin

Yield is the earnings generated by an investment over a specific period of time, expressed as a...

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Municipal Bonds

One for the Road

A municipal bond, or muni bond, is a type of bond issued by a state or local...

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Audit

Just Checking In

An audit can refer to any kind of official inspection of financial statements—usually to make sure that...

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Charitable Remainder Trusts

Big Love

A charitable remainder trust is a financial tool that can provide a steady source of income while...

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Layaway

Bill Me

Layaway lets you spread out payments over time when you buy something. Buyers often use it for...

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Profit and Loss (P&L)

The Bottom Line

A profit and loss statement, or income statement, shows the money a company earned and what it...

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Remittance

Check’s in the Mail

Remittances, also known as remittance transfers or international wires, are when someone in one country sends money...

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Tax Loss Harvesting

Cut Your Losses

Tax loss harvesting is a trading strategy investors can use to try to reduce their taxes. It’s...

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Collateral

Give and Take

Collateral is something that a borrower pledges to a lender to secure certain types of loans. If...

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Overhead

Keep the Lights On

Overhead refers to the expenses a business must pay just to stay open. Also known as “indirect...

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Capital Gains Tax

The Taxman Cometh

If something you own goes up in value and you sell it, then you’ve made a profit....

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Carried Interest

In the Interest Of

Carried interest is a share of a private equity or hedge fund’s profits that is paid to...

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Tax Form 1040

Any Way, Shape, or Form

The IRS’s Form 1040 is the master form that most people use to file their tax returns...

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Wills

For Love or Money

A Last Will and Testament, or “will” for short, is a legal document that lets you transfer...

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Blockchain

Chain Gang

Blockchain is the recordkeeping technology that serves as the foundation for Bitcoin and some other types of...

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Saving for College

Pay Your Dues

Saving for college means setting aside funds for education expenses. It means making a dedicated investment in...

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APR

Another Day, Another Dollar

An annual percentage rate (APR) represents the annual cost of borrowing money, including fees. Because the APR...

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The S&P

Make the Market

The Standard & Poor’s 500 Index—also known as the S&P 500, or just the S&P—is an index...

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Business Insurance

Cover Your Bases

A business insurance policy is a contract between an insurance company and a business. In exchange for...

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Bankruptcy

Lose Your Shirt

Bankruptcy is the legal process for consumers or businesses to get help with their debt. Bankruptcy starts...

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Dividends

Show Me the Money

A dividend is a portion of a company’s profits that is paid to its shareholders in the...

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Options

Coming Attractions

An option is the right, but not obligation, to buy or sell an investment at a specific...

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Title Insurance

On the House

A “title” is a document listing the legal owner of a piece of property. Title insurance protects...

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Rent vs. Buy

Where the Heart Is

The choice between renting or buying a home may be one of the biggest decisions you make...

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Recession

Feel the Pinch

A recession refers to a time when the economy shrinks instead of grows. More specifically, economists typically...

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EPS

Bang for the Buck

Earnings per share (EPS) is a financial metric that helps investors evaluate a company’s profitability. It’s calculated...

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Estate Planning

Bite the Dust

Estate planning is the process of figuring out what will happen to your stuff after you die....

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Index Funds

Copy That

An index fund is a professionally managed collection of stocks, bonds, or other investments that tries to...

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Foreclosure

Bottom Dollar

Foreclosure is a legal process that lets a lender seize possession of a house or other real...

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FICO

Score Some Points

Although you might hear the phrase “your credit score” tossed around, you actually have multiple credit scores—potentially...

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Car Insurance

Tighten Your (Seat) Belt

Car insurance is an agreement between you and an insurance provider. In exchange for regular payments from...

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Prepaid Card

Top Off

A prepaid card lets you spend money that you’ve already added to the card. It’s similar to...

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Reverse Mortgage

Can’t Take it With You

A reverse mortgage is exactly what it sounds like: instead of paying down a mortgage balance every...

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Deductibles

Cut Rate

A deductible is the amount of money you must spend out of pocket before your insurance company...

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Fixed vs. Variable Costs

At All Costs

Fixed and variable costs are types of expenses that businesses pay in order to operate.

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Convertible Note

Take Note

A convertible note is a type of short-term loan for a business. However, instead of being repaid...

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Equity

Own It

Equity is ownership. You can have equity—or an ownership stake—in any asset, meaning anything of value.

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Tax Refunds

Check’s in the Mail

If you pay more than your fair share in taxes over the course of a year, you’re...

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Liquidity

Cashing Out

Liquidity refers to how easily you can sell an investment or asset at a fair price.

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ROI

Many Happy Returns

Return on investment, or ROI, is a ratio for measuring the profitability of an investment. It puts...

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Improving Credit

Extra Credit

Your credit report and credit scores describe whether you have a good track record of repaying borrowed...

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IPO

Opening Bell

An initial public offering, or IPO, is when a company’s shares start trading on a stock exchange...

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Mutual Funds

Join Forces

A mutual fund is a professionally managed fund that pools lots of investors’ money in order to...

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Interest Rate

At Any Rate

Interest is what a lender charges you to borrow money. It is usually expressed as a percentage...

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Balance Sheet

Cook the Books

A balance sheet is a snapshot of financial health, showing what a company or person owns and...

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Risk vs. Reward

Double Down

All investments come with risk. With financial investments, risk is usually tied to reward. That means investments...

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Bonds

Bonds, James Bonds

Bonds are essentially IOUs. When you buy a bond, you become a lender to whatever entity issued...

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Rule of 72

Crunch the Numbers

The rule of 72 is an easy, back-of-the-napkin way to figure out how long it will take...

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Currency

All About the Benjamins

Currency is anything that people use to store value or trade for goods or services. Currency can...

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Philanthropy

Greater Good

Philanthropy is giving back. It’s paying forward the resources you have—whether your money, or physical goods, or...

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Commodities

Back to Basics

Commodities are raw materials. They are the inputs, or ingredients, that are used to make most of...

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Amortization

Another Day, Another Dollar

Amortization is a way of paying off a debt by spreading payments over a period of time....

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Fiduciary Duty

Your Best Interest

A fiduciary duty is a legal obligation to act in another person’s best interest.

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Economies of Scale

The Bigger, the Better

Economies of scale occur when it’s cheaper to produce a lot of something than it is to...

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Trustee

Handle With Care

A trustee can be an institution or an individual that is given the power to manage and...

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Tax Withholding

To Have and Withhold

Tax withholding is money your employer takes out of your paycheck each pay period. Your employer then...

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Judgments

By the Book

A judgment is a decision made by a court that’s been entered into the public record (i.e.,...

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Hedge Funds

Hedge Your Bets

Hedge funds are investment funds that pool many investors’ money and then hire one or more professional...

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Refinancing

Cash in Your Chips

Refinancing is getting a new loan to replace an old one. Borrowers usually refinance in order to...

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Loans

Lend a Hand

A loan is when someone gives money to someone else in exchange for future repayment of that...

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EBITDA

How You Slice It

EBITDA (pronounced “ee-bit-tah”) stands for “earnings before interest, taxes, depreciation, and amortization.” It’s one measure of a...

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Escrow

In Good Hands

Escrow is an arrangement in which a trusted third party temporarily holds onto some kind of asset,...

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Building Credit

Bit by Bit

Credit is money that’s available to you to borrow whether through a credit card, mortgage, car loan,...

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Profit Margin

Margin of Error

A company’s profit margin measures the portion of its total sales that it gets to keep as...

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Buy vs. Lease a Car

Joy Ride

When you need a car, you have two options: buy or lease. If you buy a car,...

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Investing in Gold

Worth its Weight

Gold is a precious metal that’s used in everything from jewelry and artwork to industrial goods and...

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The Stock Market

Greed Is Good

The stock market is the collection of physical and electronic markets where buyers and sellers come together...

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CDs

On Principal

Certificates of Deposit, or CDs, are low-risk investments that pay interest. You can think of them as...

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Financing a Startup

Sink or Swim

If you’re trying to get a startup off the ground, chances are you’ll need some cash to...

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Annuities

Nest Egg

An annuity is a series of regular payments made over a set period of time. Annuities can...

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REITs

Take Stock

A real estate investment trust, or REIT, is a company that owns, manages, or finances real estate....

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Appraisal

For All it’s Worth

An appraisal is an estimate of how much something is worth. People may get appraisals for real...

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Power of Attorney

More Power to You

A power of attorney is a document you can create if you want to give someone else...

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Short Selling

The Big Short

Short selling is a way to bet that a stock will fall in price. Normally, an investor...

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Liability

Much Obliged

A liability is something that will require you (or a company) to spend money or resources in...

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Mortgages

Home Sweet Home

A mortgage is a type of loan that people use to help them buy a house or...

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1099 vs. W-2 Employee

Bring Home the Bacon

1099s and W-2s are both types of tax forms. If you’re a contractor, you should receive one...

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Form W-2

Company Man

The W-2 is a tax form your employer must complete at the start of each year to...

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Insurance

Cover Your Assets

Insurance is financial protection. Along with your emergency fund, insurance makes up your safety net so that...

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Social Security

Safety Net

Social Security is a government program that takes in taxpayer dollars and pays out benefits to older...

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Tax Returns

Not-So-Happy Returns

Most people pay taxes throughout the year. When you file a tax return, you calculate how much...

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The Fed

Making a Federal Case

The Fed is the central bank of the U.S. Its overarching role is to make sure that...

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Trusts

Pennies From Heaven

A trust is a legal document that allows a person (the trustee) to hold the assets of...

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Investing

Piece of the Pie

Investing is putting your money to work in the hopes of earning a return. You probably already...

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Opportunity Cost

Fork in the Road

Opportunity cost is the return or benefit you miss out on by choosing one option over the...

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ETFs

Jack-of-All-Trades

Exchange-traded funds (ETFs) are investment vehicles similar to mutual funds. Like mutual funds, ETFs are professionally managed...

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Student Loans

Old College Try

A student loan can be any kind of borrowed money that’s used to pay for education. Although...

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FAFSA

Aid and Abet

The Free Application for Federal Student Aid, or FAFSA, is a form that college and grad students...

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Paying for College

Higher Education, Higher Costs

Going to college can lead to better jobs and bigger paychecks. But it comes at a high...

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Taxes

Pay Up

Taxes are funds that people and companies must pay to the government.

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How to Start a Startup

Go Big or Go Home

Although plenty of startups fail, the ones that succeed can do so wildly. Beyond a financial payoff,...

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Stocks

Buy Buy Buy

Stocks are pieces of ownership in companies. If you bought one stock of, say, Amazon, and Amazon...

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Independent Contractor

Free Agent

An independent contractor is someone who is self-employed and works for clients as a nonemployee. Independent contractors...

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Blue Chips

Steady Eddy

A blue chip is a company that is financially sound and well established. These companies usually sell...

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Depreciation

Wear and Tear

Depreciation is a physical asset’s loss of value over time. Just as your once new car is...

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Securities

Market Maker

“Securities” is the term used to describe stocks, bonds, mutual funds, and other types of financial investments....

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Life Insurance

Beyond the Veil

Life insurance is a contract with an insurance company. In exchange for periodic payments, the insurance company...

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Real Estate

Location, Location, Location

Buying real estate—whether on your own or by pooling your resources with other investors—is one possible way...

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