Chances are, if you came to college, you have the intent of becoming completely financially independent someday. That is, if you aren’t already. Luckily, a college degree can help you achieve this…partially. Financial success also requires many factors out of your control, such as connections, privilege and sheer luck. However, in addition to attending college, there is one more thing you can do in order to ensure future economic prosperity: learn the necessary jargon. Unfortunately, many financial terms are not self-explanatory nor are they commonly taught to college students that are not in finance-related majors. Luckily, they are easy to learn. Here are a few you absolutely must know as an adult in the real world:
1. Credit Score
Definition: This is a statistical number essentially based on how good you are, and have been in the past, at paying your credit card bills. It is always a number between 300 and 850 (the higher, the better).
Why it’s important: If you have your own credit card, you should definitely know what this means. Your credit score will absolutely affect you when you are attempting to borrow money in any form or even when you are signing an apartment lease.
2. Annual Percentage Rate (APR)
Definition: This is the yearly interest either to be paid on a loan or earned on an investment.
Why it’s important: This term is used all of the time. Credit card debt has an APR, student loans have an APR, and so the list goes on.
3. Itemized Deductions
Definition: If they are eligible, taxpayers can report these on their federal tax return in order to decrease their taxable income. They are based on expenses like home mortgage interest or medical bills.
Why it’s important: If you qualify to itemize your deductions, you’re in luck! This will save you money when you are paying taxes.
4. Standard Deduction
Definition: This is the IRS’s alternative to itemized deductions. Again, taxpayers can report this on their federal tax return in order to decrease their taxable income. This will decrease your income by a fixed amount (for example, the standard deduction for single taxpayers in 2014 was $6,200).
Why it’s important: Each year, you will choose to either use itemized deductions or the standard deduction on your tax return, depending on which one decreases your taxable income the most. Again, this exists to help you save money when you are paying taxes!
5. Adjusted Gross Income (AGI)
Definition: This is a complicated and *gross* term for a simple concept. It is a number that represents your total income minus either your itemized deductions, or the standard deduction.
Why it’s important: Your AGI is the key to lower taxes.
6. Tax Credit
Definition: This is a certain amount of money that a taxpayer can subtract from the amount of taxes they owe the to the government. It is different from a deduction because it comes into play after one’s income has already been taxed. Examples of this include the Child Tax Credit and the American Opportunity Tax Credit.
Why it’s important: Tax credits are yet another opportunity for you to save some tax dough.
7. W-2
Definition: This is a simple form (with strangely confusing jargon and boxes, nonetheless) that employers fill out for each of their employees. It informs you, your state government, and the federal government about how much money you made and how much of it went to taxes in any given year.
Why it’s important: If you have a job, you will receive one of these in January or February of each year. Don’t recycle them! W-2s have information you want to know. It’s also very satisfying to see exactly how much money you made doing a year’s worth of hard work.
8. 1040
Definition: This is the Internal Revenue Service’s (IRS’s) standard annual tax return form for individuals. It requires you to provide certain data about your income, usually including your AGI and your W-2 form, so that the government can decide how to tax you.
Why it’s important: Again, if you’ve ever worked, you’ve seen one of these. It usually benefits you as the taxpayer by providing you with several opportunities to minimize your tax bills. Form 1040 is due every year on April 15th. If you don’t comply with this, the IRS will find you and they will not be happy.
9. 401(k)
Definition: This one is actually not a form. Many employers offer this to their employees as a type of retirement savings plan. Essentially, it sets aside a portion of each of your paychecks so that you have funds to fall back on when you retire. This money, which is traditionally untaxed unlike the rest of your income, is then invested so that you can end up with a little more than what you had before.
Why it’s important: A lot of companies that offer 401(k) programs will actually match a certain portion of what you set aside. Definitely don’t pass up this opportunity; this means you could be rolling in the deep when you retire.
10. Premium
Definition: This is a reference to insurance, and how much you pay for it whether it be monthly, quarterly or yearly.
Why it’s important: Insurance comes in a variety of different flavors (health, car, home, life, etc.) and unfortunately, a lot of them are very worth having. Premiums aren’t cheap but they are in comparison to their alternative.
http://lifehacker.com/the-most-important-financial-terms-everyone-should-know-1742329094