An accumulation and maintenance trust is a type of discretionary trust designed to allow for the accumulation of income until certain beneficiaries reach a specified age, at which point the income is applied for their maintenance, education, or benefit.
Activity-Based Budgeting (ABB) is a budgeting method that allocates resources based on activities that incur costs in an organization, primarily used to refine budgeting accuracy and analyze performance.
An adjustable-rate mortgage (ARM) is a type of mortgage loan that allows the interest rate to be changed at specific intervals over the maturity of the loan, enabling borrowers to benefit from potentially lower interest rates initially compared to fixed-rate mortgages.
In the USA, the difference between the gross income of a taxpayer and the adjustments to income, which is an essential figure for multiple tax computations.
An advance funded pension plan is a retirement plan in which current allocations are made to finance an employee's pension, ensuring funds are available upon retirement.
A method for comparing returns on taxable corporate bonds and tax-free municipal bonds to determine the higher after-tax return. This helps investors make more informed choices considering their tax brackets.
In accounting, AIA can refer to either the Association of International Accountants or the Annual Investment Allowance, each holding distinct significance in the field.
The Association of Independent Financial Advisers (AIFA) was a prominent professional association representing the interests of independent financial advisories across the UK. Its mission was to ensure that consumers receive independent and high-quality financial advice.
Allocation involves distributing resources for specific uses or spreading costs over multiple products, customers, people, or time periods.
Alternative budgets, also known as financial or quantitative budgets, are additional budgets created for consideration by management alongside their primary budget. These budgets reflect different policies that the organization might pursue in the future.
An amortization schedule details the specific payments required to repay a loan, providing clarity on the principal and interest components of each payment over the entire term of the loan.
An amortized loan is a loan that is repaid through regular payments including both principal and interest over a specified period.
A loan in which the repayment is made in more than one installment, as opposed to a bullet loan where the repayment is made in a single lump sum at the end of the term.
An individual who receives payments from an annuity, a financial product that provides income streams at specified intervals, typically as a retirement tool.
Annuitize refers to the process of converting the accumulated capital in an annuity into a series of periodic payments. These payments can be for a fixed amount, over a fixed period, or for the lifetime of one or more annuitants, ensuring a guaranteed income stream that cannot be outlived.
An annuity is a financial contract in which the purchaser makes an upfront payment to an insurance company in exchange for regular, structured payments either for a specific period or for the remainder of the purchaser's life.
An annuity certain is a type of annuity where payments continue for a specified period regardless of the life or death of the policyholder.
An annuity due is a type of annuity where payments are made at the beginning of each period, as opposed to an ordinary annuity where payments are made at the end of each period.
An annuity in arrears, also known as an ordinary annuity, is a series of equal payments made at the end of consecutive periods over a fixed length of time. It contrasts with an annuity due, where payments are made at the beginning of each period.
The anticipated holding period is the duration during which an investment is expected to be held before being sold or liquidated. In real estate limited partnerships, sponsors often define this period for properties in the prospectus.
Insurance against an eventuality, especially targeting events that must occur such as death. Commonly related to life assurance, it provides a guaranteed payout upon the occurrence of the insured event.
A banker's order is an instruction issued by a bank customer, directing their bank to transfer a specified amount from their account to another account at regular intervals until the order is cancelled.
A cost or income standard set in standard costing to form the basis on which other standards are set. It is a foundational metric from which other variances and standards can be derived.
The evaluation of a proposed activity by determining the value of the anticipated benefits compared to the costs incurred, ensuring a financially attractive decision when benefits exceed costs. It’s essential to also consider non-financial factors and the potential disparities in who benefits and bears the costs.
A biweekly loan is a mortgage that requires principal and interest payments at two-week intervals. Each payment is exactly half of what a monthly payment would be. Over a year's time, the 26 payments are equivalent to 13 monthly payments, leading to faster amortization than a standard monthly payment mortgage.
Business Performance Management (BPM) is a set of performance management and analytic processes that enables the management of an organization's performance to achieve strategic and operational goals.
A critical financial concept, the break-even point represents the point at which total revenues equal total costs, resulting in neither profit nor loss. It is widely used in finance, real estate, and securities to determine financial health.
A comprehensive financial or quantitative statement prepared prior to a specified accounting period, containing the plans and policies to be pursued during that period.
A budget period is a designated timeframe during which a specific budget is planned and implemented, aligning closely with the accounting periods utilized by the organization. Typically, this period spans a year but can be broken down into shorter control periods like months or quarters for enhanced financial oversight.
A cost included in a budget representing the expected expenses to be incurred by a budget center, cost center, cost unit, product, process, or job.
Budgeted Revenue refers to the estimated income that a business anticipates achieving during a specific budget period, as planned and documented in its budget.
The Capital Budget, also known as the capital expenditure budget or capital investment budget, is part of the master budget that outlines the anticipated capital expenditures an organization plans to make within a given budget period.
Capital Expenditure (CAPEX) refers to funds used by a business to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment. These expenditures are capitalized and either depreciated or depleted over their useful life, as opposed to repairs, which are deducted from the current year's income.
Capital Gains Tax (CGT) is a tax levied on the profit from the sale of assets or investments. The tax applies to the difference between the sale price and the original purchase price or basis of the asset.
A captive insurance company is a subsidiary company formed to insure the risks of its parent company or a group of companies. This structure allows the parent company to manage and tailor its own risk management strategy, potentially leading to cost savings and more comprehensive coverage.
A detailed analysis of expected cash inflows and outflows over a specific period, crucial for managing liquidity and ensuring a business can meet its obligations.
Cash management involves the planning, monitoring, and execution of a firm's policy regarding liquidity to ensure adequate availability of cash for operational needs, investment opportunities, and unforeseen expenses.
Cash reserve refers to the cash kept by a person or business that is beyond their immediate needs. It acts as a safety net to cover unexpected expenses and provides liquidity during financial emergencies.
Cash surrender value refers to the amount a policyowner is entitled to receive from an insurance company upon surrendering a life insurance policy with cash value. This sum is the cash value stated in the policy minus any surrender charges and outstanding loans with interest.
A cash-flow budget is a tool that summarizes expected cash inflows and outflows of an organization over a budget period, usually prepared monthly. It serves as a planning aid to determine cash availability for investment or to identify cash deficits requiring additional finance.
A professional certification conferred by the International Board of Standards and Practices for Certified Financial Planners. It requires passing national examinations in various financial planning disciplines and substantial professional experience.
A chargeable transfer is a lifetime gift not covered by any of the exemptions, making it liable to inheritance tax. This can include potentially exempt transfers or payments into a discretionary trust.
Chartered Financial Consultant (ChFC) is a professional designation awarded by The American College in Bryn Mawr, Pennsylvania, recognizing individuals for their expertise and proficiency in financial planning.
A Chief Financial Officer (CFO) is a corporate officer responsible for managing the financial actions of a company, including financial planning, management of financial risks, record-keeping, and financial reporting.
Committed costs are typically fixed costs that management has a long-term responsibility to pay, such as rent on a long-term lease and depreciation on an asset with an extended life.
A consolidation loan combines and refinances multiple other loans or debt into a single loan, typically aimed at reducing the monthly payments an individual needs to make. It is usually an installment loan.
A contingency is a potential event or circumstance that is uncertain but could have either positive or negative consequences on an entity's financial situation or operations. It is often considered in risk management and financial planning.
A contingency fund is an amount reserved for a possible loss, such as those caused by a business setback. Contingency funds and other reserves set aside are not deductible for tax purposes.
A budget for a future month or quarter, which is added to an organization's budget as the past month or quarter is dropped. The entire period's budget is revised and updated as necessary, prompting management to continuously consider short-range plans.
Contributions in the context of finance and taxation refer to payments made by individuals or businesses, either for charitable purposes or as required unemployment taxes. Understanding the implications of these contributions is crucial for effective financial planning.
Cost estimating involves determining the total costs of labor, materials, capital, and professional fees required for a proposed product. This process is crucial in project management, construction, manufacturing, and other sectors where budgeting and financial planning are essential.
Cost estimation is the process of predicting the cost of a project, product, or service by assessing the unit costs of direct costs and overheads for the purposes of planning, control, and pricing.
A cost objective is the budget limit set for an activity, task, or project, intended to constrain spending within predefined financial boundaries to ensure financial discipline and project feasibility.
A cost overrun occurs when the actual cost of a project exceeds the project budget, requiring additional funding to cover the shortfall. This situation necessitates revisiting financial planning and resource allocation.
A Coverdell Education Savings Account (ESA) is a type of Individual Retirement Account (IRA) designed to help parents save for their child's education expenses. These accounts allow for tax-free growth and withdrawals for qualified education expenses.
A Coverdell Education Savings Account (ESA) is a tax-advantaged investment account designed to encourage savings for future education expenses. It can be established for a beneficiary under the age of 18, and the savings can be used for qualified education expenses from elementary through higher education.
A Crown loan is a demand loan extended to children or parents of the lenders, named after Chicago industrialist Harry Crown. Originally interest-free, such loans are now regulated to include a market rate of interest or they are subject to gift taxes.
A custodial account is a type of account created for a minor by a parent or guardian, often held at a bank or brokerage firm, where the minor cannot make securities transactions without the approval of the account trustee.
Definition, explanation, and discussion around the term 'Death Benefit,' including examples, FAQs, related terms, online resources, and suggested books for further readings.
A comprehensive guide to understanding death duty, also known as estate duty, a tax levied on the estate of a deceased person.
A Decision Package is a crucial procedure in Zero-Base Budgeting (ZBB) where a manager details recommended and alternative ways to undertake a proposed project, specifying the associated costs and time requirements.
A deferred account is a financial account that postpones tax obligations until a later date, allowing the account holder to potentially reduce their current tax burden.
A deferred annuity is an annuity in which payments do not start at once but either at a specified later date or when the policyholder reaches a specified age.
Deferred benefits and payments refer to financial arrangements where the receipt of money, benefits, or income is delayed into a future time period, often as part of retirement or other long-term financial planning strategies.
Deferred compensation is a tax-advantaged plan under which an employee postpones a portion of their salary in exchange for the employer's promise to pay this salary in the future, usually to achieve tax benefits and retirement planning.
A departmental budget is a financial plan that allocates resources to a specific department within an organization, accounting for its expected revenues, costs, and expenditures over a defined period.
A deposit account is a type of bank account held at a financial institution that allows the account holder to accumulate funds and earn interest, while typically requiring advance notice to withdraw money.
Labor and materials that can be identified physically in the product produced. Direct costs for an apartment building, for example, are construction materials and labor; indirect costs include architect's fees, interest during construction, insurance, and builder's overhead and profit allowance.
Discretionary income is the amount of spendable income remaining after the purchase of physical necessities, such as food, clothing, and shelter, as well as the payment of taxes. Marketers of goods other than necessities compete for the consumer's discretionary dollars by appealing to various psychological needs, as distinguished from physical needs.
Disposable income is the amount of money that individuals have available for spending and saving after personal taxes have been accounted for.
Diversification refers to the strategy of spreading investments or business activities across different fields or products to minimize risks and enhance growth.
An Efficient Portfolio of investments represents a combination that maximizes the expected return for a given level of risk or minimizes the level of risk for a given expected return.
An approved share option scheme that entitles a specified class of directors or employees to purchase shares in the company in which they are employed.
An exit charge is the tax imposed under inheritance tax regulations when an asset is removed from a discretionary trust.
An Expense Budget outlines the estimated costs that are expected to be incurred by an organization or individual over a specified future period. It serves as a financial plan, helping to allocate resources efficiently and set spending limits to achieve financial goals.
A Family Income Policy is an insurance policy that provides extra income during the period when children are growing up. This life insurance contract combines ordinary life and decreasing term insurance.
A family of funds refers to a group of mutual funds managed by the same investment management company, each with different investment objectives and the ability to switch investments among the funds.
A finance vehicle is a specialized financial entity that organizations use to achieve certain fiscal or operational advantages, such as minimizing tax liabilities or securing funding.
A professional adviser providing financial counsel in various domains, such as investing, insurance, estate planning, and taxes. Financial advisers can be fee-based, commission-based, or both.
A financial budget is an organizational tool that outlines an entity's monthly, quarterly, or annual financial goals and expectations, aiding in financial planning, forecasting, and control.
A financial plan is a comprehensive strategy designed to help individuals or businesses achieve specific financial goals, both short and long-term. Financial planning covers aspects such as budgeting, investments, savings, taxes, and retirement planning.
A financial planner is a professional who analyzes personal financial circumstances and prepares a program to meet financial needs and objectives, equipped with knowledge in several domains including estate planning, retirement planning, and investments.
Financial planning involves the formulation of short-term and long-term plans in financial terms to establish goals for an organization to achieve, against which its actual performance can be measured.
A financial pyramid is a risk structure many investors aim for, distributing their investments among low-, medium-, and high-risk vehicles. It is designed to minimize risk while maximizing potential returns.
A budget that outlines in both financial and quantitative terms the planned levels of finished goods at various points during the budget period.
FIT refers to a situation where the features of a particular product, such as an investment, perfectly match the requirements of a buyer, ensuring maximum utility and satisfaction.
A fixed budget, also known as a static budget, is a financial plan that remains unchanged regardless of variations in actual levels of activity or circumstances. It does not adjust budget cost allowances for variable items, providing a steady financial framework.
In the operation of a business, fixed expenses are those that remain constant regardless of production or sales levels. These are crucial for budgeting and financial planning, and they contrast with variable expenses, which fluctuate with the level of production or sales.
A flexible budget adjusts budgeted income and expenditure based on changing circumstances and actual activity levels, allowing for a more accurate financial planning and performance measurement.
Full cost pricing is a method of setting the selling prices of a product or service that ensures the price is based on all the costs likely to be incurred in its supply.
Full retirement age is the age at which a person may first become entitled to full or unreduced retirement benefits. It varies depending on the year of birth, and understanding this concept is crucial for effective retirement planning.
A full-service broker is a financial professional who offers a wide range of services to clients, including investment advice, research, and portfolio management. This contrasts with a discount broker, who typically only executes trades.
A functional budget is a financial or quantitative statement prepared for a specific function of an organization. It summarizes the policies and the expected level of performance to be achieved by that function over a budget period.
Fund switching refers to the process of moving money from one mutual fund to another within the same fund family, often to respond to market fluctuations or changing financial needs.
A funded pension scheme is a retirement plan that pays benefits to retirees from a fund that is actively invested in securities. The returns generated by this fund are distributed as pensions to its members.
The future value is the value that a sum of money will have in the future when invested at compound interest. If the future value is *F*, and the present value is *P*, at an annual interest rate *r*, compounded annually for *n* years, the formula is *F = P*(1 + r)^n. This concept is crucial for understanding the growth of investments over time.
A General Retirement System encompasses all mechanisms and financial arrangements designed to provide individuals with income or benefits during their retirement years. These systems often include pensions, social security, and personal retirement savings plans.
A Guaranteed Income Contract is a financial instrument commonly used in the investment and insurance industries to provide a stable, guaranteed stream of income over a specified period of time.
High-Net-Worth Individuals (HNWIs) are individuals who possess very high net incomes, substantial net assets, or a combination of both. These individuals typically qualify for specialized financial products and services aimed at optimizing their wealth, despite the elevated investment risks involved.
High Net-Worth Individuals (HNWIs) are individuals with substantial financial assets or investment portfolios. Their significant wealth typically qualifies them for specialized financial services and investment opportunities.
