As I start to think about graduating, I decided to chronicle the next year of job searching, apartment moving and decision making in a series called “Life After College.” My first post is about financial terms to know as you start to job hunt and look at paying off student loans.
Financial Terms To Know
Permanent Life Insurance// This is a type of insurance policy that provides you coverage over your lifetime, and something called cash value. Cash value is something that you can borrow or withdraw against after a certain amount of time. The premiums (payments) are generally higher than other types of life insurance.
Term Life Insurance// This is a type of insurance policy is only for a set period of time, anywhere from 5 to 30 years (typically). If you die within the time period, your beneficiaries receive a payout, if you don’t than the policy expires with no payout.
PPO// This stands for a preferred provider organization, and you’re encouraged to use services within a network. Generally have an annually deductible and co-payments (where you have to pay out of pocket) for some services.
HMO// This stands for healthy maintenance organization, and you have lower deductibles, but you have to use certain services within a specified network. There is generally no coverage if you go outside of the network without recommendations from you primary care physician.
HSA// Healthy Savings Accounts are basically PPOs with higher deductibles. They do have tax breaks, and are great if you don’t have a lot of healthy needs. The amount in the account rolls over year to year (you get to keep the money that you don’t use) and earns interest.
401k// This is a retirement plan offered through your work, it is the most common form of defined-contribution retirement plan from employers. Your employer generally matches a certain percentage of your income that you put into your account. Generally you pick the percentage you want to put in and it comes out of your paycheck. There are tax benefits.
IRA// This stands for Individual Retirement Account. Instead of being a defined-benefit plan from your employer, this is a savings account with tax breaks. It’s the best plan for a retirement account if you’re employer doesn’t provide you with one. While there are different types, it’s typically one you open by yourself. There are eligibility requirements, and you should look into one if you don’t receive any defined-benefit plan for retirement from your employer.
Pension// An employer-sponsored retirement plan. That means when you retire you receive a fixed payout. It depends on how long you worked at your employer and on your salary. These are rare currently, but they are a great portion of your retirement plan.
Compound Interest// Think of this as interest on interest. When you borrow money, it means that you earn interest on your loan, and then on the amount of interest you’ve already earned. Be sure to know which of your student loans has compounded interest, and pay those off first.
All of these new financial terms are scary, but the internet is this amazing thing. If you don’t know a term, just google “what is a ___.” Experts have explained different terms in multiple different ways, so if one explanation doesn’t make sense, there is another one!
Are there any financial terms you didn’t know that you think I should add?