Personal finance software has certainly taken the headache out of budgeting and balancing finances, but there's no doubt that you will likely come across a few terms that might leave you scratching your head. Listed are seven terms you need to know before you can comfortably begin using your personal finance software.
- Direct Connect
Direct Connect is a feature included in certain personal finance software that allows the user to automatically download transaction information from their financial institution to their program. This feature comes in handy for those that spend a lot of time copying transactions from their online banking to their personal finance software.
- Gross Amount
Gross amount refers to an amount of money before anything has been deducted from it. In terms of personal finance, this often refers to the amount an employee makes from their employer before taxes have been withheld. This amount is useful when the user wants to know how much they have "grossed" over a long period of time, or if they want to get an idea of how much money they've been paying in taxes.
- Net Amount
Net amount refers to an amount of money after deductions, such as taxes, have been taken from it. For example, the average paycheck is worth a particular sum after taxes have been deducted from the original sum (the gross amount).
- Variable Expense
A variable expense is one that is likely going to vary from period to period. Popular forms of variable expenses include entertainment, gas expenses, electric bills, and household maintenance. Variable expenses are usually unknown until the user manually inputs the value at the end of a period.
- Fixed Expense
A fixed expense is one that does not change from period to period. In rare scenarios, a fixed expense might slightly vary. However, it is one that usually stays constant in the long run. A few examples of fixed expenses are rent payment, cell phone plan payments, insurance payments, etc.
- Discretionary Expense
A discretionary expense is one that is not essential. For example, grabbing drinks with friends, eating out, and going to the movies are all discretionary expenses. It helps to label these types of expenses as discretionary for budgeting scenarios when the software attempts to determine which expenses to eliminate.
- Adjusted Gross Income
AGI (or adjusted gross income) is similar to a net amount in that it's a resulting sum after deductions have been made. However, AGI is more useful when calculating federal income tax. AGI is the amount resulting after expenses such as cash donations made to charity, business expenses, and IRA contributions have been taken out.
