Peak Performance Resources for Leaders by Leaders

Category: Money & Wealth Page 1 of 14

Lifestyle Inflation

Increasing your spending when your income goes up. This phenomenon makes it perpetually difficult to get out of debt, save for retirement or meet financial goals. Lifestyle inflation tends to continue each time someone gets a raise, receives a bonus or an unexpected windfall, making it the primary cause of people getting stuck in the rat-race of working harder and harder just to pay the bills (because their bills grow in line with their income).

Affluence

1. A plentiful supply of money, material goods, property; wealth, prosperity. 2. A great quantity; an abundance.

Real Rate of Return

The actual financial benefit of an investment after accounting for inflation and taxes. The after-tax real rate of return is an accurate measure of investment earnings and usually differs significantly from an investment’s nominal rate of return. Calculated as the nominal return – inflation rate x tax rate = Real Rate of Return.

Assume your bank pays you interest of 5% per year on the funds in your deposit account. If the rate of inflation is 3.5% per year, and your tax rate is 33% the real return on your savings is 1%.

You may think 5% sounds great, however, when taking into account inflation and taxes, it is a very low return. If the nominal interest rate goes down, inflation goes up (global inflation was 5.05% in 2011), and taxes go up you can have a negative return on your savings.

 

Blame Game

Accusations exchanged between people who refuse to accept responsibility for an undesirable event, loss or failure. Finger pointing and scapegoating are common techniques used to divert attention and focus on a person who is assigned fault. Whenever money is lost, emotions run high and the Blame Game kicks into high gear.

Conventional Wisdom

The ideas, explanations, and beliefs that are generally accepted as true by the general public or experts in the field. Though widely held, these ideas and pieces of advice are neither examined or validated. Many of these thought forms are no longer true (if they ever were), perpetuating them maintains the status quo.

Saving

1. Rescue from harm, danger, or loss: save, preserve. 2. Avoidance of excess expenditure; economy, thrift. 3. A reduction in expenditure or cost. 4. Something saved. 5. Money saved for future use.

Diversification

A risk management strategy to allocate an investment portfolio to different asset classes that on average yield a higher return by spreading the risk between high, medium and low-risk assets.

Buy-and-Sell

An active investment strategy that involves buying an asset and selling it as soon as possible. The basic idea is to buy low and sell high by timing the market.

Buy-and-Hold

A passive investment strategy that involves buying an asset and holding it over the long term despite any market price fluctuations.

Fair Value

The price agreed to acquire a product, service or asset between a knowledgeable and willing buyer and a knowledgeable and willing seller assuming that each party is operating in their own self-interest and the transaction is conducted at arm’s length.

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