Financial glossary

40 terms found

“Bad” debt

A loan that finances spending on things that lose value immediately, often at a high interest rate: holidays, electronics on expensive instalments, personal loans with no clear purpose.

e.g. A personal loan taken for a holiday, with an APR of 20% or more.

“Good” debt

A loan that finances something that raises your net worth or your earning power in the long term, such as a reasonable mortgage or a loan for education.

e.g. A mortgage with a monthly payment within the family budget, for a home you would live in anyway.

ASF (Financial Supervisory Authority)

The authority that licenses and supervises the capital market, insurance and private pensions in Romania. Investment advice without an ASF licence is illegal.

e.g. You check the ASF website to see whether a broker is legally authorised to operate in Romania.

Asset

Something that puts money in your pocket over time: rent, interest, dividends, a profitable business. The opposite of a liability.

e.g. A rented studio flat is an asset if the rent is higher than the upkeep and loan costs.

Bond

A loan to a company or a government, in exchange for regular interest and the return of the sum at maturity.

e.g. A 5-year corporate bond pays annual interest and returns the amount invested at the end.

Budget

A plan for your money before you spend it, not a record of what you have already spent. You can build one with methods like 50/30/20, envelopes or zero-based budgeting.

e.g. A 50/30/20 budget puts 50% toward needs, 30% toward wants and 20% toward saving.

Credit score / Credit Bureau

An assessment of your payment history, used by banks to decide whether to give you a new loan and on what terms.

e.g. Repeated late payments lower your credit score, making good loans harder to get in future.

DAE (effective annual rate, APR)

The total yearly cost of a loan as a percentage. It includes interest, fees and any compulsory insurance. It is the right figure to compare, not the nominal interest rate.

e.g. Two loans with a similar “interest rate” can have very different DAE because of fees.

DCA (dollar-cost averaging)

Investing a fixed amount at regular intervals, whatever the market level, instead of trying to “guess” the best moment to buy.

e.g. By investing 500 RON (≈ €94) a month, you automatically buy more “units” when the price is low and fewer when it is high.

Declarația Unică (single tax return)

The form individuals in Romania use to declare certain income to ANAF, the tax agency (including investment income through foreign brokers), and to work out the tax owed.

e.g. Gains made through a broker outside Romania are usually declared through the Declarația Unică.

Decumulation

The phase where, instead of adding money to a portfolio, you start drawing from it to cover your living costs.

e.g. In retirement, decumulation replaces the accumulation phase of your working years.

Diversification

Spreading an investment across several different assets, so that the poor performance of one does not badly hurt the whole portfolio.

e.g. A portfolio spread across shares from several sectors and countries lowers the risk tied to any single company.

Dividend

Part of a company's profit paid out to its shareholders, usually at regular intervals.

e.g. A company may pay quarterly dividends to its shareholders, in proportion to the number of shares they hold.

Emergency fund

Money set aside, separate from your other savings, for unexpected and essential situations, usually 3 to 6 months of essential expenses.

e.g. If you are briefly out of work, the emergency fund covers rent and bills without a new loan.

ETF (exchange-traded fund)

A fund that holds a basket of assets (for example hundreds of shares from an index) and trades on an exchange like a single share.

e.g. An ETF that tracks a broad stock index gives diversified exposure to hundreds of companies in one purchase.

Fiat currency

Money that has value because a government backs it and people trust it, not because it is backed by gold or another physical good. The Romanian leu (RON), the euro and the dollar are fiat currencies.

e.g. A 100-RON banknote costs a few cents to print; its value comes from collective trust, not from the paper.

Fidelis

A programme in which the Romanian state issues government securities directly to the public, with fixed interest and a set maturity. In effect, a loan from citizens to the state.

e.g. Fidelis securities can be bought through authorised intermediaries, in RON or euro depending on the issue.

Fixed interest rate

An interest rate that stays the same for the whole loan (or a set period), whatever happens in the market.

e.g. A loan with a fixed rate for 5 years gives you a predictable monthly payment over that period.

IFN (non-bank financial institution)

A regulated lender that offers loans faster and on looser conditions than banks, usually at a much higher DAE.

e.g. A quick loan “in 15 minutes” from an IFN can have a DAE far above an equivalent bank loan.

Inflation

A general rise in prices across an economy over time, which lowers the purchasing power of money. In Romania it is measured monthly by INS, the national statistics institute.

e.g. If annual inflation is 6%, a 5-RON loaf of bread costs about 5.30 RON next year.

IRCC (consumer credit reference index)

An index used for variable rates on consumer loans, calculated quarterly from interbank transactions.

e.g. IRCC replaced ROBOR as the reference for many new consumer loans.

Leasing

A form of financing in which you use an asset (usually a car) by paying instalments, with the option to buy it at the end for a residual value.

e.g. Car leasing is often used by companies for specific tax advantages.

Liability

Something that takes money out of your pocket over time: instalments, insurance, upkeep. Not every liability is “bad”, but it is worth seeing it for what it is.

e.g. A car bought on instalments, with insurance and fuel, is a liability, even if you need it for your job.

Liquidity

How quickly, and without losing value, you can turn an asset into cash.

e.g. A savings account is very liquid; a flat is not, because it takes months to sell.

OUG 50/2010

The emergency ordinance that regulates consumer credit in Romania, including the consumer's right to repay early, with legally capped costs.

e.g. You can repay a personal loan early without the bank refusing or charging disproportionate costs.

PAD (compulsory home insurance against disasters)

Insurance that Romanian law requires for every home, covering specific risks: earthquake, flood and landslide.

e.g. The sums insured under PAD are fairly limited, so many families add an optional complementary policy.

Pillar 1 pensions

The classic public pension system, based on redistribution: contributions from today's employees pay for today's pensioners.

e.g. The state pension you receive at the legal retirement age comes from Pillar 1.

Pillar 2 pensions

Compulsory for certain categories of employees: part of the social insurance contribution goes into a privately managed pension fund, with an individual account.

e.g. Money in Pillar 2 is assigned to your personal account, unlike Pillar 1.

Pillar 3 pensions

Entirely optional: anyone can make extra contributions to a voluntary pension fund, often with tax benefits attached.

e.g. An employee can contribute to Pillar 3 every month, with tax deductions within the legal limits.

Refinancing

Replacing an existing loan with a new one, usually on better terms (a lower rate or a lower payment).

e.g. You refinance a personal loan with a high DAE through a mortgage with a lower DAE, if you have collateral.

Return

The gain from an investment, usually shown as an annual percentage, from interest, dividends or a rise in value.

e.g. An annual return of 7% on a diversified ETF is a common historical benchmark, not a guarantee.

ROBOR

A benchmark for interbank interest rates in RON, historically used as the base for variable rates on loans in RON.

e.g. A loan with a variable rate based on ROBOR goes up or down with this index.

Savings account

A bank account that pays interest, usually with quick access to the money, suitable for an emergency fund.

e.g. A savings account kept apart from your current account helps you avoid spending the emergency fund by accident.

Savings rate

The share of your net income that you save or invest each month. One of the most important figures in long-term financial planning.

e.g. A savings rate of 25% leads, roughly, to financial independence in about 32 years.

Share (stock)

A slice of ownership in a company. Its value moves with the company's performance and how the market sees it.

e.g. Holding one share makes you a part-owner of that company, in proportion.

TER (total expense ratio)

The total yearly cost of an investment fund, as a percentage of the amount invested. It includes all management costs.

e.g. A TER of 2% “eats” 2% of the investment's value every year, whatever the performance.

Tezaur

A programme similar to Fidelis, in which the Romanian state issues government securities to the public as a public savings instrument.

e.g. Tezaur and Fidelis are both issues of government securities for the public, with terms specific to each edition.

The 4% rule

A historical benchmark: withdrawing 4% a year from a diversified portfolio, adjusted for inflation, had a high “survival” rate over the long term in historical studies.

e.g. A portfolio of 1,000,000 RON (≈ €187,400) would in theory support withdrawals of 40,000 RON (≈ €7,500) a year under this benchmark.

Time horizon

The period during which you will not need the money you invest. It decides how much risk and volatility you can afford to tolerate.

e.g. Money with a 20-year horizon can tolerate big swings along the way, because it has time to “recover”.

Variable interest rate

An interest rate that adjusts periodically according to a reference index (for example IRCC), so the monthly payment can rise or fall.

e.g. A variable rate tied to IRCC goes up if the index rises at the next reset.