Financial Terms Glossary
Clear, practical definitions of essential financial terms. Each term links to relevant calculators and tools to help you take action.
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Banking & Savings
APY (Annual Percentage Yield)
The effective annual rate of return on savings, accounting for compound interest.
CD Ladder
A savings strategy where you divide money across multiple CDs with different maturity dates to balance higher rates with liquidity.
Cash Back
A credit card reward that returns a percentage of your spending as cash, typically 1-5% depending on the category.
High-Yield Savings Account
A savings account that pays significantly higher interest rates (typically 4-5% APY) than traditional bank accounts (0.01% APY), usually offered by online banks.
Rolling CD
A CD laddering strategy where you invest in multiple CDs with different maturity dates to balance higher yields with liquidity needs.
Behavioral Finance
Business & Investing
Break-Even Analysis
A calculation that determines the point at which total revenue equals total costs, showing how many units must be sold or how much revenue is needed before a business becomes profitable.
CAC (Customer Acquisition Cost)
The total cost of acquiring a new customer, including marketing and sales expenses.
Contribution Margin
The amount each unit sold contributes toward covering fixed costs and generating profit.
DSCR (Debt Service Coverage Ratio)
A measure of cash flow available to pay debt obligations, calculated as annual net operating income divided by annual debt payments.
LTV (Customer Lifetime Value)
The total revenue a business expects to earn from a customer over their entire relationship.
ROAS (Return on Ad Spend)
A marketing metric that measures revenue generated for every dollar spent on advertising.
SBA Loan
A small business loan partially guaranteed by the U.S. Small Business Administration, offering longer terms and lower rates than conventional business loans.
Career & Income
AGI (Adjusted Gross Income)
Your total gross income minus specific deductions, used to determine tax liability and eligibility for credits.
After-Tax Income
Your take-home pay after federal, state, and payroll taxes are deducted—the actual money you can spend.
FICA (Federal Insurance Contributions Act)
Payroll taxes that fund Social Security and Medicare, totaling 7.65% of wages for employees (matched by employers).
Gross Income
Your total income before any taxes or deductions are taken out—the starting point for tax calculations.
Marginal Tax Rate
The tax rate applied to your last dollar of income—the rate you pay on additional earnings.
Standard Deduction
A fixed dollar amount that reduces your taxable income, available to all taxpayers who don't itemize.
Tax Bracket
The range of income taxed at a specific rate under the U.S. progressive tax system.
Tax Withholding
The amount of federal and state income tax that your employer automatically deducts from each paycheck and sends to the government on your behalf.
Vesting
The process of earning full ownership of employer-provided benefits like 401(k) matching contributions or stock options over time.
W-2 Form
An annual tax document from employers showing your total wages and taxes withheld for the year.
Debt & Credit
APR (Annual Percentage Rate)
The total yearly cost of borrowing money, including interest and fees, expressed as a percentage.
Amortization
The process of paying off a loan through regular payments that cover both principal and interest.
Annual Fee
Yearly charge for having a credit card—$0 to $550+. Premium cards charge fees but offer rewards that can exceed cost for high spenders.
BNPL (Buy Now, Pay Later)
A short-term financing option that lets you split purchases into installment payments (usually 4 payments over 6 weeks) with little or no interest—if you pay on time.
Balance Transfer
Moving credit card debt from one card to another, typically to take advantage of a lower interest rate or 0% promotional APR.
Balance Transfer Fee
One-time charge (3-5%) to transfer debt to 0% APR card. $5K balance = $150-250 fee. Must save more than fee to make transfer worthwhile.
Balloon Payment
A large lump-sum payment due at the end of some loans after a period of smaller monthly payments.
Credit Utilization Ratio
The percentage of available credit you're using, calculated by dividing total credit card balances by total credit limits.
Debt Avalanche Method
A debt payoff strategy where you pay minimums on all debts, then put extra money toward the highest interest rate debt first.
Debt Consolidation
The process of combining multiple debts into a single loan with a lower interest rate to simplify payments and reduce costs.
Debt Snowball Method
A debt payoff strategy where you pay minimums on all debts, then focus extra payments on the smallest balance first for psychological wins.
Debt-to-Income Ratio (DTI)
Percentage of gross monthly income that goes toward debt payments.
Extra Payments (Loan Acceleration)
Additional principal payments beyond the required monthly amount that reduce total interest and shorten loan payoff time.
FICO Score
A three-digit credit score (300-850) calculated by Fair Isaac Corporation, used by lenders to assess creditworthiness.
Grace Period
Interest-free period (21-25 days) between purchase and payment due date. Only applies if you pay statement balance in full each month.
IBR Plan (Income-Based Repayment)
An income-driven repayment plan requiring 10-15% of discretionary income with forgiveness after 20-25 years, ideal for borrowers whose debt exceeds their income.
ICR Plan (Income-Contingent Repayment)
The oldest income-driven plan with 20% discretionary income payments or a 12-year fixed amount, with forgiveness after 25 years—the only IDR option for Parent PLUS loans.
LTV (Loan-to-Value Ratio)
The percentage of the loan amount compared to the appraised value of the asset being purchased.
Late Fee
Penalty for missing payment due date—up to $40 per occurrence. Also triggers penalty APR up to 29.99% and damages credit score.
Loan Term
The length of time you have to repay a loan, typically expressed in months or years.
Minimum Payment
Lowest payment card companies accept—usually 1-3% of balance. Paying only the minimum traps you in debt for decades with massive interest.
Negative Equity
When you owe more on a loan than the asset is worth—also called being 'underwater'.
Origination Fee
An upfront fee charged by lenders to process and approve a loan, typically 0.5-1% of the loan amount.
Over-the-Limit Fee
Fee charged when balance exceeds credit limit—up to $35. Now requires opt-in. Better to decline and have charges rejected than pay fees.
PAYE Plan (Pay As You Earn)
An income-driven repayment plan with 10% discretionary income payments, capped at the Standard amount, with forgiveness after 20 years for recent borrowers.
PSLF (Public Service Loan Forgiveness)
A federal program that forgives remaining student loan debt after 120 qualifying monthly payments while working full-time for a qualifying employer.
Parent PLUS Loan
A federal student loan that parents of dependent undergraduate students can borrow to help pay for college costs not covered by other financial aid.
Payment Frequency
How often you make loan or mortgage payments—monthly, bi-weekly, semi-monthly, or weekly—which can significantly impact total interest paid.
Pre-Approval
Getting financing approved before shopping, giving you negotiating power and budget clarity.
Principal
The original amount of money borrowed in a loan or invested in an account, excluding interest.
Secured Loan
A loan backed by collateral (like a vehicle or property) that the lender can repossess if you default.
Standard Repayment Plan
The default 10-year student loan repayment plan with fixed monthly payments, designed to pay off loans completely in 120 equal payments.
Economic & Inflation
Cost of Living Adjustment (COLA)
Regional variations in expenses that affect how much it costs to raise a child, with urban areas typically 20-50% more expensive than rural areas.
Dynamic Currency Conversion (DCC)
When merchants abroad offer to charge your card in your home currency instead of local currency, usually with hidden markup of 3-7%.
Exchange Rate
The value of one currency in terms of another—how many euros you get for a dollar, for example.
Foreign Transaction Fee
A fee charged by credit card companies for transactions in foreign currencies, typically 1-3% of the purchase amount.
PPP (Purchasing Power Parity)
An economic measure that compares currencies by how much goods and services they can buy in different countries.
Economic Indicators
CPI (Consumer Price Index)
A government measure of inflation that tracks the average change in prices consumers pay for goods and services over time.
Deflation
A general decrease in the price level of goods and services, the opposite of inflation.
Purchasing Power
The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.
Economics
Federal Funds Rate
Interest rate banks charge each other for overnight loans. Set by Federal Reserve. Controls all other interest rates—mortgages, credit cards, savings.
Inverted Yield Curve
Short-term bonds pay higher rates than long-term bonds. Recession predictor—has preceded every recession since 1950, usually by 12-24 months.
Market Correction
10-20% market decline from recent peak. Healthy and common—happens every 1-2 years. Not as severe as 20%+ bear market.
Prime Rate
Interest rate banks charge most creditworthy customers. Usually Fed funds rate + 3%. Credit cards and HELOCs tied to prime rate.
Recession
Economic downturn with declining GDP, rising unemployment, and reduced spending. Technically 2 consecutive quarters of negative GDP growth.
Stagflation
Stagnant economy with high inflation—worst of both worlds. Rising prices + high unemployment + no growth. Rare but devastating.
Yield Curve
Graph showing bond yields across different maturities. Normal = upward slope (long-term pays more). Inverted = recession warning.
Economics & Markets
Education & Career
529 Plan (Qualified Tuition Plan)
A tax-advantaged savings plan designed to encourage saving for future education costs, with tax-free growth and withdrawals for qualified expenses.
EFC (Expected Family Contribution)
The amount of money your family is expected to contribute toward college costs for one year, calculated by the FAFSA formula.
Everyday Math
Family & Parenting
Child Tax Credit
Federal tax credit of up to $2,000 per qualifying child under 17, reducing your tax bill dollar-for-dollar.
Child and Dependent Care Tax Credit
Tax credit for childcare expenses while you work, worth up to $2,100 for two or more children (up to 35% of $6,000 in expenses).
Dependent Care FSA
Pre-tax savings account for childcare expenses, allowing you to set aside up to $5,000/year tax-free to pay for daycare and after-school care.
Kiddie Tax
A tax rule that taxes unearned income (dividends, interest, capital gains) of children under 19 at their parents' higher tax rate.
Health & Wellness
Healthcare
Coinsurance
Percentage of medical costs you pay after meeting deductible. 20% coinsurance on $1,000 bill = you pay $200, insurance pays $800.
Copay (Copayment)
Fixed dollar amount paid for doctor visits, prescriptions, or services. $30 specialist visit copay means you pay $30, insurance covers rest.
FSA (Flexible Spending Account)
A pre-tax account for medical expenses that must be used within the plan year or you lose the money (use-it-or-lose-it rule).
In-Network
Doctors and hospitals contracted with your insurance for pre-negotiated rates. Lower costs, higher coverage. Always use in-network when possible.
Out-of-Network
Doctors not contracted with your insurance. Higher costs, lower coverage, potential balance billing. Avoid except emergencies.
Out-of-Pocket Maximum
Most you pay for covered services in a year. Includes deductible, copays, coinsurance. Once hit, insurance pays 100% rest of year.
Healthcare & Insurance
ADLs (Activities of Daily Living)
Six basic self-care tasks—like bathing and dressing—that determine long-term care eligibility.
Any Occupation
Disability coverage that only pays benefits if you cannot work in any reasonable job based on your experience and education.
Assisted Living
Housing for people who need help with daily tasks but not round-the-clock medical care.
Beneficiary
The person, trust, or organization that receives the life insurance payout.
Benefit Period
How long your disability insurance will pay benefits once a qualifying claim is approved.
Cash Value
The savings component inside certain permanent life insurance policies.
DIME Method
A rule of thumb for estimating life insurance needs: Debt, Income, Mortgage, Education.
Daily Benefit Amount
The maximum your long-term care policy will pay per day for covered services.
Death Benefit
The lump sum paid to beneficiaries when the insured person dies.
Deductible
The amount you must pay out-of-pocket before insurance coverage kicks in.
Elimination Period
The waiting period before disability insurance benefits start—think of it as a time-based deductible.
HSA (Health Savings Account)
A tax-advantaged savings account for medical expenses, available only with high-deductible health plans.
Home Health Care
Skilled nursing or personal care delivered in your home by licensed professionals.
Income Replacement Ratio
The percentage of your paycheck a disability policy will replace while you are on claim.
Inflation Protection
A rider that raises your long-term care benefit each year so it keeps up with rising costs.
Nursing Home Care
24-hour skilled care in a licensed facility for people with significant medical or custodial needs.
Own Occupation
Disability insurance that pays if you cannot perform the specific duties of your current job—even if you can work elsewhere.
Residual Disability Benefit
A rider that pays partial disability benefits when you can work part-time but lose a portion of your income.
Term Life Insurance
Life insurance that covers you for a set period (typically 10, 20, or 30 years) with no cash value.
Whole Life Insurance
Permanent coverage that lasts your entire life and builds a slow-growing cash value.
Housing & Real Estate
30% Rent Rule
A budgeting guideline stating that housing costs should not exceed 30% of gross monthly income to maintain financial stability.
Escrow Account
A separate account where lenders hold funds for property taxes and insurance, ensuring these bills are paid on time.
FHA Loan
A government-backed mortgage insured by the Federal Housing Administration, allowing low down payments (as low as 3.5%) and lower credit scores.
HELOC (Home Equity Line of Credit)
A revolving credit line secured by your home equity, allowing you to borrow money as needed up to a preset limit.
Joint Tenancy
A form of property ownership where two or more people own equal shares with automatic transfer to survivors upon death.
PMI (Private Mortgage Insurance)
Extra monthly cost added to mortgage if down payment is less than 20% of home value.
Special Assessment
An extra fee charged by an HOA or condo board for major repairs or improvements not covered by regular HOA dues.
Underwriting
The process where lenders evaluate your creditworthiness and determine if they'll approve your loan and at what terms.
VA Loan
A zero-down-payment mortgage guaranteed by the Department of Veterans Affairs for eligible military service members, veterans, and surviving spouses.
Insurance
Insurance & Healthcare
Insurance & Risk Management
Claim Frequency
How often you file insurance claims, measured as claims per year (e.g., 0.2 = 1 claim every 5 years).
Claim Severity
The average dollar amount paid out per insurance claim, indicating the size/cost of losses.
Collision Coverage
Auto insurance that covers damage to your vehicle from crashes with other cars or objects, regardless of who's at fault.
Comprehensive Coverage
Auto insurance that covers damage to your vehicle from non-collision events like theft, vandalism, weather, or animal strikes.
Insurance Premium
The amount you pay (monthly, quarterly, or annually) to maintain active insurance coverage.
Pet Insurance
Insurance coverage for veterinary expenses and pet health care, ranging from routine visits to emergency surgery.
Risk Management
The process of identifying, assessing, and controlling threats to your financial security and goals.
Risk Tolerance
Your willingness and financial ability to absorb potential losses or uncertainty in exchange for potential rewards.
Investing & Growth
Investing Basics
Investment
12b-1 Fee
Hidden mutual fund fee (0.25-1% annually) for marketing and distribution. Comes out of your returns. Avoid funds with high 12b-1 fees.
AUM (Assets Under Management)
Total market value of investments managed by an advisor or fund. Used to calculate 1% annual advisor fees—$500K AUM = $5K/year.
Alpha
Excess return above benchmark. Positive alpha = beat the market. Most actively managed funds have negative alpha after fees.
Bear Market
20%+ sustained market decline from recent peak. Characterized by fear, pessimism, and falling prices. Buying opportunity for long-term investors.
Beta
Volatility compared to market. Beta of 1.0 = moves with market. Beta of 1.5 = 50% more volatile. Measures risk, not return.
Bull Market
20%+ sustained market rise from recent low. Characterized by optimism, economic growth, and rising prices. Opposite of bear market.
Dividend Yield
Annual dividend payment divided by stock price. 3% yield on $100 stock = $3 yearly dividend. Measure of income return.
Fee-Only Advisor
Financial advisor paid only by client fees, not commissions. Fiduciary duty to act in your best interest. No conflicts from product sales.
Load (Mutual Fund)
Sales commission charged when buying (front-load) or selling (back-load) a mutual fund. Avoid—buy no-load index funds instead.
P/E Ratio (Price-to-Earnings)
Stock price divided by annual earnings per share. Shows how much you pay per $1 of earnings. Low P/E may be cheap, high may be overvalued.
Sharpe Ratio
Risk-adjusted return measure. Higher is better. 1.0+ is good. Compares excess return to volatility—rewards returns, penalizes risk.
Turnover Ratio
Percentage of fund holdings sold and replaced each year. 100% = entire portfolio traded. High turnover = higher taxes and costs.
Investment Analysis
Appreciation
The increase in an asset's value over time, whether it's real estate, stocks, or other investments.
Asset Class
A group of investments with similar behavior, risk, and regulatory profiles (e.g., stocks, bonds, cash).
Bond
A fixed-income investment where you loan money to a government or corporation in exchange for regular interest payments.
Bond Yield
The return an investor earns on a bond, expressed as a percentage, which can be calculated as current yield (annual interest ÷ current price) or yield to maturity (total return if held until maturity).
Capital Gains Tax
Tax on profits from selling investments like stocks, bonds, or real estate.
Capital Loss
A loss realized when you sell an investment for less than you paid for it, which can offset capital gains for tax purposes.
Correlation
A value between -1 and +1 that shows how two investments move together—lower correlation improves diversification.
Cost Basis
The original purchase price of an investment, used to calculate capital gains or losses when you sell.
Currency Risk
The risk that exchange rate fluctuations will negatively affect the value of your international investments or transactions.
DRIP (Dividend Reinvestment Plan)
An investment program that automatically uses dividend payments to purchase additional shares of stock.
Diversification
Spreading investments across different asset classes to reduce risk—the 'don't put all your eggs in one basket' principle.
Dividend
A payment made by a corporation to its shareholders, usually as a distribution of profits.
Dollar-Cost Averaging (DCA)
An investment strategy where you invest a fixed amount of money at regular intervals, regardless of market conditions.
ESG (Environmental, Social, and Governance)
Investment criteria that evaluate companies based on environmental impact, social responsibility, and ethical governance practices.
ETF (Exchange-Traded Fund)
A basket of stocks or bonds that trades like a single stock, offering instant diversification with low fees.
ETF Overlap
When multiple ETFs or funds in your portfolio hold the same stocks, creating unintended concentration risk.
Ex-Dividend Date
The cutoff date to own a stock to receive its upcoming dividend payment—buy before this date to get the dividend.
Expense Ratio
The annual fee charged by mutual funds and ETFs, expressed as a percentage of your investment.
Fractional Shares
Ownership of less than one full share of stock, allowing investors to buy portions of expensive stocks.
Future Value (FV)
The projected value of an investment or sum of money at a specific point in the future, accounting for compound growth.
Index Fund
A type of mutual fund or ETF that tracks a market index, providing broad market exposure with low costs.
Market Capitalization (Market Cap)
The total value of a company's outstanding shares, calculated by multiplying share price by the number of shares.
Market Risk
The risk of losses caused by overall market declines that you cannot diversify away.
Mutual Fund
A professionally managed investment pool that combines money from many investors to buy stocks, bonds, or other securities.
Payback Period
The time it takes for an investment to generate enough cash flow to recover its initial cost.
Portfolio Drift
When your actual asset allocation strays from the target mix because some investments outperform others.
Portfolio Optimization
Using math (like Modern Portfolio Theory) to find the mix of assets that maximizes return for a given level of risk.
Portfolio Rebalancing
The process of buying and selling assets to realign your portfolio with its target allocation.
Portfolio Rebalancing
The process of realigning your investment portfolio back to your target asset allocation by buying and selling assets.
Qualified Dividend
Dividends that meet IRS criteria and are taxed at the lower capital gains rate instead of ordinary income rates.
ROI (Return on Investment)
A metric that measures the profitability of an investment by comparing the gain or loss to its cost, expressed as a percentage.
Real Return
Investment returns adjusted for inflation, showing the actual increase in purchasing power.
Rebalancing Bands
Pre-set thresholds that tell you when an asset class has drifted enough to trigger a rebalance.
Reverse Stock Split
A corporate action that reduces the number of shares outstanding by combining multiple shares into one, proportionally increasing the price per share.
Stock Split
A corporate action that increases the number of shares outstanding by dividing each existing share into multiple shares, proportionally reducing the price per share.
Stress Testing
Simulating extreme market scenarios to see how your portfolio would behave during crashes, recessions, or rate spikes.
Tax-Efficient Rebalancing
Rebalancing strategies that minimize capital gains taxes by using smart trade sequencing.
Tax-Loss Harvesting
Selling investments at a loss to offset capital gains or up to $3,000 of ordinary income each year.
Volatility
How much an investment's price or returns bounce around over time—higher volatility means larger swings and higher risk.
Wash Sale Rule
An IRS rule that disallows claiming a capital loss if you buy the same or substantially identical security within 30 days before or after the sale.
Yield
The income return on an investment, expressed as a percentage of the investment's cost or current market value.
Investment Concepts
Investment Strategy
Personal Finance
20/4/10 Rule
A conservative car buying guideline: 20% down payment, 4-year maximum loan, monthly payment ≤10% of gross income.
50/30/20 Rule
A budgeting guideline allocating 50% to needs, 30% to wants, and 20% to savings
Analysis Paralysis
Overthinking choices until you miss the window to act.
Automated Savings
Setting up automatic transfers so saving happens without willpower.
Behavioral Finance
The study of how emotions and mental shortcuts influence money decisions.
Budget
A spending plan that tracks income and expenses to ensure you're living within your means and working toward financial goals.
Budget Planning
Process of creating a plan to spend your money on priorities, including fixed expenses like pet care.
Budget Variance
The difference between planned and actual spending
Cash Flow
The net amount of money moving in and out of your accounts
Cost Per Use
The total cost of an item divided by how many times you use it, revealing the true value of purchases.
Debt-to-Asset Ratio
The percentage of your assets that are financed by debt
Debt-to-Income Ratio (DTI)
The percentage of your gross monthly income that goes toward debt payments
Delayed Gratification
Choosing to wait for a larger future reward instead of taking a smaller reward right now.
Discount
A reduction in price from the original or list price, typically expressed as a percentage or dollar amount.
Discretionary Spending
Non-essential expenses that can be reduced or eliminated, such as entertainment, dining out, and luxury items.
Emergency Fund
Savings buffer of 3-6 months of expenses for unexpected costs and financial security.
Emergency Fund
Savings buffer of 3-6 months of expenses for unexpected costs, including pet emergencies and medical crises.
Expense Tracking
Systematically recording every expense so you know exactly where your money goes.
Financial Discipline
Consistently making money choices that align with your long-term goals—even when it’s difficult.
Gratuity (Tip)
A voluntary payment given to service workers in addition to the bill amount, typically based on quality of service.
Hidden Expenses
Small or automatic charges that slip under the radar but add up over time.
Impulse Spending
Unplanned purchases driven by emotion, convenience, or social pressure rather than real need.
Income Percentile
Your ranking compared to all earners—50th percentile means you earn more than 50% of people.
Lifestyle Inflation
The tendency to increase spending as income rises, often preventing wealth building.
Lifetime Value
Total value derived from an investment, relationship, or asset over its entire lifespan.
Liquid Assets
Assets that can be quickly converted to cash without losing value—like savings accounts, stocks, and money market funds.
Liquidity
How quickly an asset can be converted to cash without significant loss of value
Net Worth
Total assets minus total liabilities—the true measure of your financial health
Net Worth Percentile
Your net worth rank using 2022 Federal Reserve Survey of Consumer Finances percentiles, showing what share of your age group has less wealth.
Opportunity Cost
The value of the next best alternative you give up when making a choice.
Percentage
A fraction or ratio expressed as a number out of 100, denoted by the % symbol.
Sales Tax
A consumption tax imposed by governments on the sale of goods and services, typically calculated as a percentage of the purchase price.
Service Charge
A mandatory fee added to a bill for service, separate from and in addition to sales tax.
Tip
A voluntary payment to service workers, typically a percentage of the bill, given as thanks for good service.
Total Cost of Ownership (TCO)
The complete cost of owning something over its lifetime, including purchase price, maintenance, insurance, fuel, repairs, and eventual resale value.
Total Cost of Ownership (TCO)
The complete cost of owning something over its entire lifetime, including all purchase, maintenance, and operational expenses.
Wealth Building
The process of systematically increasing your net worth over time
Zero-Based Budget
A budgeting method where every dollar of income is assigned a specific purpose
Policy & Economics
Carbon Dividend
A policy that rebates carbon-tax revenue equally to households so most people receive more back than they pay.
Carbon Footprint
The total greenhouse gas emissions caused by an individual, organization, or product, measured in CO2 equivalents.
Carbon Offset
A reduction in greenhouse gas emissions or increase in carbon storage to compensate for emissions made elsewhere.
Carbon Tax
A government policy that charges emitters a fee for each ton of carbon dioxide they release into the atmosphere.
Electric Vehicle (EV)
A vehicle powered by an electric motor and battery pack instead of an internal combustion engine.
Energy Efficiency
Using less energy to perform the same tasks, reducing energy waste and costs.
Greenhouse Gas
Gases in Earth's atmosphere that trap heat and contribute to global warming, including carbon dioxide, methane, and nitrous oxide.
Net Metering
A billing system that credits solar panel owners for excess electricity they generate and send back to the grid.
Renewable Energy
Energy from sources that naturally replenish themselves and don't run out, such as solar, wind, and hydroelectric power.
Revenue Recycling
How governments use carbon-tax revenue—through dividends, tax cuts, or clean-energy investments—to soften economic impacts.
Solar Panels
Photovoltaic systems that convert sunlight into electricity for residential and commercial use.
Sustainable Living
A lifestyle that reduces environmental impact through conscious choices about energy use, transportation, consumption, and waste.
Real Estate
Closing Costs
Fees to finalize home purchase—2-5% of home price. Includes appraisal, title insurance, attorney, origination, taxes. Plan $10K on $300K home.
Earnest Money
Good faith deposit (1-3% of home price) when making offer. Shows seller you're serious. Returned if deal falls through, applied to closing if successful.
Home Equity
The portion of your home's value that you actually own (market value minus mortgage balance)
Real Estate & Mortgages
Retirement
Catch-Up Contribution
Extra retirement contributions allowed at age 50+. 401k: additional $7,500/year. IRA: additional $1,000/year. Helps late savers close gap.
Glide Path
Automatic asset allocation shift in target-date funds from aggressive (stocks) to conservative (bonds) as retirement approaches. "Set and forget" strategy.
Retirement Planning
401(k)
An employer-sponsored retirement account where you contribute pre-tax income, often with employer matching.
Backdoor Roth IRA
A legal strategy allowing high earners to contribute to a Roth IRA by converting a Traditional IRA contribution.
Employer Match
Free money from your employer when you contribute to a 401(k) or similar retirement plan, typically matching 3-6% of your salary.
FIRE (Financial Independence, Retire Early)
A movement focused on saving aggressively (50-70% of income) to retire decades earlier than traditional retirement age.
Pre-Tax (Before Tax)
Income or contributions made before taxes are withheld, reducing current taxable income.
QCD (Qualified Charitable Distribution)
A tax-free donation of up to $105,000 per year directly from your IRA to charity, available to those age 70½ and older, that counts toward your RMD.
RMD (Required Minimum Distribution)
The minimum amount you must withdraw from retirement accounts annually starting at age 73, whether you need the money or not.
Roth Conversion (Roth IRA Conversion)
The process of moving money from a traditional IRA or 401(k) to a Roth IRA by paying taxes on the converted amount now in exchange for tax-free growth and withdrawals later.
Roth IRA
A retirement account funded with after-tax dollars that grows tax-free, with tax-free withdrawals in retirement.
SEP IRA (Simplified Employee Pension)
A retirement account for self-employed individuals and small business owners allowing contributions up to 25% of income or $69,000 (2024).
Safe Withdrawal Rate (4% Rule)
The percentage of your retirement portfolio you can withdraw annually without running out of money, historically around 4%.
Sequence of Returns Risk
The risk that poor investment returns early in retirement can permanently damage your portfolio, even if long-term averages are good.
Target Date Fund
A mutual fund that automatically adjusts its asset allocation from aggressive to conservative as you approach your target retirement date.
Traditional IRA
A retirement account with tax-deductible contributions that grow tax-deferred until withdrawal in retirement.
Small Business
Equipment Collateral
Using purchased equipment as security for a loan, making it easier to get approved and often at better rates.
Maintenance Reserve
A fund set aside specifically for equipment maintenance and repairs to prevent unexpected financial strain.
Section 179
A tax deduction that allows businesses to deduct the full cost of qualifying equipment in the year it's purchased.
Student Loans
Income Driven Repayment (IDR)
Federal student loan repayment plans that cap monthly payments at a percentage of your discretionary income, with potential loan forgiveness after 20-25 years.
SAVE Plan
The newest and most generous federal student loan repayment plan, offering 5-10% payments and interest subsidies for eligible borrowers.
Tax Planning
Capital Gains
Profits realized from selling investments like stocks, bonds, or real estate for more than their cost basis.
Cost Basis (Crypto)
The original purchase price of cryptocurrency plus fees, used to calculate capital gains or losses.
FBAR (Foreign Bank Account Report)
FinCEN Form 114 requiring U.S. persons to report foreign financial accounts exceeding $10,000 aggregate value.
FIFO (First In, First Out)
Accounting method where the oldest assets are sold first—the IRS default for cryptocurrency.
Form 8949
IRS form used to report sales and dispositions of capital assets, including cryptocurrency.
HIFO (Highest In, First Out)
Tax optimization strategy where you sell the highest-cost assets first to minimize capital gains.
Tax Credit
A dollar-for-dollar reduction in tax liability, providing direct savings on taxes owed.
Wash Sale Rule
Tax rule that disallows loss deductions if you repurchase the same or substantially identical security within 30 days.
Taxes
Effective Tax Rate
Your actual tax rate—total taxes paid divided by total income. Lower than marginal rate because of brackets and deductions.
Itemized Deductions
List of specific deductions (mortgage interest, charity, medical, taxes) that can exceed standard deduction and lower taxable income.
Ordinary Income
Income taxed at regular rates—wages, salary, interest, short-term capital gains. Taxed higher than qualified dividends and long-term capital gains.
Taxable Income
Income that's actually taxed after subtracting deductions from AGI. Used to determine tax bracket and total tax owed.
Transportation
Vehicle Finance
Depreciation
The decrease in value of an asset over time due to wear, age, or market conditions.
Down Payment
The initial cash payment made when purchasing a vehicle, reducing the amount you need to finance.
GVWR (Gross Vehicle Weight Rating)
The maximum total weight a vehicle can safely carry, including the vehicle itself, passengers, cargo, and fuel.
budgeting
financing
retirement
tax
All Terms A-Z
A
ADLs (Activities of Daily Living)
Six basic self-care tasks—like bathing and dressing—that determine long-term care eligibility.
After-Tax Income
Your take-home pay after federal, state, and payroll taxes are deducted—the actual money you can spend.
AGI (Adjusted Gross Income)
Your total gross income minus specific deductions, used to determine tax liability and eligibility for credits.
Alpha
Excess return above benchmark. Positive alpha = beat the market. Most actively managed funds have negative alpha after fees.
Amortization
The process of paying off a loan through regular payments that cover both principal and interest.
Analysis Paralysis
Overthinking choices until you miss the window to act.
Annual Fee
Yearly charge for having a credit card—$0 to $550+. Premium cards charge fees but offer rewards that can exceed cost for high spenders.
Annuity Payment
Regular periodic payment from an annuity contract
Any Occupation
Disability coverage that only pays benefits if you cannot work in any reasonable job based on your experience and education.
Appreciation
The increase in an asset's value over time, whether it's real estate, stocks, or other investments.
APR (Annual Percentage Rate)
The total yearly cost of borrowing money, including interest and fees, expressed as a percentage.
APY (Annual Percentage Yield)
The effective annual rate of return on savings, accounting for compound interest.
Asset Allocation
The mix of different investment types in your portfolio, determining both risk and potential returns
Asset Class
A group of investments with similar behavior, risk, and regulatory profiles (e.g., stocks, bonds, cash).
Assisted Living
Housing for people who need help with daily tasks but not round-the-clock medical care.
AUM (Assets Under Management)
Total market value of investments managed by an advisor or fund. Used to calculate 1% annual advisor fees—$500K AUM = $5K/year.
Automated Savings
Setting up automatic transfers so saving happens without willpower.
B
Backdoor Roth IRA
A legal strategy allowing high earners to contribute to a Roth IRA by converting a Traditional IRA contribution.
Balance Transfer
Moving credit card debt from one card to another, typically to take advantage of a lower interest rate or 0% promotional APR.
Balance Transfer Fee
One-time charge (3-5%) to transfer debt to 0% APR card. $5K balance = $150-250 fee. Must save more than fee to make transfer worthwhile.
Balloon Payment
A large lump-sum payment due at the end of some loans after a period of smaller monthly payments.
Bear Market
20%+ sustained market decline from recent peak. Characterized by fear, pessimism, and falling prices. Buying opportunity for long-term investors.
Behavioral Finance
The study of how emotions and mental shortcuts influence money decisions.
Beneficiary
The person, trust, or organization that receives the life insurance payout.
Benefit Period
How long your disability insurance will pay benefits once a qualifying claim is approved.
Beta
Volatility compared to market. Beta of 1.0 = moves with market. Beta of 1.5 = 50% more volatile. Measures risk, not return.
BNPL (Buy Now, Pay Later)
A short-term financing option that lets you split purchases into installment payments (usually 4 payments over 6 weeks) with little or no interest—if you pay on time.
Bond
A fixed-income investment where you loan money to a government or corporation in exchange for regular interest payments.
Bond Yield
The return an investor earns on a bond, expressed as a percentage, which can be calculated as current yield (annual interest ÷ current price) or yield to maturity (total return if held until maturity).
Break-Even Analysis
A calculation that determines the point at which total revenue equals total costs, showing how many units must be sold or how much revenue is needed before a business becomes profitable.
Budget
A spending plan that tracks income and expenses to ensure you're living within your means and working toward financial goals.
Budget Planning
Process of creating a plan to spend your money on priorities, including fixed expenses like pet care.
Budget Variance
The difference between planned and actual spending
Bull Market
20%+ sustained market rise from recent low. Characterized by optimism, economic growth, and rising prices. Opposite of bear market.
C
CAC (Customer Acquisition Cost)
The total cost of acquiring a new customer, including marketing and sales expenses.
Capital Gains
Profits realized from selling investments like stocks, bonds, or real estate for more than their cost basis.
Capital Gains Tax
Tax on profits from selling investments like stocks, bonds, or real estate.
Capital Loss
A loss realized when you sell an investment for less than you paid for it, which can offset capital gains for tax purposes.
Carbon Dividend
A policy that rebates carbon-tax revenue equally to households so most people receive more back than they pay.
Carbon Footprint
The total greenhouse gas emissions caused by an individual, organization, or product, measured in CO2 equivalents.
Carbon Offset
A reduction in greenhouse gas emissions or increase in carbon storage to compensate for emissions made elsewhere.
Carbon Tax
A government policy that charges emitters a fee for each ton of carbon dioxide they release into the atmosphere.
Cash Back
A credit card reward that returns a percentage of your spending as cash, typically 1-5% depending on the category.
Cash Flow
The net amount of money moving in and out of your accounts
Cash Value
The savings component inside certain permanent life insurance policies.
Cashback Rewards
Percentage of purchases returned as cash or credit
Catch-Up Contribution
Extra retirement contributions allowed at age 50+. 401k: additional $7,500/year. IRA: additional $1,000/year. Helps late savers close gap.
CD Ladder
A savings strategy where you divide money across multiple CDs with different maturity dates to balance higher rates with liquidity.
Charitable Deduction
Tax deduction for donations to qualified organizations
Child and Dependent Care Tax Credit
Tax credit for childcare expenses while you work, worth up to $2,100 for two or more children (up to 35% of $6,000 in expenses).
Child Tax Credit
Federal tax credit of up to $2,000 per qualifying child under 17, reducing your tax bill dollar-for-dollar.
Claim Frequency
How often you file insurance claims, measured as claims per year (e.g., 0.2 = 1 claim every 5 years).
Claim Severity
The average dollar amount paid out per insurance claim, indicating the size/cost of losses.
Closing Costs
Fees to finalize home purchase—2-5% of home price. Includes appraisal, title insurance, attorney, origination, taxes. Plan $10K on $300K home.
Coinsurance
Percentage of medical costs you pay after meeting deductible. 20% coinsurance on $1,000 bill = you pay $200, insurance pays $800.
Collision Coverage
Auto insurance that covers damage to your vehicle from crashes with other cars or objects, regardless of who's at fault.
Compound Interest
Interest calculated on both principal and accumulated interest, creating exponential growth over time.
Comprehensive Coverage
Auto insurance that covers damage to your vehicle from non-collision events like theft, vandalism, weather, or animal strikes.
Contribution Margin
The amount each unit sold contributes toward covering fixed costs and generating profit.
Copay (Copayment)
Fixed dollar amount paid for doctor visits, prescriptions, or services. $30 specialist visit copay means you pay $30, insurance covers rest.
Correlation
A value between -1 and +1 that shows how two investments move together—lower correlation improves diversification.
Cost Basis
The original purchase price of an investment, used to calculate capital gains or losses when you sell.
Cost Basis (Crypto)
The original purchase price of cryptocurrency plus fees, used to calculate capital gains or losses.
Cost of Living
Amount needed to maintain a standard of living
Cost of Living Adjustment (COLA)
Regional variations in expenses that affect how much it costs to raise a child, with urban areas typically 20-50% more expensive than rural areas.
Cost Per Use
The total cost of an item divided by how many times you use it, revealing the true value of purchases.
CPI (Consumer Price Index)
A government measure of inflation that tracks the average change in prices consumers pay for goods and services over time.
Credit Utilization Ratio
The percentage of available credit you're using, calculated by dividing total credit card balances by total credit limits.
Currency Risk
The risk that exchange rate fluctuations will negatively affect the value of your international investments or transactions.
D
Daily Benefit Amount
The maximum your long-term care policy will pay per day for covered services.
Death Benefit
The lump sum paid to beneficiaries when the insured person dies.
Debt Avalanche Method
A debt payoff strategy where you pay minimums on all debts, then put extra money toward the highest interest rate debt first.
Debt Consolidation
The process of combining multiple debts into a single loan with a lower interest rate to simplify payments and reduce costs.
Debt Snowball Method
A debt payoff strategy where you pay minimums on all debts, then focus extra payments on the smallest balance first for psychological wins.
Debt-to-Asset Ratio
The percentage of your assets that are financed by debt
Debt-to-Income Ratio (DTI)
Percentage of gross monthly income that goes toward debt payments.
Debt-to-Income Ratio (DTI)
The percentage of your gross monthly income that goes toward debt payments
Deductible
The amount you must pay out-of-pocket before insurance coverage kicks in.
Deflation
A general decrease in the price level of goods and services, the opposite of inflation.
Delayed Gratification
Choosing to wait for a larger future reward instead of taking a smaller reward right now.
Dependent Care FSA
Pre-tax savings account for childcare expenses, allowing you to set aside up to $5,000/year tax-free to pay for daycare and after-school care.
Depreciation
The decrease in value of an asset over time due to wear, age, or market conditions.
DIME Method
A rule of thumb for estimating life insurance needs: Debt, Income, Mortgage, Education.
Discount
A reduction in price from the original or list price, typically expressed as a percentage or dollar amount.
Discretionary Spending
Non-essential expenses that can be reduced or eliminated, such as entertainment, dining out, and luxury items.
Diversification
Spreading investments across different asset classes to reduce risk—the 'don't put all your eggs in one basket' principle.
Dividend
A payment made by a corporation to its shareholders, usually as a distribution of profits.
Dividend Yield
Annual dividend payment divided by stock price. 3% yield on $100 stock = $3 yearly dividend. Measure of income return.
Dollar-Cost Averaging (DCA)
An investment strategy where you invest a fixed amount of money at regular intervals, regardless of market conditions.
Down Payment
The initial cash payment made when purchasing a vehicle, reducing the amount you need to finance.
DRIP (Dividend Reinvestment Plan)
An investment program that automatically uses dividend payments to purchase additional shares of stock.
DSCR (Debt Service Coverage Ratio)
A measure of cash flow available to pay debt obligations, calculated as annual net operating income divided by annual debt payments.
Dynamic Currency Conversion (DCC)
When merchants abroad offer to charge your card in your home currency instead of local currency, usually with hidden markup of 3-7%.
E
Early Withdrawal Penalty
Fee for withdrawing funds before maturity
Earnest Money
Good faith deposit (1-3% of home price) when making offer. Shows seller you're serious. Returned if deal falls through, applied to closing if successful.
EFC (Expected Family Contribution)
The amount of money your family is expected to contribute toward college costs for one year, calculated by the FAFSA formula.
Effective Tax Rate
Your actual tax rate—total taxes paid divided by total income. Lower than marginal rate because of brackets and deductions.
Electric Vehicle (EV)
A vehicle powered by an electric motor and battery pack instead of an internal combustion engine.
Elimination Period
The waiting period before disability insurance benefits start—think of it as a time-based deductible.
Emergency Fund
Savings buffer of 3-6 months of expenses for unexpected costs and financial security.
Emergency Fund
Savings buffer of 3-6 months of expenses for unexpected costs, including pet emergencies and medical crises.
Employer Match
Free money from your employer when you contribute to a 401(k) or similar retirement plan, typically matching 3-6% of your salary.
Energy Efficiency
Using less energy to perform the same tasks, reducing energy waste and costs.
Equipment Collateral
Using purchased equipment as security for a loan, making it easier to get approved and often at better rates.
Escrow Account
A separate account where lenders hold funds for property taxes and insurance, ensuring these bills are paid on time.
ESG (Environmental, Social, and Governance)
Investment criteria that evaluate companies based on environmental impact, social responsibility, and ethical governance practices.
ETF (Exchange-Traded Fund)
A basket of stocks or bonds that trades like a single stock, offering instant diversification with low fees.
ETF Overlap
When multiple ETFs or funds in your portfolio hold the same stocks, creating unintended concentration risk.
Ex-Dividend Date
The cutoff date to own a stock to receive its upcoming dividend payment—buy before this date to get the dividend.
Exchange Rate
The value of one currency in terms of another—how many euros you get for a dollar, for example.
Expense Ratio
The annual fee charged by mutual funds and ETFs, expressed as a percentage of your investment.
Expense Tracking
Systematically recording every expense so you know exactly where your money goes.
Extra Payments (Loan Acceleration)
Additional principal payments beyond the required monthly amount that reduce total interest and shorten loan payoff time.
F
FBAR (Foreign Bank Account Report)
FinCEN Form 114 requiring U.S. persons to report foreign financial accounts exceeding $10,000 aggregate value.
Federal Funds Rate
Interest rate banks charge each other for overnight loans. Set by Federal Reserve. Controls all other interest rates—mortgages, credit cards, savings.
Fee-Only Advisor
Financial advisor paid only by client fees, not commissions. Fiduciary duty to act in your best interest. No conflicts from product sales.
FHA Loan
A government-backed mortgage insured by the Federal Housing Administration, allowing low down payments (as low as 3.5%) and lower credit scores.
FICA (Federal Insurance Contributions Act)
Payroll taxes that fund Social Security and Medicare, totaling 7.65% of wages for employees (matched by employers).
FICO Score
A three-digit credit score (300-850) calculated by Fair Isaac Corporation, used by lenders to assess creditworthiness.
FIFO (First In, First Out)
Accounting method where the oldest assets are sold first—the IRS default for cryptocurrency.
Financial Discipline
Consistently making money choices that align with your long-term goals—even when it’s difficult.
FIRE (Financial Independence, Retire Early)
A movement focused on saving aggressively (50-70% of income) to retire decades earlier than traditional retirement age.
Foreign Transaction Fee
A fee charged by credit card companies for transactions in foreign currencies, typically 1-3% of the purchase amount.
Form 8949
IRS form used to report sales and dispositions of capital assets, including cryptocurrency.
Fractional Shares
Ownership of less than one full share of stock, allowing investors to buy portions of expensive stocks.
FSA (Flexible Spending Account)
A pre-tax account for medical expenses that must be used within the plan year or you lose the money (use-it-or-lose-it rule).
Fuel Efficiency
Distance traveled per unit of fuel consumed
Future Value (FV)
The projected value of an investment or sum of money at a specific point in the future, accounting for compound growth.
G
Glide Path
Automatic asset allocation shift in target-date funds from aggressive (stocks) to conservative (bonds) as retirement approaches. "Set and forget" strategy.
Grace Period
Interest-free period (21-25 days) between purchase and payment due date. Only applies if you pay statement balance in full each month.
Gratuity (Tip)
A voluntary payment given to service workers in addition to the bill amount, typically based on quality of service.
Greenhouse Gas
Gases in Earth's atmosphere that trap heat and contribute to global warming, including carbon dioxide, methane, and nitrous oxide.
Gross Income
Your total income before any taxes or deductions are taken out—the starting point for tax calculations.
GVWR (Gross Vehicle Weight Rating)
The maximum total weight a vehicle can safely carry, including the vehicle itself, passengers, cargo, and fuel.
H
HDHP vs PPO
Two main types of health insurance plans: HDHP (high-deductible with HSA eligibility) vs PPO (preferred provider with higher premiums but lower deductibles).
HELOC (Home Equity Line of Credit)
A revolving credit line secured by your home equity, allowing you to borrow money as needed up to a preset limit.
Hidden Expenses
Small or automatic charges that slip under the radar but add up over time.
HIFO (Highest In, First Out)
Tax optimization strategy where you sell the highest-cost assets first to minimize capital gains.
High-Yield Savings Account
A savings account that pays significantly higher interest rates (typically 4-5% APY) than traditional bank accounts (0.01% APY), usually offered by online banks.
Home Equity
The portion of your home's value that you actually own (market value minus mortgage balance)
Home Health Care
Skilled nursing or personal care delivered in your home by licensed professionals.
HSA (Health Savings Account)
A tax-advantaged savings account for medical expenses, available only with high-deductible health plans.
I
IBR Plan (Income-Based Repayment)
An income-driven repayment plan requiring 10-15% of discretionary income with forgiveness after 20-25 years, ideal for borrowers whose debt exceeds their income.
ICR Plan (Income-Contingent Repayment)
The oldest income-driven plan with 20% discretionary income payments or a 12-year fixed amount, with forgiveness after 25 years—the only IDR option for Parent PLUS loans.
Impulse Spending
Unplanned purchases driven by emotion, convenience, or social pressure rather than real need.
In-Network
Doctors and hospitals contracted with your insurance for pre-negotiated rates. Lower costs, higher coverage. Always use in-network when possible.
Income Driven Repayment (IDR)
Federal student loan repayment plans that cap monthly payments at a percentage of your discretionary income, with potential loan forgiveness after 20-25 years.
Income Percentile
Your ranking compared to all earners—50th percentile means you earn more than 50% of people.
Income Replacement Ratio
The percentage of your paycheck a disability policy will replace while you are on claim.
Index Fund
A type of mutual fund or ETF that tracks a market index, providing broad market exposure with low costs.
Inflation
General increase in prices over time, reducing the purchasing power of your money.
Inflation Protection
A rider that raises your long-term care benefit each year so it keeps up with rising costs.
Insurance Premium
The amount you pay (monthly, quarterly, or annually) to maintain active insurance coverage.
Inverted Yield Curve
Short-term bonds pay higher rates than long-term bonds. Recession predictor—has preceded every recession since 1950, usually by 12-24 months.
Itemized Deductions
List of specific deductions (mortgage interest, charity, medical, taxes) that can exceed standard deduction and lower taxable income.
L
Late Fee
Penalty for missing payment due date—up to $40 per occurrence. Also triggers penalty APR up to 29.99% and damages credit score.
Lease
Contractual agreement to use an asset for periodic payments
Lease Buyout
Purchasing a leased asset at end of lease term
Lifestyle Inflation
The tendency to increase spending as income rises, often preventing wealth building.
Lifetime Value
Total value derived from an investment, relationship, or asset over its entire lifespan.
Liquid Assets
Assets that can be quickly converted to cash without losing value—like savings accounts, stocks, and money market funds.
Liquidity
How quickly an asset can be converted to cash without significant loss of value
Load (Mutual Fund)
Sales commission charged when buying (front-load) or selling (back-load) a mutual fund. Avoid—buy no-load index funds instead.
Loan Term
The length of time you have to repay a loan, typically expressed in months or years.
LTV (Customer Lifetime Value)
The total revenue a business expects to earn from a customer over their entire relationship.
LTV (Loan-to-Value Ratio)
The percentage of the loan amount compared to the appraised value of the asset being purchased.
M
Maintenance Reserve
A fund set aside specifically for equipment maintenance and repairs to prevent unexpected financial strain.
Marginal Tax Rate
The tax rate applied to your last dollar of income—the rate you pay on additional earnings.
Marine Survey
A professional inspection that evaluates a boat’s condition, value, and safety before purchase or financing.
Market Capitalization (Market Cap)
The total value of a company's outstanding shares, calculated by multiplying share price by the number of shares.
Market Correction
10-20% market decline from recent peak. Healthy and common—happens every 1-2 years. Not as severe as 20%+ bear market.
Market Risk
The risk of losses caused by overall market declines that you cannot diversify away.
Minimum Payment
Lowest payment card companies accept—usually 1-3% of balance. Paying only the minimum traps you in debt for decades with massive interest.
Mortgage Equity
The portion of your home's value that you actually own, calculated as home value minus remaining mortgage balance.
Mutual Fund
A professionally managed investment pool that combines money from many investors to buy stocks, bonds, or other securities.
N
Negative Equity
When you owe more on a loan than the asset is worth—also called being 'underwater'.
Net Metering
A billing system that credits solar panel owners for excess electricity they generate and send back to the grid.
Net Worth
Total assets minus total liabilities—the true measure of your financial health
Net Worth Percentile
Your net worth rank using 2022 Federal Reserve Survey of Consumer Finances percentiles, showing what share of your age group has less wealth.
Nursing Home Care
24-hour skilled care in a licensed facility for people with significant medical or custodial needs.
O
Opportunity Cost
The value of the next best alternative you give up when making a choice.
Ordinary Income
Income taxed at regular rates—wages, salary, interest, short-term capital gains. Taxed higher than qualified dividends and long-term capital gains.
Origination Fee
An upfront fee charged by lenders to process and approve a loan, typically 0.5-1% of the loan amount.
Out-of-Network
Doctors not contracted with your insurance. Higher costs, lower coverage, potential balance billing. Avoid except emergencies.
Out-of-Pocket Maximum
Most you pay for covered services in a year. Includes deductible, copays, coinsurance. Once hit, insurance pays 100% rest of year.
Over-the-Limit Fee
Fee charged when balance exceeds credit limit—up to $35. Now requires opt-in. Better to decline and have charges rejected than pay fees.
Overdraft
Withdrawal exceeding available account balance
Own Occupation
Disability insurance that pays if you cannot perform the specific duties of your current job—even if you can work elsewhere.
P
P/E Ratio (Price-to-Earnings)
Stock price divided by annual earnings per share. Shows how much you pay per $1 of earnings. Low P/E may be cheap, high may be overvalued.
Parent PLUS Loan
A federal student loan that parents of dependent undergraduate students can borrow to help pay for college costs not covered by other financial aid.
Payback Period
The time it takes for an investment to generate enough cash flow to recover its initial cost.
PAYE Plan (Pay As You Earn)
An income-driven repayment plan with 10% discretionary income payments, capped at the Standard amount, with forgiveness after 20 years for recent borrowers.
Payment Frequency
How often you make loan or mortgage payments—monthly, bi-weekly, semi-monthly, or weekly—which can significantly impact total interest paid.
Payroll Tax
Tax withheld from employee wages
Percentage
A fraction or ratio expressed as a number out of 100, denoted by the % symbol.
Pet Insurance
Insurance coverage for veterinary expenses and pet health care, ranging from routine visits to emergency surgery.
PMI (Private Mortgage Insurance)
Extra monthly cost added to mortgage if down payment is less than 20% of home value.
Portfolio Drift
When your actual asset allocation strays from the target mix because some investments outperform others.
Portfolio Optimization
Using math (like Modern Portfolio Theory) to find the mix of assets that maximizes return for a given level of risk.
Portfolio Rebalancing
The process of buying and selling assets to realign your portfolio with its target allocation.
Portfolio Rebalancing
The process of realigning your investment portfolio back to your target asset allocation by buying and selling assets.
PPP (Purchasing Power Parity)
An economic measure that compares currencies by how much goods and services they can buy in different countries.
Pre-Approval
Getting financing approved before shopping, giving you negotiating power and budget clarity.
Pre-Tax (Before Tax)
Income or contributions made before taxes are withheld, reducing current taxable income.
Premium
The regular payment you make to maintain your insurance coverage.
Present Value
The current worth of a future sum of money, calculated by discounting future cash flows at an appropriate interest rate.
Preventive Care
Regular health maintenance (vaccines, cleanings, check-ups) to prevent more expensive problems later.
Prime Rate
Interest rate banks charge most creditworthy customers. Usually Fed funds rate + 3%. Credit cards and HELOCs tied to prime rate.
Principal
The original amount of money borrowed in a loan or invested in an account, excluding interest.
PSLF (Public Service Loan Forgiveness)
A federal program that forgives remaining student loan debt after 120 qualifying monthly payments while working full-time for a qualifying employer.
Purchasing Power
The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.
Q
QCD (Qualified Charitable Distribution)
A tax-free donation of up to $105,000 per year directly from your IRA to charity, available to those age 70½ and older, that counts toward your RMD.
Qualified Dividend
Dividends that meet IRS criteria and are taxed at the lower capital gains rate instead of ordinary income rates.
R
Rate Increase
An increase in insurance premiums after filing a claim or other risk factors change.
Real Return
Investment returns adjusted for inflation, showing the actual increase in purchasing power.
Rebalancing Bands
Pre-set thresholds that tell you when an asset class has drifted enough to trigger a rebalance.
Recession
Economic downturn with declining GDP, rising unemployment, and reduced spending. Technically 2 consecutive quarters of negative GDP growth.
Renewable Energy
Energy from sources that naturally replenish themselves and don't run out, such as solar, wind, and hydroelectric power.
Residual Disability Benefit
A rider that pays partial disability benefits when you can work part-time but lose a portion of your income.
Residual Value
Estimated value of asset at end of lease or useful life
Revenue Recycling
How governments use carbon-tax revenue—through dividends, tax cuts, or clean-energy investments—to soften economic impacts.
Reverse Stock Split
A corporate action that reduces the number of shares outstanding by combining multiple shares into one, proportionally increasing the price per share.
Risk Management
The process of identifying, assessing, and controlling threats to your financial security and goals.
Risk Tolerance
Your willingness and financial ability to absorb potential losses or uncertainty in exchange for potential rewards.
RMD (Required Minimum Distribution)
The minimum amount you must withdraw from retirement accounts annually starting at age 73, whether you need the money or not.
ROAS (Return on Ad Spend)
A marketing metric that measures revenue generated for every dollar spent on advertising.
ROI (Return on Investment)
A metric that measures the profitability of an investment by comparing the gain or loss to its cost, expressed as a percentage.
Rolling CD
A CD laddering strategy where you invest in multiple CDs with different maturity dates to balance higher yields with liquidity needs.
Roth Conversion (Roth IRA Conversion)
The process of moving money from a traditional IRA or 401(k) to a Roth IRA by paying taxes on the converted amount now in exchange for tax-free growth and withdrawals later.
Roth IRA
A retirement account funded with after-tax dollars that grows tax-free, with tax-free withdrawals in retirement.
Rule of 72
Divide 72 by an annual return rate to estimate how many years it takes money to double.
S
Safe Withdrawal Rate (4% Rule)
The percentage of your retirement portfolio you can withdraw annually without running out of money, historically around 4%.
Sales Tax
A consumption tax imposed by governments on the sale of goods and services, typically calculated as a percentage of the purchase price.
SAVE Plan
The newest and most generous federal student loan repayment plan, offering 5-10% payments and interest subsidies for eligible borrowers.
SBA Loan
A small business loan partially guaranteed by the U.S. Small Business Administration, offering longer terms and lower rates than conventional business loans.
Section 179
A tax deduction that allows businesses to deduct the full cost of qualifying equipment in the year it's purchased.
Secured Loan
A loan backed by collateral (like a vehicle or property) that the lender can repossess if you default.
SEP IRA (Simplified Employee Pension)
A retirement account for self-employed individuals and small business owners allowing contributions up to 25% of income or $69,000 (2024).
Sequence of Returns Risk
The risk that poor investment returns early in retirement can permanently damage your portfolio, even if long-term averages are good.
Service Charge
A mandatory fee added to a bill for service, separate from and in addition to sales tax.
Sharpe Ratio
Risk-adjusted return measure. Higher is better. 1.0+ is good. Compares excess return to volatility—rewards returns, penalizes risk.
Solar Panels
Photovoltaic systems that convert sunlight into electricity for residential and commercial use.
Special Assessment
An extra fee charged by an HOA or condo board for major repairs or improvements not covered by regular HOA dues.
Stagflation
Stagnant economy with high inflation—worst of both worlds. Rising prices + high unemployment + no growth. Rare but devastating.
Standard Deduction
A fixed dollar amount that reduces your taxable income, available to all taxpayers who don't itemize.
Standard Repayment Plan
The default 10-year student loan repayment plan with fixed monthly payments, designed to pay off loans completely in 120 equal payments.
Stock Split
A corporate action that increases the number of shares outstanding by dividing each existing share into multiple shares, proportionally reducing the price per share.
Stress Testing
Simulating extreme market scenarios to see how your portfolio would behave during crashes, recessions, or rate spikes.
Subscription Economy
Business model based on recurring subscription revenue
Sunk Cost Fallacy
Continuing to invest in something because you've already spent money on it, even when it's not the best choice.
Sustainable Living
A lifestyle that reduces environmental impact through conscious choices about energy use, transportation, consumption, and waste.
T
Take-Home Pay
Net income after taxes and deductions
Target Date Fund
A mutual fund that automatically adjusts its asset allocation from aggressive to conservative as you approach your target retirement date.
Tax Bracket
The range of income taxed at a specific rate under the U.S. progressive tax system.
Tax Credit
A dollar-for-dollar reduction in tax liability, providing direct savings on taxes owed.
Tax Withholding
The amount of federal and state income tax that your employer automatically deducts from each paycheck and sends to the government on your behalf.
Tax-Efficient Rebalancing
Rebalancing strategies that minimize capital gains taxes by using smart trade sequencing.
Tax-Loss Harvesting
Selling investments at a loss to offset capital gains or up to $3,000 of ordinary income each year.
Taxable Income
Income that's actually taxed after subtracting deductions from AGI. Used to determine tax bracket and total tax owed.
Term Life Insurance
Life insurance that covers you for a set period (typically 10, 20, or 30 years) with no cash value.
Time Units
Different ways to measure time, from seconds and minutes to weeks, years, and decades.
Tip
A voluntary payment to service workers, typically a percentage of the bill, given as thanks for good service.
Total Cost of Ownership (TCO)
The complete cost of owning something over its lifetime, including purchase price, maintenance, insurance, fuel, repairs, and eventual resale value.
Total Cost of Ownership (TCO)
The complete cost of owning something over its entire lifetime, including all purchase, maintenance, and operational expenses.
Traditional IRA
A retirement account with tax-deductible contributions that grow tax-deferred until withdrawal in retirement.
Turnover Ratio
Percentage of fund holdings sold and replaced each year. 100% = entire portfolio traded. High turnover = higher taxes and costs.
V
VA Loan
A zero-down-payment mortgage guaranteed by the Department of Veterans Affairs for eligible military service members, veterans, and surviving spouses.
Vesting
The process of earning full ownership of employer-provided benefits like 401(k) matching contributions or stock options over time.
Volatility
How much an investment's price or returns bounce around over time—higher volatility means larger swings and higher risk.
W
W-2 Form
An annual tax document from employers showing your total wages and taxes withheld for the year.
Wash Sale Rule
An IRS rule that disallows claiming a capital loss if you buy the same or substantially identical security within 30 days before or after the sale.
Wash Sale Rule
Tax rule that disallows loss deductions if you repurchase the same or substantially identical security within 30 days.
Wealth Building
The process of systematically increasing your net worth over time
Whole Life Insurance
Permanent coverage that lasts your entire life and builds a slow-growing cash value.
Y
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