Question
Answer
Budget
A plan for how to allocate income across expenses savings and investments
Net Income
Take-home pay after taxes and deductions
Gross Income
Total income before taxes and deductions are taken out
Fixed Expense
A recurring cost that stays the same each month (e.g. rent)
Variable Expense
A cost that changes month to month (e.g. groceries)
Emergency Fund
Savings set aside to cover 3–6 months of living expenses
Savings Rate
The percentage of income saved each month
Pay Yourself First
The habit of saving a portion of income before spending
50/30/20 Rule
Budget guideline: 50% needs
Zero-Based Budget
A budget where every dollar of income is assigned a purpose
Net Worth
Total assets minus total liabilities
Asset
Anything you own that has financial value
Liability
Any debt or financial obligation you owe
Liquid Asset
An asset that can quickly be converted to cash
Inflation
The gradual rise in prices that reduces purchasing power over time
Purchasing Power
The amount of goods and services money can buy
Compound Interest
Interest earned on both the principal and previously earned interest
Simple Interest
Interest calculated only on the original principal amount
APR (Annual Percentage Rate)
The yearly cost of borrowing money including fees
APY (Annual Percentage Yield)
The real return earned on savings including compound interest
Credit Score
A number (300–850) representing your creditworthiness
Credit Report
A detailed record of your credit history
FICO Score
The most widely used credit scoring model
Credit Utilisation
The percentage of available credit you are currently using
Hard Inquiry
A credit check that can lower your score (e.g. loan application)
Soft Inquiry
A credit check that does not affect your score (e.g. pre-approval)
Debt-to-Income Ratio
Monthly debt payments divided by gross monthly income
Minimum Payment
The smallest amount you can pay on a credit card to avoid penalty
Interest Rate
The percentage charged on borrowed money per year
Amortisation
The process of paying off debt through regular scheduled payments
Mortgage
A loan used to purchase real estate secured by the property
Down Payment
An upfront payment made when purchasing a home or car
Equity
The portion of an asset you truly own (value minus what you owe)
Refinancing
Replacing an existing loan with a new one at better terms
Student Loan
Money borrowed to pay for education that must be repaid with interest
Subsidised Loan
A student loan where the government pays interest while you're in school
Unsubsidised Loan
A student loan where interest accrues from the day funds are received
Debt Avalanche
Paying off highest-interest debt first to minimise total interest paid
Debt Snowball
Paying off smallest debts first to build momentum
Stock
A share of ownership in a publicly traded company
Bond
A loan made to a company or government that pays regular interest
Mutual Fund
A pooled investment managed by professionals
Index Fund
A fund that passively tracks a market index like the S&P 500
ETF (Exchange-Traded Fund)
An index fund that trades on a stock exchange like a stock
Dividend
A portion of company profits paid regularly to shareholders
Portfolio
The collection of all your investments
Diversification
Spreading investments across assets to reduce risk
Risk Tolerance
Your ability and willingness to handle investment losses
Asset Allocation
How your portfolio is divided among stocks bonds and cash
Rebalancing
Adjusting your portfolio back to your target asset allocation
Dollar-Cost Averaging
Investing a fixed amount regularly regardless of market conditions
Bull Market
A period of rising stock prices (typically 20%+ gain)
Bear Market
A period of falling stock prices (typically 20%+ decline)
Market Capitalisation
The total market value of a company's outstanding shares
P/E Ratio (Price-to-Earnings)
A stock's price divided by its earnings per share
Return on Investment (ROI)
The gain or loss on an investment relative to its cost
Capital Gain
Profit from selling an asset for more than you paid
Capital Loss
A loss from selling an asset for less than you paid
Tax-Advantaged Account
An account with tax benefits for saving (e.g. 401k IRA)
401(k)
An employer-sponsored retirement savings plan with tax advantages
IRA (Individual Retirement Account)
A personal retirement savings account with tax benefits
Roth IRA
A retirement account funded with after-tax dollars; withdrawals are tax-free
Traditional IRA
A retirement account funded with pre-tax dollars; taxed on withdrawal
Employer Match
When an employer contributes to your 401k based on your contributions
Vesting
The process by which you gain full ownership of employer contributions
Social Security
A government programme providing retirement disability and survivor benefits
Medicare
Federal health insurance for people 65 and older
Tax Bracket
The range of income taxed at a specific rate
Marginal Tax Rate
The tax rate applied to your last dollar of income
Effective Tax Rate
The average rate at which your total income is taxed
Tax Deduction
An expense that reduces your taxable income
Tax Credit
A direct reduction in the amount of tax you owe
W-2
A form showing annual wages and taxes withheld from an employer
1099
A form reporting income from freelance or self-employment work
Tax Refund
Money returned when you overpay taxes throughout the year
HSA (Health Savings Account)
A tax-advantaged account for medical expenses paired with a high-deductible plan
FSA (Flexible Spending Account)
A pre-tax account for healthcare or dependent care expenses
Life Insurance
A contract paying a benefit to beneficiaries upon the policyholder's death
Term Life Insurance
Life insurance that covers a specific period (e.g. 20 years)
Whole Life Insurance
Permanent life insurance that builds cash value over time
Deductible
The amount you pay out of pocket before insurance covers costs
Premium
The regular payment made to maintain an insurance policy
Beneficiary
A person designated to receive assets or insurance proceeds
Estate Planning
The process of arranging the management of your assets after death
Will
A legal document specifying how your assets should be distributed after death
Power of Attorney
Legal authority to act on someone else's behalf in financial matters
Living Will
A document specifying your wishes for medical treatment if incapacitated
Trust
A legal arrangement where assets are held by one party for another's benefit
Executor
A person named in a will to carry out its instructions
Probate
The legal process of validating a will and distributing assets
Net Worth Statement
A snapshot of total assets minus total liabilities at a point in time
Financial Independence
Having enough wealth to live without needing to work
FIRE (Financial Independence Retire Early)
A movement focused on extreme saving to retire far earlier than normal
Passive Income
Income earned with little ongoing effort (e.g. dividends rental income)
Side Hustle
Additional income earned outside of a primary job
Opportunity Cost
The value of what you give up by choosing one financial option over another
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