Reference
The Financial Glossary
Plain-English definitions, no jargon allowed. This glossary grows with the Learning Center.
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- 401(k)
- An employer-sponsored retirement account funded from your paycheck, often with matching contributions — the closest thing to free money in personal finance.
A
- APR
- Annual Percentage Rate — the yearly cost of borrowing including interest and most fees. On credit cards, the number that quietly grows balances.
- APY
- Annual Percentage Yield — what your savings actually earn in a year including compounding. Compare accounts by APY, not by marketing.
- Asset
- Anything you own with real value: cash, investments, property, a business.
- Asset Allocation
- How your investments divide among stocks, bonds, and cash. The biggest driver of your portfolio's behavior — more than any individual pick.
C
- Compound Interest
- Earnings on your earnings. The reason starting early beats starting big.
D
- Diversification
- Spreading money across many investments so no single failure can sink you. Index funds deliver it in one purchase.
E
- Emergency Fund
- Cash reserved for genuine surprises — job loss, medical bills, major repairs — kept separate from daily spending.
- Expense Ratio
- The annual fee a fund charges, as a percentage. An 0.04% index fund costs $4 per $10,000 invested per year; a 1% fund costs $100. It compounds against you.
F
- Fiduciary
- An advisor legally required to act in your best interest. Always worth asking: 'Are you a fiduciary at all times, for all my accounts?'
H
- HSA
- Health Savings Account — triple tax-advantaged (deductible in, tax-free growth, tax-free out for medical costs) for people with high-deductible health plans.
I
- Index Fund
- A fund that owns every company in a market list rather than picking favorites. Low cost, broad diversification, famously hard to beat.
- IRA
- Individual Retirement Account — a retirement account you open yourself, with broader investment choices than most workplace plans.
L
- Liability
- Anything you owe: mortgage, loans, credit card balances.
- Liquidity
- How quickly something converts to spendable cash. Savings accounts are liquid; home equity is not.
N
- Net Worth
- Assets minus liabilities. The single best scoreboard for financial progress.
P
- Pension
- An employer-funded plan paying guaranteed monthly income in retirement — increasingly rare, and worth careful decisions when you have one.
R
- Rebalancing
- Periodically returning your portfolio to its target mix by trimming what grew and adding to what lagged. Discipline, automated.
- Roth
- A tax treatment (for IRAs and 401(k)s) where you contribute after-tax money and withdrawals in retirement are tax-free.
S
- Self-Employment Tax
- Social Security and Medicare taxes paid by freelancers and business owners — roughly 15.3% on profits, the tax W-2 intuition forgets.
- Sinking Fund
- Monthly savings toward a known future expense — holidays, insurance, car repairs — so irregular costs stop ambushing your budget.
- Social Security Full Retirement Age
- The age (66–67 for most people today) when you qualify for your full benefit. Claiming earlier permanently reduces it; waiting past it adds delayed credits.
T
- Term Life Insurance
- Pure life insurance for a set period — typically the affordable, sufficient choice for families with dependents.
V
- Vesting
- The schedule on which employer retirement contributions become permanently yours. Know it before you change jobs.
W
- Withdrawal Rate
- The percentage of a portfolio withdrawn annually in retirement. The classic 4% guideline is a starting point for planning, not a law of nature.
Z
- Zero-Based Budget
- A budgeting method where every dollar of income is assigned a job — spending, saving, or giving — until income minus assignments equals zero.