Finance Glossary, 100 Money Terms in Plain English

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401(k): A US employer-sponsored retirement plan funded with pre-tax salary, often with a match.
50/30/20 Rule: A budgeting guide that splits after-tax income into 50% needs, 30% wants and 20% savings.

A

Amortization: Paying off a loan through regular payments split between interest and principal, with interest taking the larger share early on.
Annual Income: Total earnings over a year, quoted either before tax (gross) or after tax (net).
Annual Percentage Rate (APR): The yearly cost of borrowing, including interest and certain fees, expressed as a percentage.
Annual Percentage Yield (APY): The yearly return on savings including the effect of compounding, expressed as a percentage.
Annuity: A financial product or stream of equal payments made at regular intervals, often used for retirement income.
Appreciation: An increase in the value of an asset over time, the opposite of depreciation.
Asset: Anything you own that has monetary value, such as cash, property or investments.
Asset Allocation: How a portfolio is divided among asset types like stocks, bonds and cash to balance risk and return.

B

Balance Transfer: Moving debt from one credit card to another, often to secure a lower interest rate for a period.
Balloon Payment: A large one-time payment due at the end of certain loans after smaller regular payments.
Bear Market: A prolonged period of falling asset prices, often defined as a drop of 20% or more.
Bond: A loan you make to a government or company that pays interest and returns the principal at maturity.
Budget: A plan that tracks expected income and expenses over a period so spending stays intentional.
Bull Market: A prolonged period of rising asset prices and general investor optimism.

C

CAGR (Compound Annual Growth Rate): The smoothed average annual growth rate of an investment over multiple years.
Capital: Money or assets used to generate income or to fund a business or investment.
Capital Gain: The profit made when you sell an asset for more than you paid for it.
Cash Flow: The money moving in and out of a household or business over a period of time.
Cash Reserve: Liquid funds kept on hand to cover short-term needs without selling investments.
Closing Costs: Fees paid to finalize a real estate purchase, on top of the down payment.
Collateral: An asset pledged to secure a loan that the lender can claim if you default.
Compound Interest: Interest calculated on both the original principal and the interest already earned.
Compounding Frequency: How often interest is added to a balance, such as monthly, quarterly or yearly.
Consolidation: Combining several debts into a single loan, often to simplify payments or lower the rate.
Cosigner: A person who agrees to repay a loan if the primary borrower cannot.
Coupon Rate: The annual interest a bond pays, expressed as a percentage of its face value.
Credit Score: A number summarizing your creditworthiness that lenders use to assess risk.
Credit Utilization: The share of your available credit you are currently using; lower is generally better.

D

Debt Avalanche: A payoff strategy that targets the highest-interest debt first to minimize total interest.
Debt Snowball: A payoff strategy that clears the smallest balances first for motivation and momentum.
Debt-to-Income Ratio (DTI): Your monthly debt payments divided by your gross monthly income, shown as a percentage.
Deduction: An expense subtracted from taxable income to reduce the tax you owe.
Default: Failing to repay a debt according to its agreed terms.
Deferment: A temporary, approved pause on loan payments, common with student loans.
Depreciation: A decrease in the value of an asset over time through use, age or wear.
Discount Rate: The rate used to convert future cash flows into their value today.
Diversification: Spreading investments across many assets so no single loss is decisive.
Dividend: A share of a company's profits paid out to its shareholders.
Dividend Yield: A company's annual dividend divided by its share price, expressed as a percentage.
Down Payment: The upfront cash portion of a purchase price, such as on a home or car.

E

Emergency Fund: Savings set aside to cover unexpected expenses or a loss of income, typically 3–6 months of costs.
Equity: The value of an asset you truly own after subtracting any debt held against it.
Escrow: An account a lender uses to hold and pay your property taxes and insurance.
ETF (Exchange-Traded Fund): A basket of securities that trades on an exchange throughout the day like a stock.
Expense Ratio: The annual fee a fund charges, expressed as a percentage of the money invested.

F

Face Value: The amount a bond repays at maturity, also called par value.
Fixed Rate: An interest rate that stays the same for the life of a loan or deposit.
Future Value: What a sum of money today will be worth later after earning interest.

G

Grace Period: A set window after a due date during which no interest or penalty is charged.
Gross Income: Total income before taxes and deductions are taken out.
Gross Margin: Revenue minus the cost of goods sold, expressed as a percentage of revenue.

I

Inflation: The rate at which prices rise and the purchasing power of money falls over time.
Interest: The cost of borrowing money, or the return earned for lending or saving it.
Interest Rate: The percentage charged on a loan or paid on savings for each period.
IRA (Individual Retirement Account): A tax-advantaged account for retirement saving in the United States.

L

Liability: A financial obligation or debt that you owe to someone else.
Lien: A lender's legal claim on an asset until the related debt is repaid.
Liquidity: How quickly an asset can be turned into cash without losing much value.
Loan-to-Value (LTV): The loan amount divided by the value of the asset securing it, shown as a percentage.

M

Margin: The difference between the cost of a product and its selling price.
Market Capitalization: The total market value of a company's shares: price multiplied by shares outstanding.
Markup: The amount added to a product's cost to arrive at its selling price.
Maturity: The date when a bond or loan term ends and the principal becomes due.
Minimum Payment: The smallest amount you must pay on a debt to keep the account in good standing.
Mortgage: A loan used to buy property that is secured by the property itself.
Mutual Fund: A professionally managed investment that pools money from many investors.

N

Net Income: Income that remains after taxes and deductions; effectively your take-home pay.
Net Margin: Profit after all expenses, expressed as a percentage of revenue.
Net Worth: The total value of everything you own minus everything you owe.

O

Opportunity Cost: The value of the next-best alternative you give up when you make a choice.
Overdraft: Spending more than your account balance, which usually triggers a fee.

P

P/E Ratio: A share price divided by earnings per share, used to gauge how a stock is valued.
Pension: A retirement plan that pays regular income, often funded by an employer.
PMI (Private Mortgage Insurance): Insurance lenders require when a home down payment is below 20%.
Present Value: What a future sum of money is worth today once discounted by a rate.
Principal: The original amount borrowed or invested, before interest is added.

R

Recurring Deposit: A savings plan with fixed deposits made every month over a set term.
Refinancing: Replacing an existing loan with a new one, usually to get better terms.
Return on Investment (ROI): The gain or loss on an investment measured relative to its cost.
Risk Tolerance: How much investment ups and downs you are willing and able to accept.
Roth IRA: A US retirement account funded with after-tax money that can grow and be withdrawn tax-free.

S

Sales Tax: A tax added to the price of goods and services at the point of purchase.
Secured Loan: A loan backed by collateral, such as a mortgage or an auto loan.
Simple Interest: Interest calculated only on the original principal, not on interest already earned.
Sinking Fund: Money set aside regularly to cover a specific known future expense.
Standard Deduction: A fixed amount you can subtract from income instead of itemizing deductions.
Stock: A unit of ownership in a company, also called a share.

T

Take-Home Pay: The income you actually receive after taxes and deductions are removed.
Tax Bracket: A range of income that is taxed at a particular rate.
Term: The length of time over which a loan is repaid or a deposit is held.
Time Value of Money: The principle that a sum today is worth more than the same sum in the future.

U

Unsecured Loan: A loan not backed by collateral, such as most personal loans and credit cards.

V

Variable Rate: An interest rate that can change over time as a benchmark rate moves.
VAT (Value-Added Tax): A consumption tax added at each stage of production and sale of goods and services.
Vesting: Gradually earning the right to employer-contributed funds over a period of service.
Volatility: How much an asset's price moves up and down over a given period.

W

Withholding: Tax an employer deducts from your paycheck and sends to the government on your behalf.

Y

Yield: The income earned on an investment, expressed as a percentage of its price.