Financial Glossary
Plain-English definitions of terms you'll see in calculators, guides, and every financial decision you make.
1099 Form
A tax form used to report income from non-employment sources, such as freelance work or investments.
W-2 Form
The official Wage and Tax Statement sent by an employer detailing annual earnings and taxes withheld.
AGI (Adjusted Gross Income)
Your gross income minus specific IRS adjustments, which determines your taxable income and eligibility for certain deductions.
APR (Annual Percentage Rate)
The yearly interest rate charged on a loan or credit, including fees — the true cost of borrowing.
APY (Annual Percentage Yield)
The actual yearly return on a savings account or investment, factoring in compound interest — always higher than the base rate.
Amortization
The process of paying off a debt in regular installments over time, where early payments are mostly interest.
Compound Interest
Interest calculated on both principal and previously earned interest — the engine of wealth building.
Capital Gains Tax
A tax levied by the IRS on profit earned from selling assets like stocks and real estate, differentiated between short-term and long-term rates.
Collateral
A valuable asset that a borrower pledges as security for a loan. If the borrower defaults, the lender can seize the asset.
Credit Limit
The maximum amount of money a financial institution allows you to borrow on a single credit card or line of credit.
Credit Utilization Ratio
The percentage of your total available revolving credit limit that you are borrowing against, accounting for 30% of your FICO score.
Debt-to-Income Ratio (DTI)
Your monthly debt payments divided by gross monthly income — a key metric lenders use to evaluate you.
Exchange-Traded Fund (ETF)
A basket of securities that trades on an exchange just like a stock, offering instant diversification.
Emergency Fund
A cash reserve set aside for unexpected expenses — typically 3–6 months of living costs.
Escrow
A neutral third-party account that holds money during a home purchase or manages monthly property taxes and insurance.
Expense Ratio
The mandatory annual operational fee that mutual funds and ETFs charge investors, deducted daily from NAV and reducing compound growth.
FICO Score
The most widely used credit score in the US (300–850). Over 90% of top lenders use FICO to approve loans and set interest rates.
Inflation
The sustained rise in the general price level of goods and services, which reduces the purchasing power of money over time.
Interest Rate
The percentage of a principal amount that a lender charges for borrowing money, or a bank pays for saving money.
Loan Principal
The original sum of money borrowed in a loan or put into an investment, independent of the interest.
Net Worth
Your total assets minus total liabilities — the single most important personal finance number.
Prepayment Penalty
A fee a lender charges a borrower for paying off a loan ahead of the scheduled maturity date, designed to recoup lost interest revenue.
Refinancing
The process of replacing an existing credit contract with a new loan agreement featuring modified interest rates or repayment terms.
Certificate of Deposit (CD)
A low-risk banking product that guarantees a fixed interest rate (APY) in exchange for locking your money for a set period.
Roth IRA
An individual retirement account where you contribute after-tax money, allowing all future compound growth and withdrawals to be completely tax-free.
Dividend
A portion of a company's profits that is distributed directly back to its shareholders, usually on a quarterly basis.
Dividend Yield
A financial ratio showing how much a company pays out in dividends relative to stock price.
Dollar-Cost Averaging (DCA)
An investment strategy of investing a fixed dollar amount on a regular schedule, regardless of share price.
Lump Sum Investing
The strategy of investing a large amount of money into the market all at once, rather than over a period of time.
Mutual Fund
A professionally managed investment vehicle that pools money from many investors to purchase a large, diversified portfolio of stocks or bonds.
Bond
A fixed-income instrument representing a loan made by an investor to a borrower (typically corporate or governmental).
Brokerage Account
An investment account that allows you to buy and sell stocks, bonds, and mutual funds.
Charge-Off
When a creditor declares a debt unlikely to be collected and writes it off as a loss, heavily damaging your credit.
Hard Inquiry
A check of your credit report by a lender when you apply for credit, which may temporarily lower your credit score.
Secured Credit Card
A credit card backed by a cash deposit that acts as your credit limit, primarily used to rebuild credit.
Credit Bureau
An agency (like Experian, Equifax, TransUnion) that collects and maintains consumer credit information.
Credit Report
A detailed history of your borrowing and repayment activity used by lenders to determine creditworthiness.
Debt Consolidation
The financial strategy of taking out a single new loan to pay off multiple existing debts, often securing a lower interest rate.
Bankruptcy
A federal legal process designed to help individuals and businesses eliminate or repay their debts under court protection.
Sinking Fund
A strategic way to save money for a specific, known upcoming expense by setting aside a small amount each month.
Emergency Fund
A highly liquid cash reserve specifically set aside to cover unplanned expenses or a sudden loss of income.
FDIC Insurance
A US government guarantee that protects your bank deposits up to $250,000 if your bank fails.
Money Market Account (MMA)
A hybrid deposit account that offers high interest rates like a savings account but includes check-writing privileges like a checking account.
Overdraft Protection
A banking service that prevents card declines when you lack funds, usually by charging a high flat fee per transaction.
Routing Number
A 9-digit code that identifies the specific bank or credit union where your account was opened.
Zero-Based Budgeting
A budgeting method where your income minus your expenses equals exactly zero.
Discretionary Income
The money left over to spend or save after you have paid all taxes and essential bills.
Pay Yourself First
A budgeting strategy where you immediately transfer money into savings before paying any bills.
529 Plan
A tax-advantaged savings account designed to encourage saving for future education costs.
Financial Aid
Money given or lent to students to help pay for college, including grants, work-study, and federal loans.
Capitalized Interest
Unpaid interest that gets added to the principal balance of a loan.
Promissory Note
A legally binding contract in which a borrower promises to repay a loan according to specific terms.
Student Loan Forgiveness
A program that legally cancels the remaining balance on federal student loans.
Pell Grant
Federal financial aid awarded to undergraduate students with exceptional financial need that does not have to be repaid.
FAFSA
The Free Application for Federal Student Aid, used to determine eligibility for federal grants, work-study, and loans.
Appraisal
An unbiased professional opinion of a home's fair market value, required by lenders during the mortgage process.
PMI (Private Mortgage Insurance)
Insurance you may be required to pay for if you have a conventional loan and your down payment is less than 20 percent.
Title Insurance
Insurance that protects lenders and homebuyers from financial loss due to defects in a property's title.
Earnest Money
A good faith deposit made by a homebuyer to a seller immediately after an offer is accepted.
ARM (Adjustable-Rate Mortgage)
A type of home loan where the interest rate periodically changes based on the broader market.
LTV (Loan-to-Value)
The ratio of the loan amount compared to the appraised value of the property.
Mortgage Points
Fees paid directly to the lender at closing in exchange for a reduced interest rate.
Tax Bracket
A range of income that is subject to a specific income tax rate in our progressive system.
