Short definitions of the words that make personal finance sound harder than it is. Each one links to the full article when there is one.
A retirement account you get through your employer. Money comes straight out of your paycheck before you see it, and the taxes are delayed until you withdraw it in retirement (or paid up front if your plan offers a Roth 401(k)). Pulling money out before age 59½ usually means taxes plus a 10% penalty.
Read: 401(k) Basics: Free Money Your Employer Is Offering You →A starting-point budget: 50% of take-home pay to needs, 30% to wants, and 20% to savings and extra debt payments. It's a rough guide you adjust as your income grows.
Read: How to Build a Budget That You'll Actually Stick To →An investment account for education costs. The money grows tax-free, and withdrawals are tax-free when you spend them on qualified education expenses. Many states also give you a state tax deduction for contributing.
Read: 529 Plans: Time Value of Money, Applied to Tuition →The yearly cost of borrowing money, shown as a percentage. On a credit card, the APR is the interest rate charged on any balance you don't pay off in full.
Read: Credit Cards for Beginners: How to Use Them Without Getting Burned →The yearly return on a savings account, including the effect of compounding. When you compare savings accounts, compare APY.
Read: High-Yield Savings Accounts: The Easiest Money Move You're Not Making →Anything you own that has value: cash, investments, a home, a car. Assets minus liabilities equals your net worth.
Read: The 3 Financial Statements, in Plain English →A snapshot of what a person or business owns (assets), what it owes (liabilities), and the difference (equity or net worth) on a single date.
Read: The 3 Financial Statements, in Plain English →Moving a credit card balance to a different card, usually to get a 0% promotional rate for a set number of months. Most transfers charge a fee, commonly 3% to 5% of the amount moved.
Read: Balance Transfers: How to Actually Use the 0% Offer →The person you name to receive money from an account or insurance policy when you die. On retirement accounts and life insurance, the beneficiary form generally controls who gets the money, even over what your will says, so keep it current.
Read: Term Life Insurance: How Much, and For How Long →A loan you make to a government or company. In return, they pay you interest and give your money back on a set date. Bonds usually move less than stocks and earn less over long periods.
Read: Stop Trying to Pick Stocks. Here's What to Buy Instead. →A service that splits a purchase into installments, often 4 payments over 6 weeks. Missed payments can bring late fees, and some providers report to the credit bureaus.
Read: Buy Now, Pay Later Is Just a Credit Card Wearing a Disguise →The profit when you sell an investment for more than you paid. Gains on investments held longer than 1 year are taxed at lower long-term rates than gains on investments held 1 year or less.
A report of the actual cash that came in and went out over a period. A business can show a profit and still run out of cash, which is why this statement matters.
Read: The 3 Financial Statements, in Plain English →Interest earned on your original money plus on the interest it already earned. It's why money invested early can grow so much, and why credit card debt grows so fast.
Read: How Compound Interest Actually Works (For You, or Against You) →A 3-digit number lenders use to judge how likely you are to repay. The most common version (FICO) runs from 300 to 850. Paying on time and keeping balances low matter most.
Read: Credit Scores Explained: What They Are, Why They Matter, and How to Build Yours →How much of your available credit you're using, as a percentage. A $300 balance on a $1,000 limit is 30% utilization. Lower is better for your score.
Read: Credit Scores Explained: What They Are, Why They Matter, and How to Build Yours →The amount you pay out of pocket before your insurance starts paying. A higher deductible usually means a lower monthly premium.
Read: Benefits Packages Decoded: What to Actually Look For Beyond Salary →Spreading your money across many investments so one bad company or sector can't sink you. A broad index fund does this for you in a single purchase.
A share of a company's profits paid out to its shareholders, often paid in cash every quarter.
Investing the same dollar amount on a regular schedule, like every paycheck, no matter what the market is doing. You automatically buy more shares when prices are low and fewer when they're high.
Read: How to Start Investing With $50 a Month →The part of a home's price you pay in cash up front. The rest is the mortgage. On a conventional loan, putting down less than 20% usually means paying PMI.
Read: Should You Rent or Buy in Your 20s? →Cash set aside for a job loss or a big unexpected bill, kept somewhere safe and easy to reach. The standard advice is 3 to 6 months of expenses. I aim for 1 year.
Read: You Need More Than 3 Months. Here's Why 1 Year Changes Everything. →Money your employer adds to your 401(k) when you contribute. A common formula is 50% of what you put in, up to 6% of your salary. Not contributing enough to get the full match leaves free money on the table.
Read: 401(k) Basics: Free Money Your Employer Is Offering You →A fund that holds a basket of investments and trades on the stock market like a single stock. Many index funds are available as ETFs.
The yearly fee a fund charges, shown as a percentage of what you have invested. A 0.03% expense ratio costs $3 a year on $10,000. A 1% fee costs $100.
Read: Stop Trying to Pick Stocks. Here's What to Buy Instead. →The Social Security and Medicare taxes taken from your paycheck: 6.2% for Social Security (up to a yearly wage cap) and 1.45% for Medicare. Your employer pays a matching amount.
Read: Your First Paycheck: What All Those Deductions Actually Mean →An employer account you fund with pre-tax money to pay for medical costs. Most of the money has to be used within the plan year, though some plans allow a small carryover or grace period.
Read: Your First Paycheck: What All Those Deductions Actually Mean →The age when you can collect your full Social Security benefit. For anyone born in 1960 or later, it's 67. You can claim as early as 62 for a smaller check or wait until 70 for a bigger one.
Read: When to Collect Social Security: The Math Behind 62, 67, and 70 →Your total pay before anything is taken out. Your offer letter shows gross pay.
Read: Your First Paycheck: What All Those Deductions Actually Mean →A savings account for medical costs, available if you have a high-deductible health plan. Money goes in tax-free, grows tax-free, and comes out tax-free for qualified medical expenses. The balance carries over year to year.
Read: Your First Paycheck: What All Those Deductions Actually Mean →A savings account that pays a much higher interest rate than a typical big-bank savings account. Look for FDIC insurance, which covers up to $250,000 per depositor, per bank.
Read: High-Yield Savings Accounts: The Easiest Money Move You're Not Making →A report of money earned and money spent over a period, ending with profit or loss. Also called a profit and loss statement, or P&L.
Read: The 3 Financial Statements, in Plain English →A fund that buys every company in a market index, like the S&P 500, instead of trying to pick winners. Fees are usually very low.
Read: Stop Trying to Pick Stocks. Here's What to Buy Instead. →The rate at which prices rise over time. If inflation is 3%, $100 buys about $97 worth of stuff a year later. Returns that don't beat inflation lose buying power.
Read: What the Stock Market Actually Returns Over 30 Years, After Inflation →Anything you owe: a mortgage, a car loan, student loans, a credit card balance.
Read: The 3 Financial Statements, in Plain English →When your spending rises every time your income does, so you never actually get ahead. The gap between what you earn and what you spend is what builds wealth.
Read: What Nobody Tells You About Lifestyle Creep After College →How quickly you can turn something into cash without losing value. Cash in a savings account is very liquid. A house is not.
Read: You Are Not Throwing Money Away By Renting →A company's share price multiplied by its total number of shares. This is the market's price tag on the whole company. A $20 stock can belong to a bigger company than a $500 stock.
Trying to buy before prices rise and sell before they fall. It feels smart, but missing just a few of the market's best days can do lasting damage to your returns.
Read: Why Market Timing Feels Smart and Loses Money Anyway →The smallest amount your credit card company lets you pay each month without a late fee. Paying only the minimum can stretch a balance out for years and cost far more in interest.
Try the calculator: Credit Card Paydown Calculator →The interest charge on a car lease, written as a small decimal like 0.00250. Multiply it by 2,400 to get the rough equivalent APR (0.00250 is about 6%).
Read: The Real Cost of a Car Lease, Run as an Investment Decision →What actually lands in your bank account after taxes, retirement contributions, and benefits come out. Also called take-home pay.
Read: Your First Paycheck: What All Those Deductions Actually Mean →Everything you own minus everything you owe. It's a better measure of financial health than income.
Read: What Nobody Tells You About Lifestyle Creep After College →What you give up by choosing one option over another. Cash tied up in a down payment is cash that isn't invested somewhere else.
Read: You Are Not Throwing Money Away By Renting →The original amount you invest or borrow, before any interest.
Read: How Compound Interest Actually Works (For You, or Against You) →Insurance that protects the lender, not you. It's usually added to your mortgage payment when you put down less than 20% on a conventional loan, and it can typically be removed once you build enough equity.
The minimum amount you must withdraw each year from most tax-deferred retirement accounts once you reach a set age (73 or 75, depending on birth year). Roth IRAs don't have RMDs for the original owner.
Read: The Withdrawal Order: Which Account You Draw Down First →What a leased car is expected to be worth when the lease ends. Your lease payments mostly cover the gap between the price and the residual value, plus the finance charge.
Read: The Real Cost of a Car Lease, Run as an Investment Decision →A retirement account you fund with money you've already paid tax on. Growth and qualified withdrawals in retirement are tax-free. There are income limits on who can contribute directly.
Read: Roth IRA vs. Traditional IRA: A Simple Breakdown →A shortcut for how long money takes to double: divide 72 by the annual return. At 8%, money doubles in about 9 years.
Read: The Rule of 72: Why the Same Latte Costs More at 25 Than at 45 →An index of about 500 of the largest U.S. public companies. It's the most common way to measure how "the market" did, and the basis of many popular index funds.
Read: Stop Trying to Pick Stocks. Here's What to Buy Instead. →When a company divides each share into several smaller ones. The share price drops by the same ratio, and the company's total value doesn't change. It's one reason share price alone tells you very little.
Life insurance that covers you for a set number of years, like 20 or 30. If you die during that term, it pays your beneficiaries. It has no investment component, which keeps it cheap.
Read: Term Life Insurance: How Much, and For How Long →A retirement account where contributions may be tax-deductible now, and withdrawals in retirement are taxed as income.
Read: Roth IRA vs. Traditional IRA: A Simple Breakdown →A legal arrangement that holds assets for your beneficiaries under rules you set. Assets held in a trust can usually pass to heirs without going through probate.
Read: A Will and a Trust: The Decisions You're Making Now Instead of Later →The schedule for when your employer's 401(k) contributions become fully yours. The money you contribute yourself is always 100% yours.
Read: 401(k) Basics: Free Money Your Employer Is Offering You →A legal document that says who gets your assets and who cares for your minor children after you die. Assets passed through a will generally go through probate, the court process that settles an estate.
Read: A Will and a Trust: The Decisions You're Making Now Instead of Later →The income tax your employer takes out of each paycheck and sends to the government for you. A tax refund means too much was withheld during the year. A tax bill means too little was.
Read: Your First Paycheck: What All Those Deductions Actually Mean →Looking for the math? Try the free calculators.