Personal Finance Glossary

Key terms you need to know in your daily financial life.

Personal finance isn’t something most of us learn about in school. You pick up things as you go through life and usually learn by trial and error. As a result, it can happen that you run across a word in your financial life that you don’t know.

So instead of leaving you to guess what we mean we use certain words throughout this website, we’ve put together a glossary of the terms we use (and other terms you’ll run across) so you can understand things better and make the right choices to reach your financial goals.

1-9 A B C D E F G H I J K L M N O P Q R S T U V W X Y Z


401(k): This is a retirement plan offered through an employer where you set up recurring contributions from your pre-tax income into a retirement account. The employer may “match” contributions up to a certain amount or percentage, meaning they contribute a certain amount for every dollar you put in. Withdrawals from a 401(k)can begin at age 59.5.

501(c)(3): This is a designation that denotes a nonprofit organization. Companies who offer financial assistance are usually more impartial if they’re a 501(c)(3) because they’re profits are not tied to promoting a single solution that they offer.  

529 college savings plan: This is the most common type of college savings plan parents can use to save up for their children’s education. The programs are run by states and educational institutions, but the money saved can usually be used even if your child decides to go out-of-state or to another school. There are usually tax benefits for putting money into this plan.


Accountant: A professional money manager who can help you with all or part of your personal financial management strategy. If you choose to retain an accountant, make sure they are certified (i.e. a Certified Public Accountant or CPA). You can use an accountant to provide assistance in general, or for a specific purpose such as filing your taxes or finding the right debt solution.

Adjustable rate: This is an interest rate that is not fixed or set at a certain amount. It adjusts at least once or at regular intervals. This means your interest rate may be higher or lower based on certain economic indicators. This is commonly seen with loans, such as an Adjustable-Rate Mortgage (ARM); these loans are often considered riskier than a fixed-rate option.

Annual interest rate: This is the interest rate applied to your debt over a twelve month period. It may include fees that are applied to your debt or the account. Also called the “annual percentage rate” (APR). The periodic interest rate applied to your balance every month on a credit card can be determined by dividing the APR by twelve.

Appreciation: The measurable increase in value of an asset over time. Some assets increase in value as time passes, such as fine art or collectibles that gain value as time passes. So an asset can be worth more than it was originally acquired for even if it was purchased at fair market value originally.

Assets: Any item that has significant cash value to the extent it could be sold for a notable payout or used to settle a debt. This often includes property, vehicles, fine art, collectibles, investments, and jewelry. It doesn’t not include things like clothing or everyday household items.

ATM: Automated Teller Machine. This is a terminal found at financial institutions and other places where you can withdraw physical cash using a debit or credit card. When you make a withdrawal with a debit card, you take money directly from your bank account; a withdrawal with a credit card is called a cash advance. In both cases, you will usually incur fees for using the machine.


Bear market: This is an economic market condition where confidence is low and returns on investments are weak. Essentially, it’s not a good time to invest, but this fear of investment often causes even weaker conditions that cause the bear market to continue.

Bonds: This is a type of investment where you effectively loan money to a government or other entity at a fixed interest rate for a certain period of time. After that period, the money loan plus the interest earned is repaid. This is a basic type of asset. Bonds can be issued by private companies, states or the federal government, or foreign governments.

Boom economy: This is a period of time where key economic indicators are positive, which usually inspires consumer and investor confidence. The stock market is stable or growing, consumers are buying, companies are growing, and investors are active.

Bust economy: This is a period of time where the economy is considered weak. Investors are not investing, businesses are experiencing slow sales and may face closures, consumers are not spending and often turning to debt to get by. And extended bust is likely to fall into a recession.

Budget: This is a formalized data-driven overview of income and expenses over a set period of time. A personal monthly budget is usually necessary for a consumer to maintain a stable financial outlook. A national budget is what the Congress is supposed to set every year that determines how the federal government spends its money.

Bull market: An economic market condition where stock prices are rising, investment opportunities are strong and key economic indicators are good. This is usually a good time to invest.


Cash advance: This is a physical cash withdrawal made at an ATM or with a lender or checking cashing store. A cash advance from a credit card means you take out money from your available credit line at a high rate of interest. A payday advance is where you borrow money against your expected income based on proof of income provided through paycheck stubs.

Checking account: This is a standard bank account that you use to deposit money and make withdrawals. The money deposited doesn’t earn any interest like you have with a savings account, but you can add and withdraw without penalties using checks or a debit card.

Compound interest: This is where interest earned over a certain period is rolled in with the principal before the next interest payout is calculated; it’s commonly applied to savings and investments. For instance, if you deposit money and it earns a certain amount of interest, that amount is added onto the deposit amount for the next interest assessment.

Cost of living: This is the total amount of money it takes for you to survive and live comfortably over a set period of time. Monthly cost of living is what it takes for your household to run effectively. If your income does not exceed cost of living, you usually go into debt or face other financial challenges. Average cost of living is something you always want to check before you move to a different location.

Credit: This can mean several different things in personal finance. Credit is commonly used to refer to money a consumer can access in order to purchase goods and services; it is often paid back over a set period of time. Credit can also refer to an amount of money offered as a discount, such as a tax credit or an account credit where you have a discount on a bill.

Credit card: This is a financial tool that consumers can get based on their credit rating. A financial institution agrees to extend a certain amount of money to you based on your credit score (or based on a deposit you’ve made to the institution).

CPA: The acronym for Certified Public Accountant. Always make sure you’re using the services of a CPA if you need some type of accounting service.


Debit card: This is a financial tool tied to your bank account(s) that allow you to withdraw money from an ATM or make purchases using money you’ve deposited into the account.

Debt: Money you borrow that gets repaid over time, usually with interest and fees added. Closed-end debt is where you borrow a set amount once and then pay it back over time. Open-ended debt means you have a certain limit based on your credit that you can borrow and pay back cyclically.

Deduction: Money taken out. Money deducted from your paycheck means you receive a lower payout and instead set aside that income for certain purposes, such as taxes or a retirement account. A tax deduction is money that is taken out of the total amount you owe.

Depreciation: Decreasing value of an asset over a given time. Some assets lose value – such as most cars. This means you can’t sell the asset for as much as you purchased it for originally. If an asset depreciates, it means it’s not worth as much as it was previously.

Discretionary expense: A type of expense that isn’t necessary for you to live and doesn’t have a set monthly cost. These are the nice-to-have expenses in your budget, such as entertainment and dining out.

Dividends: The money a company pays out to its shareholders when the company profits. When the company does not profit, dividends may be paid out of a company’s reserves.


Expenditure: An amount of money spent for a certain purpose or the act of spending that money. These are the expenses and costs in your budget.

Expense: This is a cost in your budget. It’s money that must be deducted from your income. If your expenses are higher than your income, your budget is out of balance and you’re in a period of financial distress.


Fair market value: The amount of money that could be obtained for the sale of an item given current market prices. No matter how much you think something is worth, the fair market value is what everyone else thinks that item is worth – essentially, it’s what other consumers would be willing to pay for your item.

File jointly: This is a filing option for taxes available to married couples. It means that you file your taxes as a single entity rather than as two individuals.

File separately: This is the filing option married couples choose if they don’t want to file jointly. Married filing separately means you each file an individual tax return.

Financial advisor (or adviser): A professional who assists consumers with understanding their personal finances and making key decisions about their financial futures. An adviser can help you improve your situation or plan for retirement. Always make sure you work with a qualified, licensed and/or certified professional.

Financial power of attorney: This is the power of attorney you designate to put a certain individual in charge of making key financial decisions for you in case you are incapacitated or unable to make and communicate these decisions for yourself. They handle paying your bills and managing your accounts in your stead.

Fixed expense: A necessary expense in your budget with a set monthly cost. This are must-pays in your budget that usually have the same cost, such as mortgage or rent payments, auto loan payments, and insurance. These are usually paid first and they’re easy to budget for, since you usually know exactly how much money it will cost you.

Flexible expense: This is a necessary expense in your budget that does not have a set monthly cost. Essentially, it’s something you have to have, but you can’t plan exactly how much it will cost because the expense varies from month to month. This includes things like groceries, utilities, and gas.

Free cash flow: The amount of money left over in your budget once all of your bills and other expenses have been taken out of your income. If your monthly household income is $5,000 and your expenses are $4,000, then you have free cash flow of $1,000.


Garnishment: An amount of money taken out of your income in order to satisfy an owed debt. This usually applies to wages or taxes, although garnishment can also happen with government benefits or assistance. A court usually formally determines that a debt is owed and sets garnishments to be taken out of your income based on the total amount owed. Some garnishment such as garnishment for student loans or taxes can be withdrawn without court involvement.


Income: This is money you earn or bring in each month. It includes paychecks, benefits, dividends, government assistance, and court-ordered payouts such as child support or alimony. Your monthly income is the amount of money you have available to spend in your budget.

Inflation: This is the dollar increase in the price of goods and services that happens over time. It is directly associated with the value of a dollar. When the dollar is weak, inflation occurs more quickly because it costs more to produce goods and services consumers use.

Installments: This is when a sum money that needs to be paid is divided into equal amounts over a set period of time. If you pay for something in installments, you pay a percentage of the full price spread out over a certain number of payments. With things like retirement benefits, you usually decide if you want to receive a lump-sum all at once or in installments.

Interest rate: A certain percentage of a debt owed that gets added over a set period of time. The interest rate on a debt means that for each pay cycle that passes, the lender multiplies the remaining balance owed by the rate and adds that to your balance owed. With an investment, the interest rate means your deposit or contributions are multiplied by the rate and your eventual payout increases by that amount.

Investment: This is any good that is purchased with the intention of earning a profit or getting an eventual payout. This can be a financial entity, such as a stock or bond, or a physical entity such as a piece of property or particular item that you anticipate will gain value over time.

IRA: Individual Retirement Account. This is an account that you open personally (outside of your employer) for the purpose of preparing for retirement. With a traditional IRA, you contribute pre-tax income with certain rules and regulations for withdrawal. A Roth IRA is usually more flexible, but the contributions occur after taxes.


Joint account: An account you hold with someone else, usually a spouse. With a joint account you are both liable for whatever occurs. So, if you have a joint credit card that is not paid back, both parties can be pursued by collectors and both people will see their credit scores suffer.


Levy: A fine or fee imposed on your financial accounts due to non-payment of taxes. Essentially, any money put into an account with a levy will be removed for the purpose of settling the debt owed.

Liabilities: This is basically a fancy name for debts owed. It’s essentially the money that you or your estate owes to lenders and creditors, including any remaining balances owed on loans related to asset purchases. Subtracting liabilities from your assets determines your net worth.

Lien: A legal designation that retains ownership of an asset until a debt is discharged. Basically, if a lien is placed against an asset, you cannot legally sell or get rid of that asset until your debt is paid off. The most common lien issue comes with tax liens placed against your home.

Loan: A set amount of money borrowed from an individual or company that must be repaid over a certain period of time, usually with interest and fees added.

Lump-sum: This is a one-time withdrawal or payout of money. Lump-sum debt repayment means you pay everything back at once, rather than in installment payments over a given period of time. Lump-sum withdrawal means you take all of the money available out of an account, such as your 401(k) or a reverse mortgage.


Medical power of attorney: The power of attorney designated to make medical decisions in your place if you are incapacitated or otherwise unable to make or voice those choices on your own. Your designated medical POA decides if medical procedures and surgeries are done if you cannot.

Money market account (MMA): A specialized type of savings account that usually requires a higher deposit and balance, but also offers a higher interest rate and yield; there may be other restrictions on withdrawals, as well. Also known as a money market deposit account (MMDA) or money market savings account.

Mortgage: A loan taken out on a piece of property. It allows consumers to purchase property and pay for it over a period of time – usually anywhere from 15 to 30 years. There are a variety of different mortgages available depending on your financial situation and credit.

Mutual fund: This is a trade-holding investment program funded by shareholders that gets professionally managed by a third-party service provider. When you invest in a 401(k) or IRA, the money you contribute is usually divided between different mutual funds in order to generate returns on your investment. The money given to a mutual fund may be invested in stocks, bonds, MMAs and other securities. If things go wrong or the economy goes bust, the money put into a mutual fund may be lost.

Money management: The daily oversight of finances. For individuals, this is the day-to-day process of making deposits and payments in order to support yourself and your family. Your ability to manage your money effectively is a key factor in determining your financial success. If you can’t manage your account to spend less than you earn, your budget will be out of balance and you will experience financial distress.


Net worth: A measure of your overall financial wealth. It is determined by subtracting your total liabilities (debts) from your total assets. A positive net worth means that you would have assets left over even after all of your debts were paid off in-full. A negative net worth means the value of your assets are not enough to cover your total debt owed.


One-off: An expense that can be planned for your budget because it is not a regularly occurring expense. Things like repairs or holiday expenses are usually considered “one-offs” because they fall outside the boundaries of your regular monthly budget. One-offs usually have to be paid for with free cash flow, savings or by taking on debt.

Online banking: The ability to manage your financial accounts digitally, either on a computer, smart phone or other mobile device. Also known as mobile banking. In some cases, banks offer accounts designed for online or mobile banking, so you get incentives and/or discounts for doing things like paying bills online.

Overdraft: When you take money out of an account or make a purchase that you don’t have money in the account to cover. An overdraft effectively means you’re spending money you don’t actually have. This results in cancelled services, bounced checks, penalties and overdraft fees. Some banks offer overdraft protection, which means your purchases are covered up to a certain amount, but additional fees may be assessed.


Personal finance: Everything that relates to your individual financial outlook, including budgeting, savings, debts, investments, and basic money management. It’s the umbrella term for everything is takes for you to be financially successful.

Periodic interest rate: Interest charged over one pay period, as opposed to the annual rate that is charged over a full year. Periodic interest is the rate that gets multiplied by your account balance at the end of a pay period or billing cycle. That period is determined by you account, but is usually weekly, bi-weekly, monthly or quarterly.

PFM: Personal Financial Management. This is the name given to online platforms and mobile device apps that allow you to manage your money day-to-day. These tools allow you to manage the money in your accounts with more convenience, such as including all of your accounts in one place or making your accounts more accessible.

Portfolio: Another name of the sum total of your assets and investments. It’s basically an overview of your wealth. A good financial portfolio means you are financially stable with a diversified range of investment accounts and assets that can provide support if you suffer a period of financial distress.

Power of attorney: The legal designation that makes an assigned individual responsible for making key decisions on your behalf if you are unable to make or voice those decisions yourself. A medical POA makes key medical decisions, while a financial POA controls your money.


Recession: A period of extended economic downturn exemplified with a bust economy, weak consumer confidence, and stagnant business outlooks. In a technical sense a recession happens when a country’s gross domestic product (GDP) falls for two consecutive months.

Risk: This is the potential for a financial investment or action to result in a negative outcome, such as a loss of money or a loss of property. Investments usually come with a certain level of risk, based on how likely or unlikely it is that the money contributed will be paid back with returns or lost completely. Other financial decisions can add risk, such as the added risk of foreclosure that occurs if you take out a second or third mortgage.

Roth IRA: This is a specialized type of Individual Retirement Account where the taxes are taken out now to avoid taxes later when the money is withdrawn. With a traditional IRA or 401(k) the money you contribute is taken out of your pre-tax income, but when you make withdrawals, you have to pay taxes on the “income” you receive. With a Roth IRA, you contribute money you earn after taxes, but the withdrawals are tax-free.


Savings: Money you have put away for a rainy day. Short-term savings is money you have set aside that grows slowly with low interest added in things like a savings account or MMA. Long-term savings is money you have saved for a future purpose, such as retirement or college savings accounts. This is basically the money you have to depend on in place of income or money borrowed.

Savings account: A bank account that earns a small rate of interest on any deposits kept in the account. This account is usually used for short-term savings so you have money separate from your basic checking or bank account that’s still easily accessible. These accounts should not be your only form of “investment” because they have such a low rate of return.

Securities: Another name of stocks and bonds collectively. It’s a financial tool that has cash value and counts as an asset. Securities are issued by companies or governments to individuals who purchase them with the intent to make a profit as a shareholder or bondholder.

Stock market: A stock exchange where shares of companies are bought and sold by individuals and investment firms.

Stock: The money a business raises by selling its shares. Essentially, ownership of a company is divided into bits (shares) that are sold as a commodity or asset. These shares are purchased and when the company’s “stock” goes up, the shareholders receive a portion of the profits, paid out as dividends.


Treasury note: A security issued by the federal government (U.S Treasury) that has a cash value with a fixed interest rate and set period to reach maturity. In a really basic sense, it’s a personal loan you give to the federal government, who then has to pay you back after a certain amount of time with interest added. Also called a T-note.

Tax return: This is the official filing you have to make to the government that declares how much you’ve earned over the past year and how much you must pay in taxes, determined by calculating your income minus deductions and credits. Federal income tax returns must be filed on April 15 every year for the previous year, unless an extension is filed.

Tax refund: A sum of money that the government gives you back for an overpayment of taxes. In most cases, whether you’re a W-2 employee or employed individually, you give a certain amount of money to the government at regular intervals (i.e. every paycheck for W-2 employees); if it’s determined when you file your tax return that you overpaid, you get money back. A large tax refund isn’t doing you any favors; you should decrease your withdrawals if you’re a W-2 employee and get a huge refund every year.

Trust: An account where you can put money in for another individual, usually with certain rules that govern the withdrawal. Money put into a trust is no longer yours by law; as a result, your lenders can’t go after the money in a trust in order to settle your debts. Trusts are often set up for children as part of the inheritance of an estate.


Utility: This is a basic public service you pay for the privilege of using. It includes things like water, electricity, gas, sewage and garbage services, telephone, and Internet. You pay for these services every month to avoid stoppages in your service. These are typically flexible expenses in your budget, because the amount you pay each month often varies.


Wealth: This is the sum total of your personal finances. The cash you have plus savings and investments and assets, minus your debts and other obligations. Wealth is formally measured using net worth.

Wealth manager: This is another name for an investment manager. It’s a qualified professional who helps you decide how to invest your money and whether or not you’re ready to make key purchases. If you are uncertain about investing, it’s better to hire a professional like this than to avoid investing at all.

Will: A formal document that defines how you wish for your estate to be divided in the event of your death. Your will must be signed and dated and witnessed by at least two other people who also sign as witnesses; public notary can also help avoid problems with inheritance and division of assets. You can designate certain assets and items to go to certain individuals or entities such as business or charities.


Yield: This is the money you earn from the accrued interest on an investment. The expected yield on a particular investment is another name for the expected rate of return, and it can help you determine if that investment is worth your money.