77 terms

Money words, in plain English

The vocabulary that makes money feel harder than it is. Each term says which chapter explains it and which lab lets you try it.

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401(k): A retirement account offered through an employer. Money goes in from your paycheck, often before income tax, and many employers add a match.; Chapter 9: Retirement Try it: Retirement account order lab
529 plan: A tax-advantaged account for education costs. Growth is not taxed by the federal government when you spend it on qualified expenses such as tuition.; Chapter 9: Retirement

A

Amortization: Paying off a loan in equal scheduled payments. Early payments are mostly interest; later payments are mostly principal.; Chapter 12: Real Estate Try it: Mortgage lab
Annual percentage rate (APR): The yearly cost of borrowing, including interest and some fees, stated as a percentage. Use it to compare loans and cards.; Chapter 6: Credit
Annual percentage yield (APY): What a savings account actually earns in a year once compounding is counted. Use it to compare savings accounts.; Chapter 2: Banking Try it: High-yield savings lab
Asset allocation: How your investments are split between stocks, bonds, cash and other assets. It drives most of a portfolio's risk.; Chapter 8: Portfolio Try it: Asset allocation lab
Avalanche method: Paying debts in order of highest interest rate first while making minimums on the rest. It usually costs the least interest.; Chapter 6: Credit Try it: Debt payoff lab

B

Beneficiary: The person named to receive an account or policy when the owner dies. A beneficiary form usually overrides a will for that account.; Chapter 17: Estate Try it: Estate value lab
Bond: A loan you make to a government or company. It pays interest and returns your principal at maturity if the issuer does not default.; Chapter 14: Bonds Try it: Bond lab
Bond ladder: Bonds or CDs bought to mature in different years, so some money comes due on a regular schedule.; Chapter 14: Bonds
Break-even (rent vs buy): The year from which buying a home leaves you with more net worth than renting and investing the difference. Selling costs push it several years out.; Chapter 12: Real Estate Try it: Rent or buy lab
Budget: A plan for where each month's income goes before you spend it: needs, wants, savings and debt payments.; Chapter 3: Budgeting Try it: Budget builder lab
Buy now pay later: A short-term loan at checkout that splits a purchase into a few payments, often with no interest if you pay on time. Late fees, and stacking several plans at once, are where it costs you.; Chapter 6: Credit

C

Capital gain: The profit when you sell an investment for more than you paid. Gains on assets held longer than a year are usually taxed at lower rates.; Chapter 10: Taxes Try it: Tax-loss harvesting lab
Certificate of deposit (CD): A bank deposit that pays a fixed rate for a fixed term. Taking money out early usually costs a penalty.; Chapter 2: Banking Try it: Certificate of deposit lab
Compound interest: Interest earned on your interest as well as your deposits. Over long periods it does most of the growing.; Chapter 7: Investing Try it: Compound interest lab
Credit freeze: A free lock on your credit reports that stops most new lenders from opening an account in your name. You can lift it briefly when you apply for credit.; Chapter 6: Credit Try it: Credit score lab
Credit report: A record of your borrowing and payment history kept by the credit bureaus. You can check it for free and dispute errors.; Chapter 6: Credit
Credit score: A number, usually 300 to 850, that estimates how likely you are to repay debt. Payment history and utilization weigh the most.; Chapter 6: Credit Try it: Credit score lab
Credit utilization: Card balances as a share of your credit limits. Lower is better for your score.; Chapter 6: Credit Try it: Credit utilization lab

D

Deductible: What you pay on a claim before insurance starts paying. A higher deductible usually means a lower premium.; Chapter 11: Insurance Try it: Property insurance lab
Diversification: Spreading money across many investments so one failure does not sink the whole portfolio.; Chapter 7: Investing Try it: Portfolio analyzer lab
Dividend: A share of company profits paid to shareholders, usually in cash each quarter.; Chapter 7: Investing Try it: Stock analysis lab
Dollar-cost averaging: Investing the same amount on a regular schedule no matter the price, so you buy more shares when prices are low.; Chapter 7: Investing Try it: Dollar-cost averaging lab
Down payment: The part of a home's price you pay up front. The rest is the mortgage.; Chapter 12: Real Estate Try it: Mortgage lab

E

Effective tax rate: Total income tax divided by total income. It is lower than your marginal rate because lower brackets apply first.; Chapter 10: Taxes Try it: Paycheck lab
Emergency fund: Cash set aside for surprises such as a job loss or a car repair, kept where you can reach it quickly.; Chapter 4: Emergency Try it: Emergency fund lab
Equity: What you own outright: an asset's value minus what you owe on it. Also another word for stocks.; Chapter 12: Real Estate
Estate plan: The documents that say who gets your assets and who decides for you if you cannot: a will, beneficiary forms, powers of attorney and sometimes a trust.; Chapter 17: Estate Try it: Trust planning lab
Exchange-traded fund (ETF): A fund that holds many investments and trades on an exchange like a single stock. Many track an index at low cost.; Chapter 7: Investing
Expense ratio: A fund's yearly fee as a percentage of what you have invested. Small differences add up over decades.; Chapter 8: Portfolio

F

FAFSA: The Free Application for Federal Student Aid. Filling it in is how you apply for federal grants, work-study and federal student loans, and many colleges use it for their own aid.; Chapter 6: Credit
FDIC insurance: Federal insurance that protects money in an insured bank if the bank fails, up to a set limit per depositor, per bank, per ownership category. It does not cover stocks, bonds or crypto.; Chapter 2: Banking
FICO score: The most widely used brand of credit score. Lenders may use different FICO versions, so your number can vary.; Chapter 6: Credit Try it: Credit score lab
Fiduciary: An adviser who is legally required to put your interests ahead of their own. Ask any adviser in writing whether they act as a fiduciary at all times.; Chapter 8: Portfolio
Fixed expense: A cost that stays about the same each month, such as rent or an insurance premium.; Chapter 3: Budgeting Try it: Budget builder lab

G

Gross income: Pay before taxes and deductions come out.; Chapter 5: Income Try it: Paycheck lab

H

Health savings account (HSA): A tax-advantaged account for medical costs, open only to people on a high-deductible health plan. Unused money rolls over each year.; Chapter 10: Taxes
High-yield savings account: A savings account, often at an online bank, that pays well above the national average rate.; Chapter 2: Banking Try it: High-yield savings lab

I

Index fund: A fund that holds every investment in a market index, such as the S&P 500, instead of picking a few.; Chapter 7: Investing
Individual retirement account (IRA): A retirement account you open yourself, outside work. Traditional IRAs can lower tax now; Roth IRAs can make withdrawals tax-free later.; Chapter 9: Retirement Try it: Retirement account order lab
Inflation: Prices rising over time, so the same dollar buys less. Cash that earns less than inflation loses buying power.; Chapter 7: Investing Try it: Compound interest lab
Interest rate: The price of borrowing money, or the reward for lending it, stated as a yearly percentage.; Chapter 2: Banking

L

Liquidity: How quickly you can turn something into cash without losing value. A savings account is liquid; a house is not.; Chapter 4: Emergency
Loan-to-value ratio (LTV): A loan's size as a share of the property's value. Above 80% usually means paying for mortgage insurance.; Chapter 12: Real Estate Try it: Mortgage lab

M

Marginal tax rate: The rate on your last dollar of income. Moving into a higher bracket taxes only the dollars above that line, not all of your income.; Chapter 10: Taxes Try it: Tax optimizer lab
Medicare: The federal health insurance program for people 65 and older and some younger people with disabilities. You enroll in a window around your 65th birthday, and missing it can raise your costs for life.; Chapter 9: Retirement
Mortgage: A loan to buy property, secured by the property itself. If you stop paying, the lender can take the home.; Chapter 12: Real Estate Try it: Mortgage lab
Mutual fund: A pool of many investors' money managed as one portfolio. It is priced once a day, after the market closes.; Chapter 7: Investing

N

Net income: Pay after taxes and deductions: the amount that lands in your account. Also called take-home pay.; Chapter 5: Income Try it: Paycheck lab
Net worth: Everything you own minus everything you owe. It can be negative early on, and the trend matters more than the number.; Chapter 3: Budgeting

O

Opportunity cost: What you give up by choosing one option over the next best one, including what that money could have grown into.; Chapter 1: Mindset
Out-of-pocket maximum: The most you pay in a plan year for covered in-network care. After you reach it, the plan pays the rest. Premiums do not count toward it.; Chapter 11: Insurance

P

Phishing: A message that pretends to be your bank, an employer or a government agency to get you to share a password or send money. Go to the real site yourself instead of using the link it gives you.; Chapter 2: Banking
Premium: What you pay, monthly or yearly, to keep an insurance policy active.; Chapter 11: Insurance Try it: Life insurance needs lab
Principal: The amount borrowed or invested, not counting interest. Loan payments cover interest first, then principal.; Chapter 2: Banking
Private mortgage insurance (PMI): Insurance that protects the lender, not you, usually required when a conventional down payment is under 20%.; Chapter 12: Real Estate Try it: Mortgage lab

R

Rebalancing: Selling some of what grew and buying what fell to return a portfolio to its target mix.; Chapter 8: Portfolio Try it: Portfolio rebalancing lab
Required minimum distribution (RMD): The amount the IRS requires you to withdraw each year from most tax-deferred retirement accounts once you reach a set age.; Chapter 9: Retirement Try it: Withdrawal strategy lab
Risk tolerance: How much a portfolio can fall before you would sell in a panic, and how much loss your plans can absorb.; Chapter 8: Portfolio Try it: Risk tolerance lab
Roth account: A retirement account funded with money that has already been taxed. Qualified withdrawals, including growth, are tax-free.; Chapter 9: Retirement Try it: Roth conversion lab
Roth conversion: Moving money from a traditional account to a Roth account. You pay income tax on the amount now so later withdrawals can be tax-free.; Chapter 10: Taxes Try it: Roth conversion lab
Rule of 72: A shortcut: divide 72 by a yearly rate to estimate how many years money takes to double. At 8%, about 9 years.; Chapter 7: Investing Try it: Compound interest lab

S

Sinking fund: Money saved a little each month for a known future cost, such as car insurance or holidays, so it does not break the budget.; Chapter 3: Budgeting Try it: Savings goal planner lab
Snowball method: Paying debts from smallest balance to largest. It usually costs more interest than the avalanche method but gives early wins.; Chapter 6: Credit Try it: Debt payoff lab
Stock: A small ownership share in a company. Its price moves with what investors expect the company to earn.; Chapter 7: Investing Try it: Stock valuation lab

T

Tax credit: An amount subtracted from the tax you owe, dollar for dollar. Worth more than a deduction of the same size.; Chapter 10: Taxes
Tax deduction: An amount subtracted from taxable income. Most filers take the standard deduction instead of itemizing.; Chapter 10: Taxes Try it: Tax deductions lab
Tax-loss harvesting: Selling an investment at a loss to offset taxable gains. Buying the same investment back within 30 days breaks the rule.; Chapter 10: Taxes Try it: Tax-loss harvesting lab
Term life insurance: Life insurance that pays out only if you die during a set period, such as 20 years. Much cheaper than permanent coverage.; Chapter 11: Insurance Try it: Life insurance needs lab
Trust: A legal arrangement where one party holds assets for someone else's benefit under written rules. Some trusts avoid probate.; Chapter 17: Estate Try it: Trust planning lab

U

Umbrella insurance: Extra liability coverage that starts where your home and auto policies stop.; Chapter 11: Insurance Try it: Umbrella policy lab

V

Variable expense: A cost that changes month to month, such as groceries or fuel. The usual place to find room in a budget.; Chapter 3: Budgeting Try it: Budget builder lab
Vesting: The schedule for when employer contributions become fully yours. Leave before you are vested and you may lose some of the match.; Chapter 5: Income
Volatility: How far and how fast a price swings. Higher volatility means a wider range of outcomes in any one year.; Chapter 13: Markets

W

Withdrawal rate: The share of a retirement portfolio you take out each year. Lower rates make the money more likely to last.; Chapter 9: Retirement Try it: Withdrawal strategy lab

Y

Yield: The income an investment pays each year as a percentage of its price.; Chapter 14: Bonds Try it: Bond lab

Missing a word? Press / to search every chapter and lab.

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