80 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 Read: Where should your next dollar go?
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 Read: Where should your next dollar go?
Employer match: Money your employer adds to your workplace retirement account when you contribute, often a percentage of what you put in up to a limit. It is a return you get the day the contribution lands.; Chapter 9: Retirement Try it: Next dollar lab Read: Where should your next dollar go?
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
Estimated tax payments: Payments you send the IRS during the year on income with no tax withheld, such as 1099 or gig income. They are due on four dates a year, and a safe harbor rule helps you avoid an underpayment penalty.; Chapter 10: Taxes Try it: 1099 quarterly taxes lab Read: How much of your 1099 income should you set aside for taxes?
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 Read: Where should your next dollar go?
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 Read: How do you open your first Roth IRA?Read: Roth IRA vs traditional IRA: what is the difference?
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 Read: How do you open your first Roth IRA?Read: Roth IRA vs traditional IRA: what is the difference?
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

Self-employment tax: The Social Security and Medicare tax you pay on your own net profit when you work for yourself or take 1099 income. It replaces the share an employer would pay, and it is on top of income tax.; Chapter 10: Taxes Try it: 1099 quarterly taxes lab Read: How much of your 1099 income should you set aside for taxes?
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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