Basic Personal Finance Vocabulary

That You Definitely Need to Know

Whether you are new to personal finance or you have been at it for awhile, you need to know these words and terms in order to be able to understand, discuss, and plan for your future.

*Under Construction

This is a growing personal finance glossary.

Terms That Start With Numbers

1099

4% Rule: The 4% rule is a rule created by Bill Bengen, who attempted to come up with an easy to follow rule for retirees to determine how much they can safely annually pull out of their retirement accounts. But, this is not a one-size fits all plan. Everyone should do their own research to determine what is best for their situations.

401K: A 401K is a workplace retirement plan that allows you to set aside up to a certain amount of money that is then saved and invested for your retirement. Some workplaces will match up to a certain amount of your contributions. The federal government sets the maximum amount that a person may contribute to his or her 401K annually. The money for a 401K is deducted from paychecks prior to being taxed. The tax is deferred. This means that tax is not paid on that money and its growth until you take it out during your retirement.

A

after-tax contribution: An after-tax contribution is money deposited into a retirement account after you have paid tax on the income. The benefit of after-tax contributions is that you don’t have to pay taxes on the withdrawals during retirement. An account in which you can make after-tax contribution and later not pay tax on the withdrawals during retirement in a Roth IRA.

after-tax money

annuity: An annuity is an insurance product that pays the owner. Buying an annuity is a way to insure the income. Annuity are most often used by people during retirement.

appreciate

April 15th: April 15th is National Tax Day. This is the day when all individual federal and state taxes are due each year. There are extensions when April 15th is on a Saturday, Sunday, or Holiday. In those case, the deadline is the day after that day that is not one of those days.

ARM

asset: An asset is something that you own that pays you money on an ongoing and regular basis. Examples of assets are dividend stocks or income or rental properties.

ATM:

average down

auto loan

AUM: AUM stands for Assets Under Management. It refers to the total market value of other people’s assets that an individual or firm is managing. It is expressed as a dollar amount.

average up

B

balloon mortgage

bank

bear market: A bear market is when stock prices are going down. When someone says that they are bearish on a stock, it means that they expect its price to go down.

bitcoin

blue chip stock: A blue chip stock is a stock of a big, well-established company that is known for being valuable, stable, and reliable.

bond: A bond is represents a loan to an entity. The entities are typically governments or corporations. Bonds are fixed income instruments.

bond ladder

budget: This is one of the first words that you should learn in this personal finance glossary. A budget is a written plan for how to use your money each month. A budget helps you make sure that you have enough money to pay for needs and also have enough to save for your future.

bull market: A bull market is when stock prices are rising.

C

certificate of deposit: A certificate of deposit is a savings product in which you deposit money for a fixed period of time in exchange for interest paid. Because this type of savings deposit is designed to not be touched for a fixed period, there are penalty fees or lost interest if you do. Certificates of deposit are sold by banks and credit unions and also can be bought through the secondary market.

CD: A CD is a certificate of deposit.

CD ladder

checking account

compound interest

corporate bond

credit

credit card

credit score

credit union: A credit union is similar to a bank. They offer saving accounts, checking accounts, CDs, mortgages, and loans. However, unlike banks, credit unions are privately owned by its members.

cryptocurrency

D

day trading

debit card

debt

deductible

depreciation

DINK: DINK is an acronym for dual income no kids. A DINK is a part of a working couple (both individuals have incomes) that has no children.

direct deposit

dividend: Dividends are regular payments made to shareholders.

dividend aristocrat

dividend challenger:

dividend champion: Dividend champions are similar to dividend aristocrats, in that they have increased their dividends for at least 25 years. However, dividend champions are not required to be in the S&P 500. Dividend champions are updated every month rather than annually like a dividend aristocrat. There are over 100 dividend champions.

dividend contender

dividend king

dividend yield

DOW

E

Emergency Fund: An emergency fund is money set aside to cover unexpected emergency expenses and unexpected drops in income.

employer match 401k: An employer match for a 401K is a contribution by your employer in which they contribute a certain amount to your 401K retirement plan based on some formula of matching what you have contributed to your 401K.

ETF

Expenses

F

FICO: FICO, known as a FICO score is a credit score. It makes up a signification portion of a credit report. It is used by lenders to assess your credit worthiness and decide whether to lend you money or allow you to open an account with them.

financial planner: A financial planner is a professional who helps people organize their finances and plan a strategy for how to meet their financial goals. Certified financial planners are often certified by the CFP Board, which requires rigorous preparation and standards.

fixed expenses

fixed income

fixed income instrument

frugal: Frugal means being careful about spending money. It involves getting good quality for the least dollars, and not spending money unnecessarily. Frugal does not mean cheap.

G

GDP: GDP is gross domestic product. GDP measures the final monetary value of all of the goods and services (the products) produced in a given country in a given period. The final value is based on the value when they are bought by the final user.

good

government bond

gross income

growth portfolio:  A growth portfolio is a stock investment portfolio created with growth stocks. The primary purpose of a growth portfolio is to gain capital appreciation, which means that the stocks in it are purchased because you expect to profit because the stock price is expected to increase after the stocks are put into the portfolio.

growth stock: A growth stock is a stock that is expected to have above average growth/increase in price. Growth stocks don’t usually pay dividends. Instead, the companies reinvest any earning to continue to grow the company.

H

health savings account:

HENRY: HENRY is an acronym. A HENRY is a high earner not rich yet individual.

high yield savings account: A high yield savings account is the same as a regular savings account, except that they pay you a much higher interest rate than a regular savings account. Most high yield savings accounts are found at online-only banks (banks with no brick and mortar branches.)

(the) high

HOA

HOA fee

I

I-Bond

income

income portfolio: An income portfolio is a collection of assets that you buy and that will produce an income on a regular basis.

income property

index

inflation

insurance

interest

invest

investment

investment portfolio: An investment portfolio is a collection of financial assets. It is a type of income portfolio.

IPO: An IPO is an initial public offering. This is the first time a company goes public and attempts to raise money by selling shares to the public in order to raise money.

IRA

IRMAA: IRMAA is the abbreviation for income-related monthly adjustment amount. This is a sliding-scale used to determine how much an individual will pay for their Medicare Part B and Medicare Part D premiums. The higher a person’s modified adjusted gross income, the higher their IRMAA. This means that a higher income can result in higher costs for those two medical insurances.

I.R.S.

J

junk bond: A junk bond is a a type of bond that is rated below investment quality. They typically offer higher interest rates than investment quality bonds.

K

Kasasa account: Kasasa savings and checking accounts are accounts that allow you to earn higher interest when certain requirements are met. Those requirements are typically the use of an an affiliated debit card and automatic deposits and/or payments. Kasasa accounts are not available at all banks or credit unions.

L

late fee:

lease

liability: A liability is something something that someone owes. Examples of liabilities include mortgages, personal loans, and credit cards.

life insurance

limit order

long-term care insurance

(the) low

M

money: Money is anything that serves as a medium exchange. Typically people think of a country’s currency (its coins and bills) as money.

money market account: A money market account is a deposit account similar to a savings account or checking account. Like a checking account, you can write checks with money money accounts. However, a money market account limits your number of transactions, such as transfers and withdrawals to 6 per month. In exchange for this limitation, money market accounts pay higher interest rates than traditional savings and checking accounts.

motor vehicle excise tax: A motor vehicle excise tax is an annual property tax placed on vehicles. It may be described as a tax for keeping your vehicle in that location. These taxes can be different in each state that requires them. In some states, the motor vehicle excise tax is collected by the state government. In other states, it’s collected by the towns.

multifamily property

mortgage

municipal bond

mutual fund

N

NASDAQ: The NASDAQ, short for the NASDAQ Stock Exchange, is the second largest stock exchange in the world.

National Tax Day

need: A need is something that a human being requires for survival. This is in contrast to a want.

neobank: A neobank is a digital only bank. Some neobanks have their own banking licenses, while other neobanks operate using a traditional or legacy bank to provide services to its customers. Examples of neobanks include Aspiration, Chime, and Varo. Neobanks often target affinity groups like HENRYs, or those who are socially conscious.

net income

O

order: An order is an instruction to buy or sell a stock in an investment account.

P

passive income

pension

portfolio: A portfolio is a collection of assets that an individual owns. Examples of assets in portfolios include stocks, bonds, and real estate.

prebanked: The “prebanked” are people who are age 21 or younger who rely on or are forced to use cash.

property and casualty insurance

PE ratio:

Q

quality stock: While there is no firm definition of a quality stock, it can be generally defined as a stock from a company that has a record of being stable and profitable over time, while also having the financial strength to continue to succeed for the long term.

quarter: A quarter is one fourth of a year on a company’s financial calendar. It is equal to 3 months. The quarters are commonly referred to as quarter 1, quarter 2, quarter 3, and quarter 4, and abbreviated as Q1, Q2, Q3, and Q4.

quarterly : Quarterly means every 3 months.

quadrillion:

R

rainy day fund: A rainy day fund is a fund that is designed to cover small unexpected expenses.

recurring income

recurring investment: A recurring investment is an investment made on a regular schedule that you choose. With recurring investments, you choose the amount you want to repeatedly invest and at what interval. For instance, if you own some Apple stock, you can invest $10 at a time, on a once per week schedule.

REIT: REIT stands for Real Estate Investment Trust. A REIT is a company that owns or finances income-producing real estate.

rental lease

retirement

retirement account

RMD: RMD stands for Required Minimum Distribution.

rollover

rollover IRA

Roth IRA: A Roth IRA is a type of individual retirement account. The thing that makes a Roth IRA different from a traditional IRA is that the government allows you to put after-tax money into a Roth IRA. The money in a Roth IRA grows tax-free and is never taxed, if you leave it in until your retirement age.

routing number

S

savings account: A savings account is a basic financial account designed to provide people a place to store their money. You can add and subtract money from a savings account. But, you cannot write checks with a savings account.

S&P

secondary market: The secondary market is where people buy and sell things that other people already own. An example of buying something on the secondary market is when someone buys a CD or bond that someone else has already bought. This can be done through a brokerage house.

sector: With regards to stocks, a sector is a segment the economy based on commonalities and similar industries. Some of the commonalities include products and services. There are 11 sectors in the stock market. The 11 sectors include: financials, energy, health care, consumer staples, consumer discretionary, communication services, utilities, materials, information technology, industrials, and real estate.

service

side hustle: A side hustle is a job that brings in extra money, in addition to your regular job or main source of income.

sinking fund

social security

spousal IRA

stock

stock exchange:

stock market

stock rally

stock symbol: A stock symbol is a set of letters used to represent a company. Each ticker symbol is a unique set of letters for a specific company.

T

target dated mutual funds

tax: A tax is a required contribution to the government revenues. Taxes come from workers’ incomes and businesses’ profits. They are also attached to the costs of some goods and services. Taxes are collected by governments at various levels, such as city, state, and federal.

tax filing status

time share

trading

traditional IRA

trust

U

unbanked

U.S. Savings Bond

U.S. Treasury Bill: A U.S. Treasury Bill (also called a T-bill) represents a short-term loan to the U.S. government. This particular type of loan lasts for a year or less. Treasury Bonds are fixed income instruments. Interest on a T-bill is paid at its maturity. Interest from Treasury Bills is exempt from state and loan taxes.

U.S. Treasury Bond: A U.S. Treasury Bond represents a loan to the U.S. government. This particular type of loan lasts for either 20 or 30 years. U.S. Treasury Bonds are fixed income instruments. They pay every 6 months until they mature.

U.S. Treasury Note

useful life

V

value stock

variable expense: A variable expense is an expense that changes every month. A variable expense may happen every month, but the amount will not be set to the same amount each month. This is in contrast to a fixed expense.

vest: Vest is the process by which a person gains rights and ownership over an asset. If you are fully vested in an asset, it means that you have full ownership over that asset. One can be partially vested, meaning that he or she does not own 100% of the asset. Employer contributions to a 401K is an example of something that vests. Typically, vesting happens with time. It may be required that an employee work at least 3 years to be fully vested. Once the employee is fully vested, the employer’s contribution is fully owned by the employee. Vesting can also be immediate. So, there is a range of time requirements for vesting. It depends on each organization.

W

W-2: A W-2 is a tax form. Its full name is the Wage and Tax Statement. The form is sent by your employer to the federal government and a copy is sent to you. It shows information such as how much income they paid you, how much taxes were withheld, and benefits provided.

want: A want is something that a person desires. People can have unlimited wants. Want are in contrast with needs.

wealth: Wealth is the abundance of valuable assets.

will: A will is a legal document that states how you want your assets and belongings to be distributed after your death. It can also state who you like to be the guardian of your minor child(ren) in the case of your death.

X

x: X is the fifth letter in the symbol for all mutual funds. When you see a five letter ticker symbol, with “x” as the fifth letter, the ticker symbol represents a mutual fund.

Y

yield: A yield is how much an investment makes. It is usually expressed in terms of percentage. For instance, if you have a certificate of deposit for $100, and it pays $4 a year, its yield is $4 a year or it can be expressed as having a 4% yield because $4 is 4% of $100.

Z

zero-based budgeting: Zero-based budgeting is a budgeting method that requires all of your expenses to equal your monthly income. In other words, every dollar is accounted for an assigned a “job.” Some of the possible “jobs” could be savings, investing, or paying a bill. For example, if you make $2500 a month, everything that you spend, save, invest, or give away for that month must add up to exactly $2500.

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