Glossary

A budgeting guideline: 50% of income for needs, 30% for wants, and 20% for savings and debt repayment.

The strategic distribution of investments across different asset classes like stocks, bonds, and cash to balance risk and reward according to your goals and risk tolerance.

The real rate of return on a deposit account, taking into account the effect of compounding interest over a year.

The yearly interest rate charged on borrowed money, including fees. Used to compare loan and credit card costs.

Understanding different account types like checking, savings, CDs, and money market accounts helps you optimize where your money lives.

A decentralized, distributed ledger technology that records transactions across many computers securely and transparently.

Interest calculated on both the initial principal and the accumulated interest from previous periods. Often called 'interest on interest,' it's the foundation of wealth building over time.

Profit from selling an investment for more than you paid. Short-term (held less than a year) and long-term gains are taxed differently.

A three-digit number (300-850) that represents your creditworthiness. Lenders use it to determine loan approval and interest rates.

The percentage of available credit you're using. Keeping it below 30% is recommended for a healthy credit score.

Digital or virtual currency using cryptography for security. Highly volatile but potentially innovative asset class for portfolio diversification.

Spreading investments across different assets to reduce risk. The principle that not putting all eggs in one basket reduces the impact of any single investment's poor performance.

A portion of a company's earnings distributed to shareholders. Can provide passive income and be reinvested for compound growth.

An investment strategy where you invest a fixed amount regularly regardless of market conditions, reducing the impact of volatility on your overall purchase.

Two debt repayment strategies: Avalanche pays highest interest first for math efficiency; Snowball pays smallest balance first for psychological wins.

The amount you pay out-of-pocket before insurance kicks in. Higher deductibles mean lower premiums, but more risk.

A basket of securities that trades on an exchange like a stock. Combines the diversification of mutual funds with the flexibility of stock trading.

A financial safety net of liquid savings designed to cover unexpected expenses or income loss. Typically recommended to cover three to six months of essential expenses.

The process of arranging for the management and disposal of your estate during life and after death, including wills and trusts.

Financial Independence, Retire Early. A lifestyle movement focused on extreme savings and investment to achieve early retirement.

Federal protection for bank deposits up to $250,000 per depositor, per bank. Ensures your money is safe even if the bank fails.

The rate at which the general level of prices for goods and services rises, eroding purchasing power over time. A key consideration in long-term financial planning.

A type of mutual fund or ETF designed to track the performance of a market index. Known for low costs and broad diversification.

Insurance protects you from financial catastrophe. Understanding health, life, auto, home, and umbrella coverage helps you make informed decisions.

How quickly and easily an asset can be converted to cash without significantly affecting its value. Cash is the most liquid asset.

The total value of your assets minus your liabilities. A key measure of overall financial health that should grow over time.

The potential benefit given up when choosing one option over another. Every financial decision has an opportunity cost.

Price-to-Earnings ratio measures a stock's price relative to its earnings per share. Used to evaluate if a stock is over or undervalued.

Automatically directing a portion of income to savings before paying other expenses. A cornerstone of building wealth consistently.

A simple formula to estimate how long it takes for an investment to double. Divide 72 by the annual interest rate to get the approximate years needed.

The process of realigning your portfolio's asset allocation back to your target percentages by buying or selling investments.

Your ability and willingness to endure declines in investment value. Influenced by your time horizon, financial situation, and emotional comfort with volatility.

Tax-advantaged accounts like 401(k)s and IRAs designed to help you save for retirement with special tax benefits.

The concept that money available today is worth more than the same amount in the future due to its potential earning capacity through interest or investment returns.

Understanding progressive tax brackets, deductions, and credits helps you make smarter financial decisions and reduce your tax burden.

Accounts like 401(k)s, IRAs, and HSAs that offer tax benefits for saving toward specific goals like retirement or healthcare.

Selling investments at a loss to offset capital gains and reduce your tax bill. The proceeds can be reinvested in similar assets.

Term provides coverage for a specific period at lower cost; Whole Life provides lifelong coverage with a cash value component.