Personal Finance Terms Glossary | Personal Finance Term & Definitions
Welcome to “Wealthy Freak“! Your go-to source for all things personal finance. Browse through our comprehensive Personal Finance Terms Glossary to gain a deeper understanding of the financial world and empower yourself to make informed decisions. From budgeting and investments to retirement planning and debt management, we’ve got you covered. Get ready to unlock your financial potential and take control of your wealth.
A
Assets: Anything you own that has value, such as cash, investments, property, or vehicles.
Annual Percentage Rate (APR): The annualized interest rate charged on borrowed money, including both the interest and any additional fees.
B
Budget: A plan that outlines your income and expenses, helping you allocate your money effectively and achieve financial goals.
Bankruptcy: A legal process where individuals or businesses declare themselves unable to repay their debts, seeking relief from their financial obligations.
C
Credit Score: A numerical representation of your creditworthiness, indicating how likely you are to repay borrowed money.
Compound Interest: The process of earning interest on both the initial principal and the accumulated interest from previous periods.
D
Debt: Money you owe to creditors, typically accrued through loans, credit cards, or mortgages.
Diversification: Spreading your investments across different asset classes or securities to reduce risk.
E
Emergency Fund: Savings set aside to cover unexpected expenses or financial emergencies.
Estate Planning: The process of arranging for the management and distribution of your assets and responsibilities after your death or incapacitation.
F
Financial Independence: The state of having enough income or resources to support your desired lifestyle without relying on employment.
FICO Score: A credit score calculated based on the information in your credit report, used by lenders to assess creditworthiness.
G
Gross Income: Your total income before any deductions, such as taxes or retirement contributions.
Good Faith Estimate: An estimate provided by lenders to borrowers, outlining the expected closing costs and loan terms during the mortgage application process.
H
Home Equity: The current market value of your home minus any outstanding mortgage debt.
Health Savings Account (HSA): A tax-advantaged account that allows individuals to save for medical expenses, with contributions made on a pre-tax basis.
I
Inflation: The gradual increase in prices of goods and services over time, reducing the purchasing power of money.
Individual Retirement Account (IRA): A tax-advantaged retirement account that individuals can contribute to and invest in for future retirement income.
Investing: It involves allocating money or resources into assets or ventures with the expectation of generating a financial return over time. It is a strategic approach to growing wealth, building assets, and achieving long-term financial goals by taking calculated risks and diversifying investments across various markets, such as stocks, bonds, real estate, or businesses.
J
Joint Account: A bank account shared by two or more individuals, often used for shared expenses or financial goals.
Job Loss Protection: Insurance coverage or provisions that provide financial assistance or protection in the event of job loss or unemployment.
K
KYC (Know Your Customer): A process financial institutions use to verify and gather information about their customers to prevent fraud and ensure compliance.
Key Performance Indicators (KPI): Specific metrics used to measure and evaluate the performance or success of a financial investment or business.
L
Leverage: The strategic use of borrowed money to invest or make purchases, with the aim of increasing potential returns.
Liquidity: The ease with which an asset can be converted into cash without significant loss in value.
M
Mutual Fund: An investment vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets.
Money Market Account: A type of interest-bearing bank account that typically offers higher interest rates than standard savings accounts.
N
Net Worth: The value of your assets minus your liabilities, providing a snapshot of your overall financial health.
Non-Profit Organization: An organization that operates to fulfill a specific mission or purpose, often exempt from certain taxes due to their charitable nature.
O
Overdraft: Withdrawing more money from a bank account than is available, resulting in a negative balance and potential fees.
Options Trading: The buying and selling of options contracts, which grant the right to buy or sell a specific asset at a predetermined price within a specified timeframe.
P
Payday Loan: A short-term, high-interest loan typically taken out by individuals to cover immediate financial needs, often due on the borrower’s next payday.
Personal Finance: The management of one’s financial resources and decisions, encompassing budgeting, saving, investing, and planning for long-term financial goals, ultimately leading to financial stability and well-being.
Portfolio: A collection of investments, such as stocks, bonds, and mutual funds, held by an individual or institution.
Q
Qualifying Event: A life event that allows you to make changes to your insurance coverage or benefits outside of the regular enrollment period, such as marriage, birth/adoption, or job loss.
Qualified Dividends: Dividend payments received from investments that are eligible for special tax rates, typically lower than ordinary income tax rates.
R
Retirement Plan: A financial strategy to accumulate savings during your working years in preparation for retirement, often through employer-sponsored plans like 401(k)s or individual retirement accounts (IRAs).
Return on Investment (ROI): A measure used to evaluate the profitability or effectiveness of an investment, expressed as a percentage.
S
Stock Market: A marketplace where shares of publicly traded companies are bought and sold, representing ownership in those companies.
Savings Account: A bank account that allows individuals to deposit and accumulate money while earning interest on the balance.
T
Tax Deduction: An expense or allowance that reduces your taxable income, potentially lowering the amount of tax you owe.
Treasury Bonds: Debt securities issued by the U.S. Department of the Treasury, used to finance government spending, with fixed interest payments over a specified term.
U
Underwriting: The process used by lenders to assess the risk of providing a loan or insurance policy to an individual or entity.
Umbrella Insurance: Liability insurance that provides additional coverage beyond the limits of traditional policies, offering increased protection against claims and lawsuits.
V
Variable Rate: An interest rate that fluctuates over time based on changes in an underlying index, such as the prime rate.
Value Investing: An investment strategy that focuses on identifying undervalued assets or securities with the expectation of future price appreciation.
W
Will: A legal document that outlines your wishes regarding the distribution of your assets and the guardianship of your dependents after your death.
Wealth Management: The comprehensive management and oversight of an individual’s financial affairs, including investments, taxes, estate planning, and more.
X
Expenses: The costs incurred for goods or services, including daily living expenses, bills, and financial obligations.
Exchange-Traded Fund (ETF): An investment fund that tracks the performance of a specific index, commodity, or basket of assets and is traded on stock exchanges.
Y
Yield: The income generated from an investment, typically expressed as a percentage of the amount invested.
Yield Curve: A graphical representation of the yields of bonds with different maturities, used to analyze the relationship between short-term and long-term interest rates.
Z
Zero-based Budgeting: A budgeting method where you allocate every dollar of your income to a specific category or expense, ensuring your expenses match your income.
Zoning Laws: Regulations established by local governments to control the use of land within specific areas, often dictating permissible activities or property development guidelines.