Guides › Money Basics
Wealth Glossary: Key Money Terms in Plain English
Personal finance comes with a lot of jargon. This glossary explains the terms you’ll meet most often on this site and elsewhere, in one or two plain sentences each. Bookmark it and come back whenever a word trips you up.
Money basics
New to all of this? Start with net worth, savings rate, and emergency funds, they’re the foundation for everything else.
Terms A–Z
- Asset
- Anything you own that has money value: cash, investments, retirement accounts, a home, or a car.
- Liability
- Money you owe: a mortgage, student loan, car loan, credit card balance, or other debt.
- Net worth
- Total assets minus total liabilities. The clearest single snapshot of your financial position.
- Cash flow
- The difference between money coming in and money going out over a period, usually a month.
- Budget
- A plan for how you will use your income. The best budgets are simple enough to actually follow. See the 50/30/20 rule.
- Savings rate
- The percentage of your income you save instead of spend. The biggest lever for building wealth.
- Emergency fund
- Cash set aside only for unexpected, necessary expenses, typically three to six months of essential costs.
- Liquidity
- How quickly an asset can be turned into cash without losing value. Savings are liquid; a house is not.
- Compound interest
- Earning returns on your past returns, not just on the money you put in. Time is its main ingredient. See the real cost of waiting to invest.
- Inflation
- The general rise in prices over time, which reduces what each dollar can buy.
- Real return
- An investment return after subtracting inflation: what your money actually gained in buying power.
- Index fund
- A fund that holds every investment in a market index, such as the S&P 500, usually at very low cost.
- Diversification
- Spreading money across many investments so no single one can sink your plan.
- 401(k)
- A U.S. employer-sponsored retirement account funded from your paycheck, often with tax advantages.
- IRA
- An Individual Retirement Account you open yourself, with tax advantages for retirement saving.
- Roth
- A type of IRA or 401(k) funded with after-tax money; qualified withdrawals in retirement are tax-free. See Roth vs Traditional.
- Employer match
- Money your employer adds to your retirement account when you contribute. Effectively part of your pay.
- APR
- Annual percentage rate: the yearly cost of borrowing, including interest and some fees.
- Credit score
- A number lenders use to judge how likely you are to repay debt, based on your borrowing history. See how to build credit.
- Debt-to-income ratio
- Monthly debt payments divided by monthly gross income. Lenders use it to judge affordability.
- Deductible
- What you pay out of pocket for a covered insurance claim before your insurer starts paying. See understanding your health insurance.
- Beneficiary
- The person you name to receive an account or insurance payout if you die.
- Will
- A legal document saying who receives your property and who cares for minor children after your death. See wills and estate planning basics.
- Financial independence
- Having enough invested that returns can cover your living costs, making work optional. See the 4% rule and FIRE.
- Time wealth
- How much control you have over how you spend your hours, a dimension money alone can’t buy back.
- Wealth score
- A 0–100 measure of how well-resourced your life is across eight dimensions, from finances to time.
Still stuck on a term?
If there’s a word you’d like explained, let us know and we’ll consider adding it.
Related guides
Sources
- Investor Bulletin: Index Funds, Investor.gov, U.S. Securities and Exchange Commission
- Roth IRAs, Internal Revenue Service
- What is a credit card interest rate? What does APR mean?, Consumer Financial Protection Bureau
- Changes in U.S. Family Finances from 2019 to 2022: Evidence from the Survey of Consumer Finances, Federal Reserve Board, 2023
This guide is for informational and educational purposes only. It is not financial, medical, legal, or tax advice. Consult a qualified professional for guidance specific to your situation.