Personal Finance Glossary

The yearly cost of borrowing money, expressed as a percentage, including interest and fees.

The strategy of distributing investments among different asset categories to balance risk and reward.

A fixed-income security representing a loan made by an investor to a borrower, typically a corporation or government, that pays periodic interest.

A plan that outlines expected income and expenses over a specific period, used to manage and control spending.

Interest calculated on both the initial principal and the accumulated interest from prior periods.

A numerical rating (300-850 on the FICO scale) representing a borrower's creditworthiness based on credit history.

The ratio of current credit card balances to total available credit limits, expressed as a percentage.

The percentage of gross monthly income that goes toward paying monthly debt obligations, used by lenders to assess borrowing capacity.

Spreading investments across different asset classes, industries, and geographies to reduce overall portfolio risk.

An investment strategy of regularly investing a fixed dollar amount regardless of market conditions.

A liquid cash reserve set aside to cover unexpected expenses or loss of income, typically 3-6 months of expenses.

The annual fee that mutual funds and ETFs charge investors, expressed as a percentage of the fund's average assets.

The most widely used credit scoring model, ranging from 300 to 850, developed by the Fair Isaac Corporation.

A type of mutual fund or ETF designed to track the performance of a specific market index.

A tax-advantaged account for retirement savings that individuals can open independently of an employer.

The rate at which the general level of prices for goods and services rises, eroding the purchasing power of money over time.

The ease with which an asset can be converted into cash without significantly affecting its market price.

The total value of assets owned minus total liabilities owed; the most comprehensive measure of financial health.

The amount paid periodically for an insurance policy to maintain coverage.

The original sum of money invested or borrowed, separate from any interest or returns earned.

A retirement account funded with after-tax dollars where qualified withdrawals in retirement are tax-free.

A formula estimating the number of years required to double an investment by dividing 72 by the annual rate of return.

The practice of selling investments at a loss to offset taxable capital gains and reduce overall tax liability.

The principle that a dollar today is worth more than a dollar in the future due to its potential earning capacity.

The income return on an investment, such as interest or dividends, usually expressed as an annual percentage.