The Finance Glossary for Personal Finance and Budgeting

What are all of these Financial Terms?

The Finance Glossary for Personal Finance and Budgeting

Trying to get a grip on your finances and sticking to a budget can be tough. It can be even harder for folks trying to do it all on their own. In every financial self-help book or article you read, the author is bound to use an industry term that you may not fully understand as well as you should. Obviously we want to help you and that’s why we made Financial Hope.

Below is a list of terms and definitions intended to help you better understand the topic of personal finance.


“1099” refers to the 1099 tax form. The 1099 tax form is the form that a business issues to independent contractors when it is time for taxes. 1099s are also used for dividends from investments as well as income from rental properties, if you have any.

401(k) Plan

A 401(k) is a contribution plan that allows you to contribute to your tax-advantaged retirement account directly from your paycheck (typically pre-tax).

529 Savings Plan

A 529 Plan allows you to save for college expenses for children in your care through a state-specific and tax-advantaged account.

Adjusted Gross Income (AGI)

Adjusted gross income (AGI) is gross income minus any necessary adjustments to that income. These adjustments can include student loan interest, alimony payments, contributions to retirement, education expenses, etc.


Amortization is the process where the amount you owe on a loan is reduced over time. Typically, as you begin to pay the loan a higher percentage of the payment is applied to interest.

Annual Percentage Rate (APR)

Annual Percentage Rate (APR) is the amount that it will cost you to borrow money. That money can be borrowed through a loan, credit card, or other avenues each year.
APR = Amount of Interest you will owe + Other relevant fees.

Annual Percentage Yield (APY)

Annual Percentage Yield (APY) is the amount of interest that you will earn on an investment or savings account in a single year.


An annuity is a financial instrument that guarantees a certain payout. An annuity is typically offered through an insurance company. The payout can either be in one lump-sum or in increments.


Appreciation, when used in finance, refers to the increase in value of an asset over time.


An asset is an entity that you own that has financial value or that is expected to have financial value in the future.


Bankruptcy, simply put, is a legal process that allows one who can not pay their debts a chance to be relieved of the responsibility of paying those debts. Make sure you consult with an accountant and an attorney before making decisions about bankruptcy, as it is a complicated issue.


A beneficiary is one who receives an item or an asset – typically after the death of the original owner.


Bonds are a type of investment that works similarly to how a loan from an investor works. The bond issuer (Company or US Government) pays back the lended money (from you – your investment) with interest. Bonds tend to be less risky than stocks are usually held onto for longer periods of time.

Capital Gain

A capital gain is a profit that comes from selling an asset that has increased in value since you obtained ownership. These earnings are subject to capital gains tax, which is at a more favorable rate than regular income.

Capital Loss

A capital loss is a loss that comes from selling an asset that has decreased in value since you obtained ownership. These losses are typically claimed as losses on taxes, which can help relieve some of the financial burden.

Cash Flow

Cash flow is the movement of money. Incoming = income ; outgoing = expenses

Certificate of Deposit (CD)

A Certificate of Deposit, or CD, is essentially putting away cash so that you can’t use it for a certain time period in exchange for a higher interest rate. One important thing to know is that returns on CDs are guaranteed.


Collateral is an item/asset that you, the borrower, owns and the lender, typically a bank or other financial institution, accepts as guarantee of the loan. If your fail to make your payments on the loan then the asset placed as collateral will become the legal property of the lender.


Collections refers to the state of a credit account that has passed the due date and the creditor has sent to a debt collection. Having accounts in collections can lower your credit score.


Commission is the “fee” that companies pay to their salespeople for bringing in new business, retaining customers, or growing their accounts. The amount per sale or percentage given as commission is typically agreed upon employment. Commission is generally seen as a type of income.

Compound Interest

Compound interest is when interest is added to the principal amount of the loan, increasing the next interest payment if not paid off. If you investing your money, then compound interest works in your favor, making you more money over time.

Credit History

Credit history refers to the record of change for your credit usage over time. Your credit history is made of all of your credit accounts such as student loans, mortgages, car notes, credit cards, and more. Information regarding if you make payments on time, how long your accounts have been open and any time your credit has been pulled, your credit utilization and whether or not you’ve filed for bankruptcy is also included in your credit history.

Credit Report

Your credit report is an annual report performed by each of the three credit bureaus (Equifax, Experian, TransUnion) that shows all of your accounts in a single place. A credit report also contains the account history as well as any new accounts you’ve opened.

Credit Score

A credit score is a three-digit score assigned to your credit based on your debt and credit history. A high credit score indicates to banks/lenders that you are trustworthy and that they can expect you to make your payments, in the proper amount and on time. Higher credit score = lower risk for the lender.

Credit Utilization

Credit utilization is exactly what it sounds like; the percentage of your credit that you are using compared to the credit that you are given from the creditor.

Debt-To-Income Ratio

Your debt-to-income ratio is the total amount of your money expenses divided by your gross income. Your debt-to-income is used by lenders to help them understand how much money you can really afford based on your other expected expenses. A good rule-of-thumb is to keep your debt-to-income ratio below 35% (28% should be the goal).


Your deductible is the amount of money you must pay out-of-pocket before your insurance provider begins to pay the rest.


Default, in finance, is the term used when you stop making payments on a loan. The exact definition of “default” is dependant upon the financial institution and the type of loan.

Defined Contribution Plan

A defined contribution plan is a type of investment that allows you to contribute money into an account before it is taxes (which also lowers your taxable income). A 401(k) is the most common example of a defined contribution plan.


A dependant is a person that depends on you financially. A dependant is typically a child (under 26) or elderly relative that lives with you or you are their primary financial provider.


Depreciation is the decline in value of an asset over time.

Discretionary Income

Discretionary income is income that remains after paying taxes, insurance, rent/mortgage, and all other living expenses have been paid for.


A dividend is a payout that a company makes on a recurring basis to individuals that own shares of the business.


Equity refers to the amount of an asset you own after you have paid the debt you owe on it.

Federal Reserve

The Federal Reserve is the US government’s central bank. The Federal Reserve (the Fed) is in charge of interest rates, employment rates and controlling inflation.

Flexible Spending Account (FSA)

A Flexible Savings Account (FSA) is a savings account that allows you to allocate income (before taxes) to qualified medical expenses. FSA accounts are typically use-it or lose-it accounts; so if you don’t use your FSA by the end of the year then you lose the money.

Gross Income

Gross income is the amount of income that you earn before taxes, insurance and pre-tax contributions such as insurance are taken out.

Health Savings Account (HSA)

A Health Savings Account (HSA) is an account for you to contribute your pre-tax income. The money is also tax-free when withdrawn so long as it is used for qualified medical expenses. You should check with your insurance provider or the bank that manages your HSA to see if you can open a HSA or what a qualified medical expense is.

Individual Retirement Account (Roth IRA)

A Roth IRA is a tax-advantaged contribution to a retirement savings plan that is not associated with your employer. The Roth IRA contribution plan occurs after taxes have been withdrawn from your paycheck. So, with a Roth IRA, the money is not taxed when you withdraw it from the account, opposed to a traditional IRA.


Liabilities refers to money that you owe.


Liquidity is a financial term describing how quickly and easily you can pull cash from an asset.

Loan Consolidation/Debt Consolidation

Loan consolidation is taking two or more loans or debts and combining them into one debt/loan. This is commonly a technique used to reduce total interest paid or to reduce total monthly payment amounts.

Money-Market Account

A money-market account is a high-interest-rate savings account. Money-market accounts typically require a higher balance to open the account and a higher monthly balance than a normal savings account.


A mortgage is a loan that you take out to acquire property (typically with a house already or with intentions to build a home). With a mortgage, the property is the collateral, so if you don’t make your payments then the lender can obtain the property.

Mutual Fund

A mutual fund is a financial tool that uses money from various investors to buy a mix of stocks, bonds, and other securities.

Net Income

Net income is the total income you end up with after all of your deductions are removed (taxes, insurance, retirement, etc.). Your net income is essentially your “take-home pay.”

Net Worth

Net worth is the total value of all of your assets (income, investments, property, accounts, etc) and then subtract your total amount of debt.

Penny Stocks

Penny stocks are the stock shares valued at less than $1 per share and belong to small public companies. Penny stock trading is typically considered risky.

Post-Tax Contribution

A post-tax contribution is when you invest your income into an account such as a Roth IRA or a Roth 401(k) and the money you’re investing has already been taxed as income.

Pre-Tax Contribution

A pre-tax contribution is when your invest your income into an account such as a traditional 401(k) and the money you’re investing has not yet been taxed.


Principal, in finance, is the amount of money that you are borrowing, not including interest.

Private Loans

A private loan is a loan from anyone that is not the U.S. government.


Refinancing is replacing your current loan with a new loan that typically has a better interest rate or other attractive features.

Return on Investment (ROI)

ROI is how much an asset has appreciated since you purchased it compared to how much you paid for it. If you purchased a stock for $100 and then sold it one week later for $101, your ROI would be 1%.

Social Security

Social Security is a federal program that you pay into with taxes. Elderly and disabled individuals can draw income from Social Security.


A stock is a share of a company. When you purchase a stock you own a portion of that company.


A trust is a financial tool that one to designate a trustee to hold onto and or manage assets for a beneficiary.

W-2 Form

A W-2 is a tax form that lists out your income and the taxes withheld by your employer.

W-4 Form

A W-4 is a tax form where you determine how much your employer should without from your checks for taxes.

W-9 Form

A W-9 is a tax form that an independent contractor fills out to share their taxpayer ID number with their clients.