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Here are 150 personal finance terms you should know

Here are 150 personal finance terms you should know 1

529 plan

A state-specific tax-advantaged savings account that allows you to save for college expenses.

Active management

A type of financial portfolio strategy that involves frequent hands-on strategic intervention — buying and selling assets — from a financial adviser.

Adjusted gross income

Adjusted gross income is your gross income minus certain adjustments, such as deducting student-loan interest, alimony payments, or contributions to some types of retirement accounts. AGI is part of the process of calculating your total taxable income.

Alternative minimum tax

A tax that applies to high-income individuals to ensure that they are paying a sufficient amount of tax. Earners above a certain threshold must calculate their income tax using a special formula, and if it’s higher than their tax using the regular formula, they must pay the higher tax.


The process by which the amount due on a loan is reduced over time. Generally a higher proportion of each payment goes toward interest when you begin paying off the loan, with an increasing proportion going toward principal over time.

Annual Percentage Rate

Annual percentage rate, APR, is the total amount it will cost you to borrow money, be it through a loan, credit card, or other instruments, each year. It takes the amount of interest you’ll owe and adds it to any other relevant fees.

Annual Percentage Yield

Annual percentage yield, APY, represents the total amount of interest you’ll earn on an investment or savings account in a year, including the effects of compound interest.


A financial instrument, typically offered through an insurance company, that guarantees a certain payout, either in a lump sum or in increments.


An increase in the value of a particular asset over time.


A payment method where the payer pays the payee after the work they’re being paid for has been completed. The term can also apply to a late payment.

Ask price

The lowest dollar amount the seller of a security will accept in exchange for that security.


An item a person or entity owns that has financial value or is expected to have financial value in the future.

Asset allocation

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The mix of different financial vehicles (such as bonds, stocks, ETFs, cash, mutual funds) that an investor can spread their money across. It’s important to maintain an asset allocation that’s in line with your risk tolerance.

Balance sheet

A document that provides prospective investors with a summary of a company’s financial standing by detailing its assets, liabilities, and shareholders’ equity.


A legal proceeding that gives a person or business who can no longer pay their debts a chance to be released from the responsibility of paying those debts.

Bear market

A way of describing the state of the stock market that indicates that stocks are declining in value overall.


The recipient of an item or asset, generally after its original owner has died.

Bid price

The highest amount a prospective buyer of a security will consider paying for that security.

Blue chip

A term used to refer to companies whose stock is considered a solid investment. PepsiCo, General Electric, and Disney are blue-chip companies.


A type of investment that is essentially a loan from the investor to the bond issuer (the US government or a corporation, for example). The bond issuer pays back the invested money, with interest, at specified intervals of time. Bonds carry less risk than stocks.

Book value

The value of a company’s assets once its liabilities are subtracted. Book value is reported on a company’s balance sheet.

Bottom-up investing

An investment strategy that focuses on the performance of individual companies and their stock rather than on market trends on the whole.


An individual or organization that facilitates the buying and selling of assets on someone else’s behalf. Brokers often collect a fee or commission for these transactions.

Bull market

A way of describing the state of the stock market that indicates stocks are increasing in value.

Capital gain

The profit that results from selling an asset that has grown in value. Capital gains are taxed at a more favorable rate than regular income.

Capital loss

The loss an investor experiences when they sell an asset that has lost value. Investors can claim these losses on their taxes, which can help them recover some of the money.

Capitalized interest

The interest periodically added to the total balance of a loan. For student loans, this often happens at the end of the initial grace period or after forbearance or deferment ends.

Cash flow

financial adviser meeting financial planner

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The movement of a person’s, household’s, or business’s money—coming in as income and going out as expenses.

Certificate of deposit (CD)

A financial instrument that locks away cash so that you can’t use it for a certain time in exchange for a higher interest rate. Returns on CDs are guaranteed.

Certified Financial Planner

A financial professional who is certified by the Certified Financial Planner Board of Standards. The designation is highly regarded in the field and indicates that the planner is a fiduciary who has mastered financial concepts including insurance, taxes, retirement investing, estate planning, and more.

Chartered Financial Analyst (CFA)

A licensed financial expert who has passed the CFA Institute exams for financial analysts.

Closing date

The date that marks the end of a credit-card billing cycle. On the closing date, whatever the balance is on your card will be what you owe on your next bill.


A borrower’s item, property, or asset that a lender accepts as a guarantee of a loan. If the borrower fails to make loan payments, collateral can become the property of the lender.


The state of a credit account that is far enough past due that the creditor sent it to a debt collector. Having accounts in collections can significantly lower your credit score.


The fee that a financial-services company pays a financial adviser when the adviser sells a product to a client. It’s also the term for the fee that an investor pays a broker or other adviser to complete a financial transaction. Commissions are often assessed as a percentage of the cost of the product.

Commission-based financial planner

A financial planner who receives commissions based on the individual financial products they sell to their clients. It can create conflicts of interest that can compromise their ability to act as a fiduciary.


An economic unit that can be bought or sold but has the same value regardless of who produced it. Oil, gold, and wheat are all examples of commodities.

Compound interest

A method of calculating interest where you earn a percentage not just of the principal amount but the principal plus any previously earned interest.

For example, say you have a balance of $1,000 and are earning an annual interest rate of 6%. At the end of the first year, you’ll earn $60 in interest. The following year you’ll earn your 6% interest on the total new balance of $1,060. At the end of the second year, you’ll have a total of $1,123.60.

Cost basis

The amount an investor paid for a security, including broker commissions and other fees and adjustments. Cost basis will help you determine your capital gains or losses for tax purposes.

Credit history

The record of your credit usage habits over time that includes a list of all your credit accounts (student loans, credit cards, mortgages, etc.) as well as information on whether you make payments on time, the ages of your accounts, any recent credit inquiries, your credit utilization, and whether you have ever filed for bankruptcy.

Post-tax contribution

Young woman sitting on the floor looking at notepad

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A financial contribution to an account, like a Roth IRA or a Roth 401(k), where you have already paid taxes on the money before funding the account.

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