Important Personal Finance Terms for Investing, Budgeting, Buying Insurance and More

Managing your personal finances is hard enough, but this list of important personal finance terms will help you better understand the terminology used by investment bankers, lenders, insurance brokers, and more. Take advantage of the free resources below for investment tools and tips for keeping a financial journal.

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Natasha McLachlan is a writer who currently lives in Southern California. She is an alumna of California College of the Arts, where she obtained her B.A. in Writing and Literature. Her current work revolves around insurance guides and informational articles. She truly enjoys helping others learn more about everyday, practical matters through her work.

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

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Reviewed by Laura Walker
Former Licensed Agent

UPDATED: Nov 14, 2020

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Personal finance is a term used to describe how we save, borrow, and invest as individuals. It can cover car loans, home loans, insurance, stocks and bonds, retirement, real estate investments, and more. To learn more about it, it is important to become familiar with the specific language.

List with Definitions

  1. 401(k) Plan – This is a qualified retirement plan that is through an employer which allows eligible employees to make salary deferral contributions.
  2. 403(b) Tax Sheltered Annuities – A qualified retirement plan for eligible employees of non-profit organizations.
  3. Amortization – This is the term for paying off of debt with regular payments.
  4. APR – Annual Percentage Rate.  The annual cost of a loan; this also includes all fees and interest.
  5. APY – Annual Percent Yield. This is the annual return on an investment.
  6. Asset – Any resource that has economic value that an individual or corporation owns.
  7. Bankruptcy – A legal process in which a debtor’s assets are liquidated and the debtor is released from further liability.
  8. Bear Market – A downturn of 20% or more for more than two months within multiple indexes is considered the start of a bear market.
  9. Bond – Used by corporations, governments, and other institutions to generate capital.
  10. Bull Market – Opposite of bear market.  A market condition where securities rise faster than historic
  11. Capital Gain – this occurs when an investment’s selling price exceeds the purchase price.
  12. Cash Flow – One of the main indications of a company’s overall financial health.  Calculated by subtracting cash payments from cash receipts over a period.
  13. CD – Certificate of Deposit – An interest-bearing note offered by banks and credit unions.
  14. Chapter 13 – This is a bankruptcy proceeding in which the debtor reorganizes their finances under the supervision and approval of the courts.
  15. Compound Interest – Interest that is calculated on the initial principal as well as on the accumulated interest from previous periods.
  16. Credit Report – A summary of a person’s credit history including loans, late payments, and credit limits.
  17. Credit Score – A numeric measure of credit risk that is based on activities such as credit use and late payments.
  18. Credit Union – A credit union is a type offinancial co-operative. They range in size from small, volunteer-only operations to large entities with potentially thousands of participants.
  19. Debt – An amount of money owed to a person or company for funds borrowed.
  20. Delinquency – When a borrower fails to repay a debt obligation by the agreed term.
  21. Direct Deposit – Direct deposit is the deposit of electronic funds directly into a bank account.
  22. Diversification – Is spreading risk by investing in a range of investment tools.
  23. Garnishment – A legal process in which a debtor’s personal property is seized to satisfy a debt or court award.
  24. Home Lien – A legal claim placed on a home that makes selling the home, getting a mortgage, or refinancing it more difficult until the outstanding financial obligations are met.
  25. Inflation – The gradual increase or rise in the price of goods over a period of time.
  26. Interest – The fee paid for using other people’s money.
  27. Keogh Plan – A pension plan that is available for self-employed individuals or the employees of unincorporated businesses.
  28. Liability – An obligation to repay debt.
  29. Line Of Credit – A line of credit (LOC) is an arrangement between a financial institution and a customer, that establishes the maximum amount of a loan.
  30. Liquidity – The ability of an asset to be converted to cash quickly.
  31. Loan-to-value – The ratio of the fair market value of an asset to the value of the loan used to purchase it.
  32. Minimum Down Payment – The minimum down payment is the cash contribution that is required to come from a borrower’s funds for the purchase a home.
  33. Mortgage – A mortgage is a debt instrument that is secured by the collateral of real estate.
  34. Mutual fund – This is an investment that is made of a pool of funds from multiple investors for the purpose of investing in securities.
  35. Nest Egg – A large sum of money or assets that have been saved.
  36. Net worth – Basic calculation of assets minus liabilities. This is used for corporations and individuals to measure financial health.
  37. Paydown – This occurs when the amount a company or government repays exceeds what it currently borrows.
  38. Prime Rate – Based on the federal funds rate, the prime rate is the best rate available to a bank’s most credit-worthy customer.
  39. Principal – The original investment on which interest is generally paid.
  40. Proof of Funds (POF) – This is a document that shows a person or company has the ability and funds available for a transaction.
  41. Qualification Ratio – This is a ratio of debt to income and housing expense to income. It is used by mortgage lenders to determine a borrower’s credit-worthiness.
  42. Recession – An economic condition defined by a decline in GDP for two or more consecutive quarters.
  43. Risk Averse – An investors desire to avoid risk.
  44. RMD – Required Minimum Distribution, this is the minimum annual amount required for retirement account holders to withdraw.
  45. Roth IRA – This is a retirement vehicle that allows individuals who meet income restrictions to contribute pre-taxed funds to save for retirement.
  46. Share – One unit of ownership in a company or security.
  47. Signature Loan – This is a type of personal loan offered by banks. It uses the borrower’s signature and promise to pay as collateral.
  48. Stock – This is a portion of ownership of a corporation.
  49. Tax-deferred – Putting off paying taxes until a later date.
  50. Traditional IRA – A retirement vehicle that allows you to save pretax funds for retirement.
  51. Yield – This is the annual rate of return on an investment.

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