Financial terms, in plain English

A simple budgeting guideline: roughly 50% of your income for needs, 30% for wants, and 20% for saving and debt payoff.

Needs are essentials you can't live without (rent, food, utilities); wants are extras that are nice to have. Sorting spending this way shows where to trim.

Automatically moving money into savings the moment you're paid, before you can spend it — automation beats willpower.

The money coming in versus the money going out each month. Positive cash flow means you have money left to save or invest.

Fixed expenses stay the same each month (rent, loan payments); variable ones change (groceries, utilities, dining out).

A savings account that pays a much higher interest rate than a typical bank — often 4–5% vs. ~0.01% — and is FDIC-insured.

Government-backed protection that covers up to $250,000 per depositor per bank if the bank fails, so your money is safe.

The yearly interest you earn on a savings account, including compounding. Higher APY means your money grows faster.

Interest earned on both your original money and the interest it has already earned. Over time it makes savings and investments grow faster and faster.

Cash set aside for surprises — a job loss, medical bill, or car repair — so you don't have to borrow at high rates. Aim for 3–6 months of essentials.

A number (300–850 for FICO) showing how reliably you borrow. Higher scores mean cheaper loans, easier rentals, and better card offers.

The most widely used credit score, built from your payment history, amounts owed, credit age, credit mix, and new credit.

How much of your available credit you're using. Under 30% is the line; under 10% is ideal. It's a big, fast-moving part of your score.

A credit check when you apply for new credit. A few can ding your score slightly for about a year; too many in a short window looks risky.

A credit check that doesn't affect your score — like checking your own score or a pre-approval offer.

A card backed by a refundable deposit that sets your credit limit. A common way to build credit from scratch with low risk.

Being added to someone else's card so their good history can appear on your credit report — you don't have to use the card to benefit.

Having a blend of revolving credit (cards) and installment loans (car, mortgage). A small factor in your score — don't force it.

The yearly cost of borrowing, including interest and fees. Credit cards often charge 20%+ APR.

Paying off your highest-interest debt first while paying minimums on the rest. Mathematically the cheapest way to clear debt.

Paying off your smallest balance first for a quick win, then rolling that payment into the next. Less optimal math but great for motivation.

Moving high-interest credit card debt to a card with a 0% intro APR, so you can pay it down without new interest — only if you stop new spending.

The smallest amount you must pay each month to stay current. Paying only this keeps you in debt far longer and costs far more in interest.

Your monthly debt payments divided by your gross monthly income. Lenders use it to judge whether you can take on more borrowing.

A fund that buys a whole market (like the S&P 500) so you own a slice of hundreds of companies at once, with very low fees.

An index fund that trades like a stock. Examples include VTI (total US market) and VOO (S&P 500). Often allows fractional-share buying.

The annual fee a fund charges, shown as a percentage. Lower is better — over decades, small fee differences add up to huge amounts.

Investing a fixed amount on a fixed schedule (e.g., $400 every payday). You buy more shares when prices are low and fewer when high, removing emotion.

Spreading money across many investments so no single one can sink you. Index funds do this automatically.

Staying invested for the long run rather than trying to time buys and sells. Historically this beats trying to predict the market.

An account at a broker (Fidelity, Schwab, Vanguard, etc.) used to buy investments. Taxable versions have no contribution limit.

How much an investment's price swings. The stock market can drop 20% in a bad year, which is why short-term money shouldn't be invested.

A workplace retirement account where you contribute pre-tax and money grows tax-deferred until withdrawal in retirement.

Free money your employer adds to your 401(k) when you contribute — often a match up to 3–6% of your salary. Always capture the full match first.

How long you must stay at a job before the employer's contributions are fully yours to keep if you leave.

A retirement account you fund with after-tax money; it then grows and can be withdrawn tax-free in retirement. Has income limits.

A retirement account you fund with pre-tax money, which lowers your taxes now; you pay tax when you withdraw in retirement.

A single fund that automatically shifts toward safer investments as you approach a target retirement year — a simple all-in-one choice.

The amount you pay (monthly or yearly) for an insurance policy, whether or not you make a claim.

The amount you pay out of pocket before insurance kicks in. A higher deductible usually means a lower premium — and more risk you carry.

Buying multiple policies (e.g., auto + home/renters) from one insurer, which usually saves 5–25% on each.

Coverage (about $15–20/mo) for your belongings, liability, and extra living costs if your place becomes unlivable. Many landlords require it.

A tax-advantaged account for medical expenses if you have a high-deductible health plan — money goes in pre-tax, grows, and comes out tax-free for qualified costs.