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201+ financial terms explained in plain English
A mortgage with an interest rate that changes periodically based on market conditions. ARMs typically start with a lower rate than fixed-rate mortgages but can increase or decrease over time, affecting monthly payments.
Gross income minus specific deductions like retirement contributions, student loan interest, and HSA contributions. AGI determines eligibility for many tax benefits.
The process of paying off a debt over time through regular payments. Each payment covers both principal and interest, with early payments being mostly interest and later payments being mostly principal.
The total yearly cost of borrowing money, expressed as a percentage. APR includes the interest rate plus fees and other charges, giving a more complete picture of loan costs than interest rate alone.
The effective annual rate of return on an investment or savings account, accounting for compound interest. APY is always equal to or higher than the stated interest rate when interest compounds more than annually.
A financial product that provides regular payments over time, often used for retirement income. Annuities can be immediate or deferred, fixed or variable.
An increase in the value of an asset over time. In real estate, home appreciation refers to the increase in a property's market value, which can result from market conditions, improvements, or inflation.
The value assigned to a property by a tax assessor for calculating property taxes. Assessed value may differ from market value and is often a percentage of market value.
Anything of value owned by an individual or entity. Assets include cash, investments, real estate, vehicles, and personal property. Assets can be liquid (easily converted to cash) or illiquid.
The strategy of dividing investments among different asset categories like stocks, bonds, and cash. Asset allocation aims to balance risk and reward based on investment goals, time horizon, and risk tolerance.
Total monthly debt payments (including proposed mortgage) divided by gross monthly income. Most lenders require a back-end ratio below 43% for qualified mortgages.
Moving debt from one credit card to another, usually to take advantage of a lower interest rate. Balance transfers often come with promotional 0% APR periods but may include transfer fees.
A large, lump-sum payment due at the end of a loan term. Balloon loans have lower monthly payments but require the borrower to pay off or refinance the remaining balance at maturity.
A legal process that helps individuals or businesses eliminate or repay debts under court protection. Chapter 7 liquidates assets, while Chapter 13 creates a repayment plan.
One hundredth of a percentage point (0.01%). Used to describe changes in interest rates or investment returns. For example, a rate increase from 5.00% to 5.25% is a 25 basis point increase.
A person or entity designated to receive benefits from a financial account, insurance policy, or estate. Beneficiaries inherit assets directly, often bypassing probate.
A measure of a stock's volatility relative to the overall market. Beta of 1 means the stock moves with the market; beta above 1 indicates higher volatility.
Stock of a large, well-established, financially sound company with a history of reliable performance. Blue-chip stocks are considered lower risk and often pay dividends.
A fixed-income investment where an investor loans money to an entity (government or corporation) for a defined period at a fixed interest rate. Bonds are generally considered lower risk than stocks.
The value of an asset as recorded on a company's balance sheet (cost minus depreciation). Book value may differ significantly from market value.
The point at which total costs equal total revenue, resulting in neither profit nor loss. In refinancing, it's when cumulative savings equal the costs paid to refinance.
A short-term loan used to bridge the gap between buying a new home and selling an existing one. Bridge loans have higher rates and fees due to their temporary nature.
A financial plan that estimates income and expenses over a specific period. Budgets help track spending, identify saving opportunities, and achieve financial goals.
Profit from selling an asset for more than its purchase price. Short-term gains (assets held less than a year) are taxed as ordinary income; long-term gains receive preferential tax rates.
A loss incurred when selling an asset for less than its purchase price. Capital losses can offset capital gains and reduce taxable income by up to $3,000 annually.
The movement of money in and out of a business or personal finances. Positive cash flow means more money coming in than going out; negative cash flow means expenses exceed income.
Additional retirement account contributions allowed for individuals aged 50 and older. For 2024, catch-up limits are $7,500 for 401(k)s and $1,000 for IRAs.
A savings product with a fixed interest rate and maturity date. CDs typically offer higher rates than regular savings accounts but charge penalties for early withdrawal.
The final step in a real estate transaction where ownership transfers from seller to buyer. At closing, all documents are signed, funds are distributed, and the deed is recorded.
Fees and expenses paid at the closing of a real estate transaction, typically 2-5% of the loan amount. Includes appraisal, title insurance, attorney fees, and origination charges.
An asset pledged as security for a loan. If the borrower defaults, the lender can seize the collateral. Mortgages use the home as collateral; auto loans use the vehicle.
The process of pursuing payment on overdue debts. Accounts sent to collections negatively impact credit scores and may remain on credit reports for up to seven years.
The average annual growth rate of an investment over a specified period, assuming profits are reinvested. CAGR smooths out volatility to show steady growth rate.
Interest calculated on both the initial principal and accumulated interest from previous periods. Compound interest grows money faster than simple interest and is the key to long-term wealth building.
A mortgage that meets Fannie Mae and Freddie Mac guidelines, including loan limits ($766,550 in most areas for 2024). Conforming loans typically have better rates than jumbo loans.
A measure of average prices paid by consumers for goods and services, used to track inflation. The Bureau of Labor Statistics publishes CPI monthly.
The maximum amount you can contribute to retirement or tax-advantaged accounts annually. For 2024: 401(k) limit is $23,000 ($30,500 with catch-up); IRA limit is $7,000 ($8,000 with catch-up).
A bond that can be converted into a predetermined number of company shares. Convertibles offer lower yields than regular bonds but provide upside potential if stock price rises.
The original value of an asset for tax purposes, usually the purchase price plus any associated costs. Cost basis is used to calculate capital gains or losses when selling.
Direct costs of producing goods sold by a company, including materials and labor. COGS is subtracted from revenue to calculate gross profit.
The amount of money needed to cover basic expenses in a particular location, including housing, food, transportation, and healthcare. Cost of living varies significantly by city and region.
The annual interest rate paid by a bond, expressed as a percentage of face value. A $1,000 bond with a 5% coupon pays $50 annually in interest.
A revolving credit line that allows purchases up to a set limit. Interest is charged on unpaid balances. Credit cards build credit history when used responsibly.
The maximum amount a lender allows you to borrow on a credit card or line of credit. Using a high percentage of your limit (high utilization) can negatively impact credit scores.
A numerical rating (300-850) representing creditworthiness based on credit history. Higher scores indicate lower risk and qualify for better interest rates. FICO and VantageScore are common models.
The percentage of available credit currently being used. Calculated by dividing total credit card balances by total credit limits. Keeping utilization below 30% is recommended for good credit scores.
Combining multiple debts into a single loan with one monthly payment. Consolidation can simplify payments and potentially lower interest rates, but may extend the repayment period.
Monthly debt payments divided by gross monthly income, expressed as a percentage. Lenders use DTI to assess borrowing capacity. Most mortgages require DTI below 43%.
A legal document transferring property ownership from one party to another. Types include warranty deeds (seller guarantees clear title) and quitclaim deeds (no guarantees).
Failure to repay a loan according to agreed terms. Defaulting damages credit scores, may result in asset seizure, and can lead to legal action. Federal student loans default after 270 days.
A decrease in the general price level of goods and services, increasing purchasing power. While good for consumers short-term, deflation can signal economic problems and debt burdens increase.
A decrease in an asset's value over time due to wear, age, or obsolescence. Vehicles typically depreciate 15-25% in the first year. For businesses, depreciation is a tax-deductible expense.
Prepaid interest paid at closing to reduce the mortgage interest rate. One point equals 1% of the loan amount and typically lowers the rate by 0.25%. Points make sense if you keep the loan long-term.
Spreading investments across different assets, sectors, and geographies to reduce risk. 'Don't put all your eggs in one basket' summarizes the principle of diversification.
A distribution of a company's earnings to shareholders. Dividends can be paid in cash or additional shares. Dividend yield is the annual dividend divided by share price.
Investing a fixed amount regularly regardless of price, reducing the impact of volatility. DCA automatically buys more shares when prices are low and fewer when prices are high.
An upfront payment representing a percentage of the purchase price. For homes, 20% down avoids PMI; FHA loans require as little as 3.5%. Auto loans may require 10-20% down.
Money received from working, including wages, salaries, tips, and self-employment income. Earned income differs from investment income (dividends, interest, capital gains).
A deposit made when offering to buy a home, showing the seller you're serious. Earnest money (typically 1-3% of price) is held in escrow and applied to closing costs or down payment.
Earnings Before Interest, Taxes, Depreciation, and Amortization—a measure of operating profitability. EBITDA removes non-operating factors to compare companies across industries.
Total taxes paid divided by total income, showing your overall tax burden. Effective rate is lower than marginal rate because income is taxed progressively through brackets.
Savings set aside for unexpected expenses or income loss. Financial experts recommend 3-6 months of expenses in an easily accessible account.
Contributions an employer makes to an employee's retirement account based on the employee's contributions. Common matches include 50% or 100% of contributions up to a percentage of salary.
The difference between an asset's value and what you owe on it. Home equity equals market value minus mortgage balance. In investing, equity means ownership stake (stocks).
An account held by a third party that collects and distributes funds. Mortgage escrow accounts hold property tax and insurance payments, which the lender pays on your behalf.
The total assets, debts, and property owned by an individual at death. Estate planning involves arranging for asset distribution and minimizing taxes.
A fund that trades on stock exchanges like individual stocks. ETFs hold a basket of assets (stocks, bonds, commodities) and typically have lower fees than mutual funds.
Annual fee charged by mutual funds and ETFs, expressed as a percentage of assets. A 0.5% expense ratio means $5 annually per $1,000 invested. Index funds typically have lower ratios.
The nominal or stated value of a bond, loan, or financial instrument. Bonds are typically issued with $1,000 face value and repay this amount at maturity.
Federal Deposit Insurance Corporation coverage that protects bank deposits up to $250,000 per depositor, per bank. Credit unions have similar protection through NCUA.
The interest rate banks charge each other for overnight loans, set by the Federal Reserve. Changes to the fed funds rate influence mortgage rates, savings rates, and the broader economy.
Federal Insurance Contributions Act tax funding Social Security (6.2% up to $168,600 in 2024) and Medicare (1.45% with no cap). Employers match employee contributions.
A person or entity legally obligated to act in another's best interest. Fiduciary financial advisors must prioritize client interests over their own compensation.
A movement focused on extreme saving and investing (often 50-70% of income) to achieve financial independence and optional early retirement, typically by age 40-50.
Expenses that remain constant regardless of production or sales volume. Examples include rent, insurance, and salaries. Contrast with variable costs that change with activity.
A mortgage with an interest rate that stays the same for the entire loan term. Fixed-rate mortgages provide payment stability but typically have higher initial rates than ARMs.
A tax-advantaged account for healthcare or dependent care expenses. FSA contributions reduce taxable income, but most funds must be used within the plan year (use-it-or-lose-it).
The legal process where a lender takes possession of a property after the borrower fails to make payments. Foreclosure severely damages credit and may result in deficiency judgment.
Housing expenses (PITI) divided by gross monthly income. Most lenders prefer a front-end ratio below 28%. Also called the housing ratio.
A document (now replaced by Loan Estimate) providing estimated costs and terms of a mortgage. Lenders must provide within 3 business days of application.
Time after a payment due date during which no penalty or interest is charged. Credit cards typically offer 21-25 day grace periods on purchases if the previous balance was paid in full.
Total income before taxes and deductions. For individuals, it includes wages, investment income, and other earnings. For businesses, it's revenue minus cost of goods sold.
Revenue minus cost of goods sold, divided by revenue, expressed as a percentage. Gross margin shows how efficiently a company produces goods relative to selling price.
Stock of a company expected to grow faster than average. Growth stocks typically reinvest earnings rather than pay dividends, offering potential capital appreciation.
A credit check that occurs when applying for credit and temporarily lowers credit scores by a few points. Multiple inquiries for mortgages or auto loans within 14-45 days count as one.
A tax-advantaged account for medical expenses available with high-deductible health plans. HSA contributions are tax-deductible, growth is tax-free, and qualified withdrawals are tax-free.
A revolving credit line secured by home equity. HELOCs have variable rates and a draw period (typically 10 years) followed by a repayment period.
A savings account offering significantly higher interest rates than traditional accounts, often 10-25x higher. Online banks typically offer the best high-yield rates.
An organization that manages a residential community and enforces rules. HOA fees cover common area maintenance, amenities, and sometimes insurance or utilities.
The portion of your home's value that you own outright—market value minus mortgage balance. Home equity can be accessed through HELOCs, home equity loans, or cash-out refinancing.
Insurance protecting against damage to your home and possessions, plus liability coverage. Lenders require homeowners insurance for mortgaged properties.
Federal student loan repayment plans that cap payments at a percentage of discretionary income. Plans include IBR, PAYE, REPAYE/SAVE, and ICR, with forgiveness after 20-25 years.
A mutual fund or ETF that tracks a market index like the S&P 500. Index funds offer broad diversification and low fees, making them popular for long-term investing.
A benchmark interest rate used to calculate variable loan rates. Common indexes include SOFR, Prime Rate, and Treasury rates. ARM rates = index + margin.
The rate at which prices increase over time, reducing purchasing power. The Federal Reserve targets 2% annual inflation. High inflation erodes savings; investments should outpace inflation.
Assets received from a deceased person. Inherited assets often receive a stepped-up cost basis, reducing capital gains when sold. Inheritance tax applies in some states.
A loan repaid in regular fixed payments over a set term. Mortgages, auto loans, and personal loans are installment loans. Contrast with revolving credit like credit cards.
The cost of borrowing money or the return on lending/investing money. Interest is expressed as a percentage (rate) and can be simple (calculated on principal only) or compound.
The percentage charged for borrowing or earned on deposits/investments, usually expressed annually. The Federal Reserve's federal funds rate influences other interest rates.
The maximum interest rate an adjustable-rate mortgage can reach. Caps may apply to each adjustment period, annually, and over the life of the loan.
Goods held for sale or materials used in production. Inventory turnover measures how quickly inventory sells. In real estate, inventory refers to homes available for sale.
A tax-advantaged retirement savings account. Traditional IRA contributions may be tax-deductible with taxable withdrawals. Roth IRA contributions are after-tax with tax-free withdrawals.
Specific tax deductions claimed instead of the standard deduction. Common itemized deductions include mortgage interest, property taxes, charitable donations, and medical expenses.
Stock of a company with market capitalization above $10 billion. Large-cap stocks are typically more stable and established than small-cap stocks.
A debt or financial obligation owed. Liabilities include mortgages, car loans, credit card balances, and other debts. Net worth equals assets minus liabilities.
A legal claim against property as security for a debt. A mortgage creates a lien on your home; the lender can foreclose if you default. Tax liens and mechanic's liens are other types.
How quickly an asset can be converted to cash without significant loss of value. Cash is most liquid; real estate and retirement accounts are less liquid.
A three-page document providing key mortgage terms, projected payments, and closing costs. Lenders must provide within 3 business days of application. Compare estimates from multiple lenders.
Cancellation of remaining loan balance under certain programs. Federal student loan forgiveness includes PSLF (public service), IDR forgiveness (after 20-25 years), and targeted relief programs.
The length of time to repay a loan. Longer terms mean lower payments but more total interest. Common mortgage terms are 15 and 30 years; auto loans are typically 3-7 years.
The loan amount divided by the property value, expressed as a percentage. An 80% LTV means 20% down payment. Higher LTV typically requires PMI and may mean higher rates.
The tax rate applied to your last dollar of income. The US has progressive brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%). Your effective rate is lower than your marginal rate.
The price an asset would sell for in the current market. For homes, market value is determined by comparable sales, location, and condition. Market value fluctuates with supply and demand.
The amount added to cost to determine selling price, usually expressed as a percentage of cost. A 50% markup on a $100 cost item means a $150 selling price.
The date when a loan must be fully repaid or a bond's principal is returned to investors. At maturity, the borrower pays the remaining balance or the bond returns face value.
Federal health insurance for people 65+ and some younger people with disabilities. Funded by 1.45% payroll tax from employees and employers, plus 0.9% additional tax on high earners.
The smallest amount you must pay on a credit card to avoid late fees. Paying only minimums results in high interest charges and slow debt repayment—often taking decades.
A deposit account offering higher rates than regular savings with some check-writing ability. Money market accounts are FDIC-insured and typically require higher minimum balances.
A loan used to purchase real estate, with the property serving as collateral. Mortgages typically have 15 or 30-year terms. The lender can foreclose if payments aren't made.
An investment vehicle pooling money from many investors to buy a diversified portfolio of stocks, bonds, or other securities. Mutual funds are actively or passively managed.
Income after all deductions, taxes, and expenses. For individuals, it's take-home pay. For businesses, it's profit after all expenses including taxes (the bottom line).
Net income divided by revenue, showing profit after all expenses including taxes. Net margin reveals overall profitability—a 10% net margin means $0.10 profit per $1 of sales.
Total assets minus total liabilities. Net worth measures overall financial health. It includes home equity, retirement accounts, investments, and cash, minus all debts.
Revenue minus operating expenses (COGS, SG&A, depreciation), excluding interest and taxes. Operating income shows profitability from core business operations.
The potential benefit lost when choosing one option over another. Investing $50,000 in a down payment means losing the returns that money could have earned in the stock market.
A fee charged by lenders for processing a new loan, typically 0.5-1% of the loan amount. Origination fees cover underwriting, document preparation, and funding the loan.
Ongoing business expenses not directly tied to producing goods or services. Overhead includes rent, utilities, insurance, and administrative salaries.
The face value of a bond or the stated value of a stock. Bonds trading above par are at a premium; below par are at a discount. Stock par value is largely symbolic.
Earnings from sources requiring minimal active effort, like rental properties, dividends, or royalties. Building passive income streams is a key strategy for financial independence.
Taxes withheld from employee paychecks and matched by employers, funding Social Security and Medicare. Self-employed individuals pay both portions (15.3% total).
A retirement plan where an employer promises to pay a defined benefit based on salary and years of service. Pensions are becoming rare in the private sector but remain common in government.
Principal, Interest, Taxes, and Insurance—the four components of a total monthly mortgage payment. Lenders use PITI to calculate debt-to-income ratios for qualifying.
A collection of investments owned by an individual or institution. A well-diversified portfolio includes stocks, bonds, and other assets across different sectors and geographies.
A lender's conditional commitment to provide a mortgage up to a specified amount, based on verified financial information. Pre-approval strengthens offers when buying a home.
The interest rate banks charge their most creditworthy customers, typically 3% above the federal funds rate. Many consumer loans (HELOCs, credit cards) are priced relative to prime.
The original amount borrowed or invested, not including interest or earnings. In loan amortization, principal is the portion of each payment that reduces the balance owed.
Insurance required on conventional loans with less than 20% down payment, protecting the lender if you default. PMI can be canceled once you reach 20% equity.
Net income divided by revenue, expressed as a percentage. Profit margin shows how much of each dollar of sales becomes profit. Higher margins indicate better profitability.
Annual tax levied on real estate by local governments, based on assessed property value. Property tax rates vary widely by location, typically 0.5-2.5% of assessed value.
A federal program forgiving remaining student loan balance after 120 qualifying payments while working full-time for government or non-profit employers.
The amount of goods and services that can be bought with a unit of currency. Inflation erodes purchasing power over time—$100 today buys less than $100 did 20 years ago.
Investment return adjusted for inflation. If an investment returns 7% and inflation is 3%, the real return is approximately 4%. Real returns show actual purchasing power growth.
Adjusting a portfolio back to target asset allocation by buying or selling investments. Rebalancing maintains desired risk levels as market movements change portfolio composition.
A significant economic decline lasting months or longer, typically defined as two consecutive quarters of negative GDP growth. Recessions feature rising unemployment and decreased spending.
Replacing an existing loan with a new one, typically to secure a lower interest rate, change the term, or access equity. Refinancing involves closing costs that affect break-even.
A company that owns, operates, or finances income-producing real estate. REITs allow investors to own real estate without directly buying property and must pay 90% of taxable income as dividends.
Money received from renting out property. Rental income is taxable but can be offset by expenses like mortgage interest, property taxes, insurance, repairs, and depreciation.
Mandatory annual withdrawals from traditional retirement accounts starting at age 73 (under SECURE 2.0). RMDs ensure retirement savings are eventually taxed. Roth IRAs have no RMDs during the owner's lifetime.
A measure of investment profitability calculated as (gain - cost) / cost, expressed as a percentage. A 50% ROI means earning $1.50 for every $1 invested.
Total income from sales of goods or services before any expenses are deducted. Revenue is the 'top line' of an income statement; net income is the 'bottom line.'
A credit line that can be used repeatedly up to a limit, like credit cards and HELOCs. As you repay, credit becomes available again. Contrast with installment loans with fixed terms.
The possibility of losing money or not achieving expected returns. Investment risk includes market risk, inflation risk, and company-specific risk. Higher potential returns generally mean higher risk.
The degree of variability in investment returns an investor is willing to accept. Risk tolerance depends on time horizon, financial goals, and personal comfort with volatility.
An employer-sponsored retirement account combining 401(k) features with Roth tax treatment. Contributions are after-tax, but qualified withdrawals (including earnings) are tax-free.
An individual retirement account with after-tax contributions and tax-free qualified withdrawals. Roth IRAs have income limits and no RMDs. 2024 contribution limit is $7,000 ($8,000 if 50+).
A quick formula to estimate how long it takes to double money: divide 72 by the interest rate. At 8% return, money doubles in approximately 9 years (72 ÷ 8 = 9).
The percentage of income saved rather than spent. Financial experts recommend saving at least 15-20% of income including retirement contributions. Higher savings rates accelerate wealth building.
A credit card backed by a cash deposit that serves as your credit limit. Secured cards help build or rebuild credit when you can't qualify for unsecured cards.
A loan backed by collateral that the lender can seize if you default. Mortgages, auto loans, and HELOCs are secured loans. Secured loans typically have lower rates than unsecured loans.
Social Security and Medicare taxes paid by self-employed individuals—15.3% of net self-employment income (12.4% Social Security up to the wage base plus 2.9% Medicare).
Selling a home for less than the mortgage balance, with lender approval. Short sales damage credit less than foreclosure and may release the borrower from remaining debt.
Interest calculated only on the original principal, not on accumulated interest. Simple interest = Principal × Rate × Time. Most consumer loans use compound interest instead.
Stock of a company with market capitalization between $300 million and $2 billion. Small-cap stocks offer higher growth potential but greater volatility than large-caps.
Federal program providing retirement, disability, and survivor benefits funded by payroll taxes. Full retirement age is 66-67 depending on birth year. Benefits can start at 62 (reduced) or 70 (increased).
The benchmark interest rate replacing LIBOR for many loans. SOFR is based on overnight Treasury repo transactions and is used as an index for adjustable-rate mortgages and other products.
A credit check that doesn't affect your credit score. Examples include checking your own credit, pre-qualification offers, and employer background checks. Only you see soft inquiries on your report.
The difference between two interest rates or prices. Mortgage spread is the difference between mortgage rates and Treasury yields. Credit spread indicates risk premium.
A fixed dollar amount that reduces taxable income, taken instead of itemizing deductions. For 2024: $14,600 single, $29,200 married filing jointly, plus extra for age 65+ or blind.
The adjustment of an inherited asset's cost basis to its market value at the owner's death. This eliminates capital gains tax on appreciation during the decedent's lifetime.
Ownership shares in a company. Stock prices fluctuate based on company performance and market conditions. Stocks offer growth potential but carry more risk than bonds.
Loans to pay for education expenses. Federal loans offer fixed rates and income-driven repayment; private loans have variable or fixed rates and fewer protections.
Income ranges taxed at different rates in a progressive tax system. 2024 federal brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37%. Only income within each bracket is taxed at that rate.
A dollar-for-dollar reduction in taxes owed, more valuable than deductions. Credits include Child Tax Credit, Earned Income Credit, and education credits. Some credits are refundable.
An expense that reduces taxable income. Common deductions include mortgage interest, charitable contributions, and state taxes. Taxpayers choose between standard and itemized deductions.
Money employers deduct from paychecks for federal and state income taxes. W-4 form determines withholding amount. Proper withholding avoids owing taxes or large refunds.
Accounts offering tax benefits for saving, including tax-deferred growth (401k, Traditional IRA) or tax-free withdrawals (Roth IRA, HSA). Contribution limits apply.
Investment earnings that aren't taxed until withdrawn. Traditional 401(k)s and IRAs are tax-deferred—contributions may be deductible, but withdrawals are taxed as ordinary income.
Selling investments at a loss to offset capital gains and reduce taxes. Up to $3,000 of losses exceeding gains can offset ordinary income. Watch wash-sale rules (30-day window).
Income subject to tax after deductions and exemptions. Calculated as gross income minus above-the-line deductions, then minus standard or itemized deductions.
Life insurance providing coverage for a specific period (term), typically 10-30 years. Term life is cheaper than permanent insurance and pays a death benefit if you die during the term.
Legal documentation of property ownership. A title search ensures no liens or claims exist. Title insurance protects against ownership disputes discovered after purchase.
An individual retirement account with potentially tax-deductible contributions and tax-deferred growth. Withdrawals are taxed as ordinary income. RMDs begin at age 73.
Debt instruments issued by the US government, including T-bills (short-term), T-notes (2-10 years), and T-bonds (20-30 years). Treasuries are considered virtually risk-free.
A legal arrangement where one party (trustee) holds assets for beneficiaries. Trusts can avoid probate, reduce estate taxes, and control asset distribution. Types include revocable and irrevocable.
Extra liability coverage beyond your home and auto policy limits. Umbrella insurance protects assets if you're sued and damages exceed underlying coverage. Relatively inexpensive for high limits.
When you owe more on your mortgage than your home is worth (negative equity). Being underwater limits refinancing options and makes selling difficult without bringing cash to closing.
The process of evaluating risk and determining loan terms. Mortgage underwriters verify income, assets, credit, and property value to decide whether to approve a loan.
A loan not backed by collateral, based solely on creditworthiness. Credit cards and personal loans are typically unsecured. Unsecured loans usually have higher interest rates than secured loans.
Stock trading at a lower price relative to fundamentals like earnings or book value. Value investors seek undervalued companies with potential for price appreciation.
Expenses that change with production or sales volume, like materials and commissions. Total variable costs increase as activity increases. Contrast with fixed costs that stay constant.
An interest rate that can change over time based on market conditions or an index. ARMs, HELOCs, and some credit cards have variable rates that can increase or decrease payments.
The process of earning full ownership of employer-contributed retirement funds over time. Common vesting schedules are cliff (100% after X years) or graded (gradual over several years).
A measure of how much an investment's price fluctuates over time. High volatility means larger price swings and higher risk. Stocks are typically more volatile than bonds.
A court order requiring an employer to withhold a portion of wages to pay a debt. Garnishment can result from unpaid taxes, child support, student loans, or court judgments.
Permanent life insurance with fixed premiums and a cash value component that grows over time. Whole life is more expensive than term life but provides lifetime coverage.
Current assets minus current liabilities, measuring a company's short-term financial health and ability to pay bills. Positive working capital indicates good liquidity.
The income return on an investment, usually expressed as an annual percentage. Dividend yield is annual dividends divided by stock price; bond yield relates coupon payments to price.
A graph showing interest rates across different bond maturities. A normal curve slopes upward (longer terms = higher rates). An inverted curve (short rates > long rates) often predicts recession.