Financial Glossary

Alphabetical

A

After-Tax Dollars

Definition:

After-tax dollars are the money you have left over after taxes have been taken out of your paycheck or income. This is the cash you actually get to spend, save, or invest—your take-home pay.

Why this matters to you:

Knowing what you have after taxes helps you budget and make real-life decisions. All your spending, saving, and most investing happens with after-tax dollars, so it’s the number that truly matters for your everyday life.

Adjustable-Rate Mortgage (ARM)

Definition:

An ARM is a mortgage where the interest rate can change over time, usually starting lower and then adjusting up or down based on market rates.

Why this matters to you:

ARMs can start cheaper, but might cost more later. Know what you’re signing up for so you’re not caught off guard when the rate resets.

Amortization

Definition:

Amortization is how your loan gets paid off over time, with each payment split between the amount you borrowed (the principal) and the interest the lender charges. Early on, most of your payment goes toward interest, not the loan itself—a system designed to keep you paying longer.

Why this matters to you:

Understanding amortization is like seeing behind the curtain. You’ll realize how much of your payment is actually building your wealth versus padding the bank’s profits. When you know how it works, you can make smarter moves—like paying extra toward principal—to break free faster.

Annual Percentage Rate (APR)

Definition:

APR is the true yearly cost of your loan, including the interest rate and most fees. It’s the real number you should compare—not just the rate.

Why this matters to you:

APRs reveal the hidden costs lenders might tuck away in the fine print. Learning to compare APRs means you’ll spot the best deal, avoid nasty surprises, and keep more money in your pocket.

APY (Annual Percentage Yield)

Definition:

APY is the yearly return on savings or investments, factoring in compounding.

Why this matters to you:

APY shows how fast your savings can grow. Know the difference between APR and APY so you don’t get fooled by sneaky ads or fine print.

Assets vs. Liabilities

Definition:

Assets are things you own that have value (cash, investments, property). Liabilities are what you owe (loans, credit cards, mortgages).

Why this matters to you:

Building assets and reducing liabilities is the key to growing your net worth. Want to get ahead? Focus on stacking assets, not just income.

B

Balance Transfer

Definition:

A balance transfer is when you move debt from one credit card or loan to another, often to get a lower interest rate for a set period.

Why this matters to you:

A smart balance transfer can help you pay off debt faster and pay less in interest—but watch out for fees and the rate after the promo ends.

Budget

Definition:

A budget is your spending and saving plan for the month. It’s your roadmap for where your money will go—so you’re in control, not just reacting.

Why this matters to you:

Budgeting helps you avoid overspending, reach your goals faster, and make sure your money is working for you—not just disappearing. It’s not about restriction; it’s about intention.

Budgeting Methods

Definition:

Ways to plan your spending and saving. Popular ones include the 50/30/20 rule (50% needs, 30% wants, 20% savings), zero-based budgeting (every dollar gets a job), and the envelope system (using cash for categories).

Why this matters to you:

The right budgeting method helps you control your money instead of wondering where it went. Find one that fits your style and stick with it!

C

Cash Flow

Definition:

Cash flow is the money you have coming in and going out each month. What’s left over after your bills is your positive cash flow.

Why this matters to you:

Positive cash flow means you’re living within your means and have money to save, invest, or use for your goals. It’s the foundation of financial freedom.

Chunking Strategy

Definition:

Chunking means using a line of credit to pay off big chunks of your debt at once. Instead of slow, steady payments, you make a big dent and save on interest right away.

Why this matters to you:

Chunking can help you leap ahead in your payoff journey, saving you time and money. The banks won’t tell you this trick—but we will.

Closing Costs

Definition:

Closing costs are the fees and expenses you pay when you finalize your home purchase or refinance. They include things like appraisal, title, and legal fees.

Why this matters to you:

Factoring in closing costs prevents surprise expenses and helps you budget accurately. Always ask for a breakdown before you sign!

Compound Interest

Definition:

Compound interest is interest calculated on both your original amount and any interest already added. It can make your money grow… or your debt balloon if you’re not careful.

Why this matters to you:

Compound interest is the double-edged sword of money. On debt, it’s your enemy; on investments, it’s your best friend. Master this, and you flip the script.

Credit Score

Definition:

A credit score is a three-digit number that shows lenders how likely you are to pay back borrowed money. The higher your score, the better your loan offers and rates.

Why this matters to you:

A strong credit score opens doors—lower interest rates, better terms, and more choices. It’s your financial reputation, so protect it and use it wisely.

Credit Utilization Ratio

Definition:

This is the percentage of your available credit you’re actually using. For example, if you have a $10,000 limit and $2,000 balance, your utilization is 20%.

Why this matters to you:

Keeping this ratio low—ideally under 30%—can boost your credit score and help you qualify for better loans. High utilization can drag your score down, even if you always pay on time.

D

Debt Avalanche Method

Definition:

The debt avalanche method focuses on paying off your highest-interest debts first, while making minimum payments on the rest. Once the top interest debt is gone, you move to the next highest.

Why this matters to you:

This strategy saves you the most money over time and can get you out of debt faster—if you’re disciplined enough to stick with it, even when the wins take a bit longer to show up.

Debt Snowball Method

Definition:

The debt snowball method means paying off your smallest debts first, then rolling those payments into the next one—like a snowball picking up speed.

Why this matters to you:

Quick wins keep you fired up and make it easier to tackle bigger debts. Momentum is your secret weapon for staying motivated all the way to zero.

Debt-to-Income Ratio (DTI)

Definition:

DTI is the percentage of your monthly income that goes toward paying debts.

Why this matters to you:

Lenders use DTI to decide if you qualify for loans. A lower DTI means more freedom, less stress, and better chances for approval.

Deferment

Definition:

Deferment is a pause on loan payments, often used for student loans. Sometimes interest stops during deferment, but not always—so check your loan terms carefully.

Why this matters to you:

Deferment can give you breathing room when money’s tight, but if interest keeps piling up, your balance could grow while you’re on break. Always know the rules before you hit pause.

Disposable Income

Definition:

Disposable income is the money you have left after taxes. It’s what you can spend, save, or invest however you want.

Why this matters to you:

The more disposable income you have, the more options you have. Use it wisely and you can accelerate your goals, build wealth, and enjoy life on your terms.

E

Emergency Fund

Definition:

A stash of cash (usually 3–6 months of living expenses) set aside for life’s curveballs—job loss, car repairs, medical bills.

Why this matters to you:

An emergency fund keeps you from going back into debt when life happens. It’s your buffer, your peace of mind, and your first step to true financial freedom.

Equity

Definition:

Equity is the part of your home you truly own—your home’s value minus what you still owe on your mortgage.

Why this matters to you:

More equity means more options: you can borrow against it, sell for a profit, or refinance for better terms. Building equity is building wealth.

Escrow

Definition:

Escrow is a special account where your lender sets aside money from your mortgage payment to cover property taxes and homeowner’s insurance. It’s like a holding tank that makes sure your bills get paid on time.

Why this matters to you:

Escrow takes the guesswork out of paying big bills and helps you avoid late fees or lapses in coverage. It’s peace of mind, baked into your mortgage.

Extra Principal Payment

Definition:

An extra principal payment is any money you pay above your required minimum, with the extra going straight to what you actually owe (the principal). This helps you pay off your debt faster.

Why this matters to you:

Even small extra payments can shave years off your loan and save you thousands in interest. It’s a simple way to speed up your journey to freedom.

F

FICO Score

Definition:

The FICO Score is the most widely used type of credit score, calculated from your credit history. Lenders use it to decide if you qualify for a loan, and at what rate.

Why this matters to you:

Knowing your FICO Score helps you see what lenders see—and gives you the power to improve your chances for approval and better deals.

Financial Freedom

Definition:

Financial freedom is when you have enough control over your money that you can live the life you want—without worrying about debt, bills, or financial stress.

Why this matters to you:

Financial freedom is about more than just dollars—it’s about options, peace of mind, and the power to focus on what matters most to you. This is the endgame: living awake, on purpose, and truly free.

Fixed-Rate Mortgage

Definition:

A fixed-rate mortgage is a home loan where the interest rate stays the same for the entire term—no surprises, just steady payments.

Why this matters to you:

Fixed rates mean predictable payments, making it easier to budget and plan for the long term. No sudden jumps—just stability.

Forbearance

Definition:

Forbearance is a temporary break from making loan payments, usually during tough times like job loss or illness. Interest may still add up during this period.

Why this matters to you:

Forbearance can offer relief when you need it most, but it’s important to know how it affects your loan long-term. Have a game plan for restarting payments.

Foreclosure

Definition:

Foreclosure is when the lender takes back your home because you haven’t made your mortgage payments. It’s the last resort for banks—and a serious blow to your credit and stability.

Why this matters to you:

Avoiding foreclosure protects your credit, your options, and your peace of mind. If you’re struggling, reach out for help early—there are always more options before things get dire.

G

Good Debt vs Bad Debt

Definition:

Good debt helps you build wealth (like a mortgage or student loan for a valuable degree). Bad debt drains your wealth (credit cards, payday loans, high-interest stuff).

Why this matters to you:

Not all debt is evil—but know the difference. Use good debt wisely, avoid bad debt like the plague.

H

HELOC (Home Equity Line of Credit)

Definition:

A flexible loan that lets you borrow against your home’s value—like a credit card with your house as collateral.

Why this matters to you:

A HELOC can be a power tool for crushing debt or investing—but use it wisely, or it can become a trap.

Home Equity Line of Credit (HELOC)

Definition:

A HELOC is a flexible loan that lets you borrow against the value of your home—kind of like a credit card with your house as collateral. You can borrow, pay back, and borrow again as needed.

Why this matters to you:

Used wisely, a HELOC is a power tool for crushing debt and creating cash flow. Used carelessly, it can become a trap. Know the rules, use it to your advantage, and don’t let the bank pull you back into debt.

I

Inflation

Definition:

Inflation is the rise in prices over time—meaning your dollars buy less next year than they do today.

Why this matters to you:

Inflation eats away at your savings if you’re not growing your money. Invest to beat inflation and keep your buying power strong.

Interest Rate

Definition:

The interest rate is the cost of borrowing money, shown as a percentage. It’s how lenders make their money—by charging you for the privilege of using theirs.

Why this matters to you:

Even a tiny difference in your interest rate can mean thousands of dollars over the life of your loan. The lower your rate, the quicker you win. Don’t sleepwalk through this—shop, negotiate, and make the system work for you.

L

Loan-to-Value Ratio (LTV)

Definition:

LTV measures how much you owe on your home compared to what it’s worth. If your house is worth $300,000 and you owe $240,000, your LTV is 80%. Lenders use this number to decide how risky you are.

Why this matters to you:

A lower LTV means you’re a safer bet for lenders—which can get you better rates, lower fees, and more options. The more equity you have, the more power you have.

M

Minimum Payment

Definition:

The minimum payment is the smallest amount you must pay each month on a loan or credit card to stay in good standing. It keeps your account current, but most of it usually goes to interest, not principal.

Why this matters to you:

Paying only the minimum keeps you in debt much longer and costs you way more in interest. Want out? Always try to pay more than the minimum.

N

Net Worth

Definition:

Net worth is everything you own (your assets) minus everything you owe (your debts). It’s the big-picture snapshot of your financial health.

Why this matters to you:

Tracking your net worth lets you see your real progress—not just your income or savings, but your whole financial story. Watching it grow is proof you’re moving toward true freedom.

O

Origination Fee

Definition:

An origination fee is what lenders charge to set up your loan, usually a small percentage of your total loan amount. It covers their paperwork and processing time.

Why this matters to you:

Understanding these fees helps you spot the true cost of borrowing and compare loans fairly. Don’t let sneaky fees eat up your savings.

P

Passive Income

Definition:

Money you earn without trading your time for it—think rental income, dividends, royalties, or online businesses.

Why this matters to you:

Passive income is the secret to building wealth while you sleep. The more you have, the more freedom you get.

Paycheck Parking

Definition:

Paycheck parking is a strategy where you deposit your entire paycheck into a line of credit (like a HELOC) to lower your balance and save on interest—then pay bills from there.

Why this matters to you:

This move lets you use your own income to fight interest and pay off debt faster, without extra work or sacrifice. It’s a system hack for the win.

PMI (Private Mortgage Insurance)

Definition:

PMI is insurance you might have to pay if your down payment is less than 20%. It protects the lender—not you—if you default on your loan.

Why this matters to you:

PMI adds to your monthly costs. Knowing how to avoid or remove it can save you money and help you build equity faster.

Prepayment Penalty

Definition:

A prepayment penalty is a fee some lenders charge if you pay off your loan early. It’s their way of making sure they still get paid for lost interest.

Why this matters to you:

Knowing if your loan has this fee helps you avoid surprises and plan your payoff strategy. Always ask before you make a big extra payment!

Pre-Tax Dollars

Definition:

Pre-tax dollars are the money you earn before any taxes are taken out. Some retirement accounts (like a traditional 401(k) or IRA) let you contribute money before taxes, which can lower your taxable income now.

Why this matters to you:

Using pre-tax dollars for things like retirement savings can help you pay less in taxes today and grow your investments faster. But you’ll usually pay taxes later when you withdraw the money, so it’s important to plan ahead.

Principal

Definition:

Principal is the original amount of money you borrow for your mortgage or loan—not including the interest. Every dollar you pay toward principal actually reduces your debt.

Why this matters to you:

The faster you pay down principal, the less interest you’ll pay overall. That means more of your money goes to your future, not the bank’s. Want to get ahead? Target that principal and watch your freedom grow.

R

Refinancing

Definition:

Refinancing means replacing your current loan with a new one—usually to get a lower interest rate, change your monthly payment, or adjust your loan term. It’s like hitting the reset button on your mortgage.

Why this matters to you:

Refinancing can save you thousands, shorten your payoff time, or free up cash flow. But beware of fees and fine print—always run the numbers to see if it really pays off.

Revolving Credit

Definition:

Revolving credit is a type of credit (like a credit card or HELOC) that lets you borrow, pay back, and borrow again, up to a certain limit. It’s flexible, but can be risky if not managed well.

Why this matters to you:

Managing revolving credit wisely can boost your credit score and give you financial flexibility. But if you let balances grow