Running List of Definitions

Disclaimer: The statements made in this post are the opinion of the author. They should not be viewed as financial advice. Please consult with a financial specialist before making any financial decisions.
This post may contain affiliate links, meaning I’ll receive commission at no extra cost to you for your purchase.*

This is no meant to be a blog post, but a reference for anybody that doesn’t remember what a word means to come back and find the simple definitions given in each post. They are arranged alphabetically.

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Table of Contents


Accredited Investor: An SEC distinct that is needed to qualify to invest in certain things. The distinction is person who has a yearly income exceeding $200,000 ($300,000 ir couples) or over $1,000,000 in net worth.

Active Income: Money earned as a direct result of putting time into work. This is for hourly, salaried, and commission based employees as well as self employed business owners who work in their business. Also called Earned Income

Actively Managed Fund: Money invested in stocks that are picked, bought, and sold on your behalf by a fund manager. Generally they have higher fees, and on average they perform worse than the market average.

Annual Return: The amount you will receive back on an invest each year, usually in the form of a percent. So if you have a 10% annual return on $12,000, you’d get $1,200 every year, or $100 every month.

Appraise: To give a property and official value as determined by an appraiser. For homes appraisers use other properties that are comparable to yours that have recently sold in your area.

Appreciation: When the value of an asset increases overtime. For example, your home goes from being worth $100,000 to $105,000. That is 5% appreciation. This is not the same as cash flow or dividends which are other ways that assets can pay you directly.

Assets: Things that put money into your pocket every month (or year). Sometimes equity in your house is also included as an asset, but I prefer not to include it. A car loses value every year (depreciates) so it is NOT an asset.

Asset Allocation: A snapshot of where you have your money invested that is usually compared to other asset allocations by how risky/rewarding your position is. For example, of all the money you have you could have 10% in stock, 80% in bonds, and 10% in cash which would be a very low risk and very low reward asset allocation. On the other hand you could have 90% stocks, 5% bonds and 5% cash which would be a higher risk and higher reward asset allocation.

Asset Classes: Another way of saying different categories of assets. So things that depend on different sectors of the economy usually fall into different asset classes. So stocks, bonds, real estate, and oil and gas would all fall into different asset classes.


Balance Sheet: A place to keep track of how much money is coming in and how much money is going out to make sure that you are not spending more money than you make. Assets, liabilities, and savings are included as part of this accounting.

Bonds: To raise funds for a project an entity (usually a government) will sell bonds or certificates saying that if you pay X amount now you will get X back with interest later. This gives them the money they need now and gives the investor interest on their original investment later.

Budget: Assigning each dollar of your income to a certain role or category. Categories include housing, car, food, utilities, entertainment, and so much more. This is meant to be a tool to stop you from overspending.


Capital Gains: The money you make from selling a stock (or other asset) for more than you bought it for. For example, if you buy 10 shares at $5 (which equals $50) and they go up in value to $10 (which is a total of $100) and you sell, then you’ve made $50 in capital gains ($100 total minus the original $50 equals $50 in capital gains). Tax rates are quite high for capital gains.

Cash Flow: Money coming into your pocket from investing (either through stocks, real estate, or other assets). This is NOT the same as income because it doesn’t necessarily require you to work for it.

Cash Out Refinance: Getting a new loan against the value of the home where the amount of the loan is higher than the amount currently owed so the additional cash is given to the owner.

Certificates of Deposit (CDs): A savings account that keeps a certain amount of money for a certain amount of time in exchange for a higher interest rate than the bank usually provides. After the agreed amount of time the principal is paid back along with the accumulated interest. Banks often have penalties for withdrawing the money early.

Commodities: Raw materials that can be bought and sold. They hold value because they are useful, but the value can go up and down over time. Examples include Gold, Silver, etc., Coffee Beans, Wheat, and other raw materials.

Compound Interest: When interest builds upon interest over time. So a 10% compound interest rate would start with $1,000 becoming $1,100, like simple interest, but then it continues and $1,100 becomes $1,210 and so on.

Consumer Culture: The idea that our entire society is built around buying things. This is one of the reasons that saving is so difficult and why good financial principles aren’t more widely known.

Consumer Debt: Debt accumulated from spending on wants. Wants include things like eating out, entertainment, but also fancy cars and furnishing a fancy house; wants don’t include things like student loans, medical debt, or a mortgage.

Cost of Living: How much money it takes to buy basic needs in a certain area. This usually increases every year because of inflation. Meaning that it takes more money to buy what you usually buy each year because money isn’t worth as much as the previous year.

Credit: Using someone else’s money to make a purchase (like getting a mortgage on a home, financing on a car, or using a credit card) that then charges interest on top of the amount borrowed.

Credit Score: A weighted score calculated by three independent companies that is used to determine your credit worthiness, or how much someone should trust you to repay your debts.


Debts: Money that you owe for something you’ve purchased or used. Another similar word for this is a liability.

Debt Servicing Payments: This just means payments you have to make on a reoccurring (usually monthly) basis to keep the debt current so it doesn’t impact your credit score.

Depreciating: (Depreciation) When something loses value over time, usually due to wear and tear. A car is a great example of something that depreciates, but furniture and computers and other business equipment are also examples.

Diversified Portfolio: Putting your investments into different groups of assets so that if one of them drops the rest of your portfolio stays up. It is a protection against a recession and other economic downturns. This is the investing principle of don’t put all of your eggs in one basket.

Diversify: Spreading your investments to multiple DIFFERENT types of investments/companies/assets. This can include owning some real estate, some stocks, and some other investment options. Or it can be as simple as investing in technology companies and food companies. Diversifying lowers risk.

Dividend: Money that is paid back to the people that own portions of stocks (called shares) of certain companies when those companies make a profit. If you own some shares of a company that pays dividends, then you’ll get paid according to how many shares you own.

Down Payment: An amount that you pay up front that is a portion of the total price of something you are getting a loan for. Usually you have down payments on houses, cars, and other large purchases.


Earned Income: Money earned as a direct result of putting time into work. This is for hourly, salaried, and commission based employees as well as self employed business owners who work in their business. It is subject to FICA taxes. Also called Active Income

Emergency Fund: Money set aside to be used in emergencies only. When you use money from your emergency fund you will need to replenish it as soon as you can.

Employer Match: When an employer will match the amount of money your contribute to your retirement account up to a certain percent (usually between 3-5%). So if 5% of you income is $500 and you contribute $500, your employer would also contribute $500 and you would have $1000 saved.

Entrepreneur: A person who uses capital (money and other resources) to build a business. It usually involves financial risk with high potential of financial reward.

Equity (Assets): The amount of ownership that you have in an asset such as stocks. As the value of the stocks grown the amount of money they are worth increases even though the percentage of equity you own stays the same.

Equity (Housing): How much your property is worth versus how much you owe on it. So if your property could sell for $100,000 and you owe $40,000 then you have $60,000 of equity.


Federal Income Tax: Taxes paid to the federal government based on your taxable income (income that isn’t protected by tax shelters like a 401k or deductions). The more money you make the more you pay in a graduated or bracket system. This is where deduction and rebates come in that create tax returns.

Federal Payroll Tax: Tax that is paid on running payroll (paying employees) half of which is paid by your employer and the other half is paid by you. This tax pays for social security and medicare. Please note that if you are self employed you are responsible for the entire tax.

Financial Freedom: Being able to cover all of your expenses each month without having to work. This doesn’t mean you don’t work, and it comes in a variety of ways from investing in stocks to real estate to businesses, etc. Your path to financial freedom is your own.

Financially Runway: Cash in the bank, or easily accessible, that you can use to pay the bills while you try to get a new job, start a business, or build passive income.

Financial Security-Being in a position to be able to cover expenses in case of emergencies, such as job loss, major medical event, or accidents. The foundation to financial security is an emergency fund. It is NOT having a secure job which is not in your control. What makes you feel financially secure is up to you.

Fixed Expenses: Monthly expenses that are consistently the same amount. Examples of this are mortgage or rent, car payment, and insurance premiums.

Frugality: Spending as little as possible without reducing your overall happiness. When someone is frugal they will cut every expense they can to the bone, except those things that bring them real joy. In other words, frugality is using every dollar with purpose and not waste.


Generational Wealth: Building enough passive income that it will continue to grow and can be passed down from a parent to a child and beyond.

Government Assistance Programs: When a government organization gives money, food, or other resources to individuals and families that have low incomes, which depend on where you live, or meet other certain criteria. Examples include: Medicaid, TANF, LEAP, and SNAP, etc.

Government Backed Loans: When a government organization provides assurances to a lender that if the borrower doesn’t pay the government will cover the remainder of the loan. This allows lenders to give money to people that are considered “riskier” to lend to. Examples of riskier borrowers include they have a lower down payment or they have a less than desirable credit score, etc.

Gross Pay: Your total pay before any money is taken out from taxes, insurance, or retirement investing.


High Yield Savings Account: A savings account that pays interest above the national average. Usually this is much closer to keeping up with inflation although it is a bit lower than that. While rates vary, around 1% is a high yield in 2020.

House Hacking: Anything that turns your primary residence into a a money making asset. Most commonly this is buying a duplex and renting out one side, but it can include AirBnB, long term renting out a room, etc. This can reduce or entirely eliminate what you pay into your mortgage personally.


Income Producing Assets: Assets that increase your net worth on a consistent basis. They are relatively easy to get cash from.

Income Tax: Money taken out of your directly paycheck to pay taxes. The amount owed depends on your income.

Index Funds: A way to invest in stocks that puts a little bit of your money into every company listed in that index or list of companies. For example, the index could invest in all companies in the S&P 500 or all publicly traded companies, etc.

Inflation: Money losing value over time usually due to more money being put into circulation.

Insurance (Home): The money that you pay each month in case there is a disaster in your house that either pays to repair it or pay off your mortgage. This is usually called home owner’s insurance or hazard insurance. Even with a house paid off you still pay this each month. This is the Second I in the common banking acronym PITI (principal, interest, taxes and insurance).

Interest (Financing): The amount of money that you pay each month on top of the principal, the cost of borrowing money. So if you borrowed $100,000 you can pay an extra $40,000-$60,000 on average for a mortgage. This is the first I in the common banking acronym PITI (principal, interest, taxes and insurance).

Interest (Investing): Money returned on top of the original amount of money invested. For a very simplified example, if I invest $1,000 at a %10 interest rate than I can expect to receive $1,100 back.

Investing: Giving an entity (or an individual) money whether in the form of stocks, bonds, or buying any other type of asset in hopes of getting more money back in the form of interest, appreciation or other pay outs.

Investing Broker: A company that manages your investment account. They offer a variety of options or funds for you to purchase, and fees vary from fund to fund and company to company. Examples of Investing Brokers are Vanguard, Fidelity, Charles Schwab, etc.

Irregular Expenses: Expenses that come out of you budget every other month, semi annually, annually, or unexpectedly. This can include insurance payments, taxes, clothing, doctor’s bills, memberships, etc.



Leverage (Loans): Using what an asset is worth to get a loan against the value of the property.

Liabilities: Things that take money out of your pocket. This includes all of your monthly and yearly expenses. You will often hear that a home is your biggest asset (the opposite of a liability), but it takes money out of your pocket each month in the form of a mortgage, taxes, and insurance, so it is a liability.

Life Style Creep: Also called Life Style Inflation, it means that you increase your expenses exactly as much as your income increases (if not more), this is usually gradual or unnoticeable with each small raise and it gets people into debt or at least living paycheck to paycheck.


Medicaid: Health insurance offered to low income individuals and families through the United States Government at no or little cost.

Multi-family Home: A single structure that has multiple units, such as a duplex, triplex, or apartment building. (House hacking is most common in small multi-families with 2-4 units).

Mutual Fund: A way of pooling your money with other investors to invest in a basket or group of assets (stocks, bonds, etc.) that is led by a fund manager who tries to get more money back on that investment through dividends and capital gains.


Net Pay: Your actual take home pay after taxes and other deductions from your paycheck such as insurance premiums.

Net Worth: A simple calculation of how much money you have in assets and cash minus your liabilities. For example, you have $200,000 in assets ($50,000 in stocks, and $150,000 in total home value) and $50,000 in cash, and you owe $100,000 on your home, $10,000 on your car, and $40,000 in student loan debt. Your total assets and cash are $250,000 ($200,000 + $50,000) and your total debts are $150,000 ($100,000 + $10,000 + $40,000) so your net worth is $100,000 ($250,000 – $150,000).



Passive Income: When your money or work, through investments, or royalties, or other means, continues to make money for you without any (or very little) additional effort on your part.

Passively Managed Fund: Money invested in stocks that are only managed occasionally, or by a computer so there is little to no human involvement. These generally have lower fees. The most famous passively managed fund is the index fund, although there are others.

Portfolio: All of the assets that your own. Usually listed out with the money in each investment and each assets percentage compared to what you own in total.

Portfolio Income: Money earned by investing and selling at a higher value. This includes stocks, commodities, and real estate appreciation, etc.

Principal (mortgage/borrowing): The amount of money that you pay each month towards the original amount of money you borrowed. So if you borrowed $100,000 you will pay $100,000 in in principal over the course of the whole loan. This is the P in the common banking acronym PITI (principal, interest, taxes and insurance).

Principal (investing): The original amount that you invest to receive interest on.

Private Mortgage Insurance: Money you pay each month on top of your Principal, Interest, Taxes, and Insurance that goes directly to the lender. This is charged because you are considered to be a risky investment. This can be for a lot of reasons, but the main one is that you owe more than 80% of the value of the home. For example, you only put 5% down when you bought the house. PMI usually goes away when have built up 20% of equity in your home.



Rainy Day Fund: Money set aside in case your income doesn’t cover all of your expenses.

Real Estate: An asset made of either land or buildings.

Regular Expenses: Expenses that come out of your budget consistently every month. This includes expenses that don’t change like mortgage and car payment, as well as expenses that do change like your food bill and utilities.

REITs (Real Estate Investment Trust): A way to buy stock or ownership in large real estate projects. They operate almost exactly like a stock, but with real property instead of companies determining the value of your shares.

Retirement Accounts: Different Accounts that have different advantages for preparing for retirement.

  • 401(K) An account offered through your employer that is not taxed upfront, but it is taxed taxed when you pull it out.
  • 403(B) Basically a 401(K) that is offered to government non-profit employees.
  • IRA (Individual Retirement Account) Basically a 401(K) but it is opened by the individual through a third party.
  • 457 Basically a 401(K), but you can start withdrawing funds without penalty once you stop working for that employer.
  • Roth Accounts (including Roth 401(K), 403(B), etc.) The big difference is that your money is taxed upfront and NOT when it is taken out later.
  • HSA (Health Savings Account) These are intended to be used for medical purposes, but the funds deposited can be invested and used tax free (on medical expenses).
  • Taxable Brokerage Account An account opened up by an individual that can is contributed to with after-tax dollars. The interest on the contributions is also taxable. The main advantage is that you can withdraw funds at any time without a penalty.

Return on Investment: How much money you get back, usually measured yearly, on the money you invest in something. For example, if you invest $1,000 and receive $100 back from that in the course of a year then you’ve had a 10% return on investment.

ROTH Account: Any retirement account that is labelled a ROTH account (e.g. ROTH 401K or ROTH IRA, etc.) is a tax advantaged account that taxes your contribution upfront but NOT later when the money is pulled out (unlike a traditional account which is the opposite).


Savings Account: Where you place money while you are trying to save up for an upcoming expense or to have on hand when needed that isn’t your regular checking account. It is different than and emergency fund.

Savings Rate: How much money you are saving as a percentage of your income. So if you make $1,000 and you save $100 you have a 10% savings rate (1,000 / 100 = 10).

Short Term Rental: Any rental agreement that lasts for less than 30 days. Usually this refers to services such as Airbnb, VRBO, etc.

Side Hustle: An additional job that you do in addition to your full-time employment. Examples include moonlighting as a waitress, driving for a ride sharing app, or starting a side business.

Simple Interest: A one time payment of the interest percentage on the original amount that is lent. A 10% simple interest on $1,000 would be $100.

Speculation: Buying an investment with the assumption that it will go up in value. It has a high potential reward, but also a very high risk of losses.

State Income Tax: Taxes paid to the state government based on your taxable income. Each state has different tax rates and rules what is taxed.

Stock Market: A place where you can buy and sell ownership within certain companies. Buying company stock is a form of investing and is usually what a 401(K) or other investment account invests in.

Stocks: Buying a certain percentage of ownership or “shares” in a company. The company uses the money received from selling shares to grow the company then pay back the owners of shares in the company with interest.

Subsidized: When a government gives funds to a group, organization, or individual to offset to the cost of something. Subsidizing can include the giving money to farmers, paying for part of health insurance premiums, etc.

Sunk Cost Fallacy: The idea that because you’ve invested time or money into something you have to complete it or use it. For example, eating the rest of a new candy bar you bought but don’t actually enjoy, or finishing a movie that you’ve rented even though it is really bad.

Sweat Equity: Using your own labor to add value to a property by fixing it up. If the amount of money you put into it is less than the new value of the home you have created equity or additional value in the property.

Syndications: A group of investors that comes together to purchase a large investment property such as a large apartment complex. Usually it consists of partners and junior partners. The partners usually handle the day to day operations of the investment while the junior partners provide the funds to purchase the investment but don’t have a say in the operation of the project.


Tax Advantaged Retirement Account: Any retirement account that that either allows you to be taxed on your contributions later after they’ve grown, upfront so they grow tax free, or–in rare instances–not be taxed at all.

Tax Refund: Money that is returned to you after your total tax burden is calculated because you paid more than you owed. Most people get refunds.

Taxes (real estate): The amount of money that is owed to the government for owning property. This ranges drastically from state to and state and even city to city. Each year this can range from a few hundred to several thousands dollars depending on where you live. Even with a paid off house you still owe this. This is the T in the common banking acronym PITI (principal, interest, taxes and insurance).

Travel Hacking: The process of using rewards and bonuses to your advantage to travel for cheap or free.

Turnkey: A property that has been bought, fixed up, and rented out with a property management company in place so that a person can purchase that property from the turnkey company and start cash flowing almost immediately.


Unearned Income: Money that is earned through investment, royalties, rents, or other means that doesn’t require you to put in time or additional effort to make money. It is not subject to FICA taxes. See also Passive Income and Portfolio Income.


Variable Expenses: Monthly expenses that are not consistently the same amount. Examples of this are food, your utility bill, and gas.

Venture Capital: Investing in risky start up businesses in return for stock in the company. This is reserved for accredited investors.


Windfall: Any time you receive a large amount of money–it is usually unexpected and irregular. This can be anything from an inheritance to winning the lottery, but a tax return can also count.



Year-to-date: The measurement of a metric (such as GDP, or stock prices, or car accident fatalities) from the beginning of the year until now. This number is constantly changes and is only ever solidified after that year is over. For example on March 18, 2020 the stock market year to date was down 28%. But by the end of the year the total growth for the year was up 13%.



4% Rule: A rule of thumb–if you pull out 4% of your total investments each year of retirement then you won’t run out of money over a 30 year long retirement. For example, if you have $1,000,000 invested you can pull out $40,000 in a year.

50% Rule: Putting 50% of each raise towards savings (whether in a bank or a retirement account) and 50% of each raise towards things you enjoy. This allows you to have fun with your raise but also contribute to your overall wealth.

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