Financial terms should not be barriers. Here are the most important financial concepts, explained plainly.
The Language Barrier in Finance
Financial services have a vocabulary that can function as a barrier to entry for people who are not already financially literate. Terms used without explanation in financial documents, conversations, and programs can make accessible information inaccessible. This glossary provides plain-language definitions for the most commonly encountered financial terms.
Core Budgeting Terms
Net income: Your take-home pay after taxes and deductions — the actual amount that arrives in your bank account. Gross income: Your total earnings before taxes and deductions. Cash flow: The relationship between income and expenses — positive cash flow means more comes in than goes out; negative means the opposite. Budget: A plan for how income will be allocated among expenses, savings, and other uses.
Core Credit and Debt Terms
APR (Annual Percentage Rate): The annual cost of borrowing money, expressed as a percentage. Includes interest rate plus fees. Higher APR = more expensive borrowing. Credit utilization: The percentage of your available credit that you are using. Lower utilization (under 30%) improves credit scores. Secured vs. unsecured debt: Secured debt is backed by an asset (mortgage backed by home, auto loan backed by car). Unsecured debt (credit cards, personal loans) has no collateral — which is why it typically carries higher interest rates.
Savings and Investment Terms
Compound interest: Interest calculated on both principal and accumulated interest — causes savings to grow exponentially over time. Tax-advantaged account: A savings or investment account that receives favorable tax treatment — 401(k), IRA, HSA, 529. Employer match: Retirement plan contributions your employer makes that match your own contributions, up to a specified percentage. Free money for participating employees.
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