Personal finance glossary
Short definitions of the terms you'll run into on loan offers, pay stubs, and retirement statements. Each one links to the calculators that use it, and dollar figures reflect 2026 IRS and Social Security numbers.
0–9
4% ruleA retirement rule of thumb: withdraw 4% of savings in the first year, then adjust for inflation, and the money has historically lasted 30 years.50/30/20 budget ruleA budgeting guideline that splits take-home pay into 50% needs, 30% wants, and 20% savings and extra debt payments.401(k)An employer retirement plan you fund through payroll deductions, with traditional (pre-tax) or Roth (after-tax) contributions and tax-deferred growth.
A
AmortizationPaying off a loan with equal scheduled payments, where each payment covers that month's interest first and the rest reduces the balance.APR (annual percentage rate)The yearly cost of a loan including interest and certain lender fees, expressed as a rate so you can compare loan offers side by side.APY (annual percentage yield)The real yearly return on savings once compounding is included — the number to compare between savings accounts, CDs, and money market accounts.
B
C
Catch-up contributionExtra 401(k) and IRA contributions allowed once you turn 50, on top of the regular annual limit, to help people save more close to retirement.Certificate of deposit (CD)A bank or credit union deposit that pays a fixed rate for a set term, in exchange for a penalty if you take the money out before the term ends.Closing costsFees paid to finalize a mortgage or refinance — lender charges, appraisal, title insurance, and prepaid taxes — often 2% to 6% of the loan.Combined loan-to-value (CLTV)All loans secured by a home added together and divided by its value. Lenders cap it when you borrow against your equity with a HELOC or second mortgage.Compound interestInterest calculated on both your original deposit and the interest it has already earned, so a balance grows faster the longer it's left alone.Consumer Price Index (CPI)The Bureau of Labor Statistics' measure of how prices paid by urban consumers change over time. It's the standard gauge of US inflation.
D
Debt avalancheA debt payoff method that sends every extra dollar to the debt with the highest interest rate first, which minimizes total interest paid.Debt snowballA debt payoff method that targets the smallest balance first regardless of rate, trading some extra interest for faster early wins.Debt-to-asset ratioTotal liabilities divided by total assets — measures what fraction of your assets are financed by debt. A lower ratio means more of your wealth is truly yours.Debt-to-income ratio (DTI)Your monthly debt payments divided by your gross monthly income — the main measure lenders use to decide how large a loan you can afford.Discount pointsUpfront fees paid at closing to lower a mortgage's interest rate. One point costs 1% of the loan amount and typically cuts the rate a fraction of a percent.Dollar-cost averagingInvesting a fixed amount on a regular schedule regardless of price, so you buy more shares when prices are low and fewer when they're high.Down paymentThe part of a home's price you pay in cash at closing. The rest is the mortgage, so a bigger down payment means a smaller loan and often no PMI.
E
Effective tax rateThe share of your total income that goes to federal income tax — your total tax divided by your income. It's always lower than your top bracket.Employer matchMoney your employer adds to your 401(k) based on what you contribute, such as 50 cents per dollar on the first 6% of your pay.Escrow accountAn account your mortgage servicer uses to collect part of your property taxes and homeowners insurance each month and pay those bills for you.Extra payments (prepayment)Paying more than your scheduled loan payment so the extra goes straight to principal, shortening the loan and cutting total interest paid.
F
FICA taxesSocial Security and Medicare taxes withheld from every paycheck: 6.2% and 1.45% of wages, matched by your employer.Filing statusThe category you file your tax return under — single, married filing jointly or separately, or head of household — which sets your brackets and deduction.Fixed-rate vs. adjustable-rate mortgage (ARM)A fixed-rate mortgage keeps the same rate for the whole loan; an ARM starts with a fixed period, then adjusts with a market index.Form W-4The IRS form you give your employer to set how much federal income tax is withheld from each paycheck, based on filing status, jobs, and dependents.Full retirement age (FRA)The age when you can claim your full Social Security benefit — 67 for anyone born in 1960 or later. Claiming earlier or later changes the amount.
G
H
L
Loan termHow long you have to repay a loan. A longer term lowers the monthly payment but usually raises the total interest you pay over the life of the loan.Loan-to-value ratio (LTV)Your loan balance divided by the home's value. It sets whether you pay mortgage insurance and affects your rate and refinancing options.
M
Marginal tax rateThe tax rate on your next dollar of income — the rate of the highest bracket you reach. It's what matters for raises, bonuses, and deductions.MIP (FHA mortgage insurance premium)Mortgage insurance on FHA loans: an upfront premium usually added to the loan, plus an annual premium paid monthly, often for the life of the loan.
N
O
P
PITIPrincipal, interest, taxes, and insurance — the four parts of a typical monthly mortgage payment, and the number lenders use to measure affordability.PMI (private mortgage insurance)Insurance that protects the lender on a conventional loan with less than 20% down. You pay for it, usually monthly, until you reach enough equity.PrincipalThe amount you borrowed, or the part of it you still owe. Interest is charged on the principal, and each payment's principal portion reduces it.
R
RefinancingReplacing your current loan with a new one, usually to get a lower rate, change the term, drop mortgage insurance, or take cash out of your equity.Required minimum distribution (RMD)The minimum amount the IRS requires you to withdraw each year from traditional IRAs and most workplace retirement plans once you reach your RMD age.Roth IRAAn individual retirement account funded with after-tax money. Growth and qualified withdrawals are tax-free, but eligibility is limited by income.
S
T
Tax bracketA range of taxable income taxed at one rate. The U.S. has seven federal brackets, and each rate applies only to the income inside its range.Traditional IRAAn individual retirement account where contributions may be tax-deductible and growth is tax-deferred; withdrawals are taxed as ordinary income.