Finance Jargon

An employer-sponsored retirement savings plan where contributions are made pre-tax (traditional) or after-tax (Roth), depending on the plan. Many employers match a percentage of contributions — that's free money. Always get the full match.

A popular budgeting framework: allocate 50% of after-tax income to needs, 30% to wants, and 20% to savings and debt repayment. It's a guideline, not a law — adjust based on your situation and cost of living.

A tax-advantaged savings account designed for education expenses. Contributions aren't deductible federally, but the money grows tax-free and withdrawals for qualified education costs — tuition, books, room and board — are also tax-free.

Automated Clearing House — the electronic network that processes most bank-to-bank transfers in the US. When you set up direct deposit, pay a bill online, or Venmo someone from your bank account, ACH is usually what's moving the money. Slower than a wire transfer, but free.

The process of paying off a loan through regular payments over time, where each payment covers some interest and some principal. Early in a mortgage, most of your payment goes to interest. Over time, more goes to principal. The schedule showing this breakdown is called an amortization table.

The yearly interest rate charged on borrowed money, not including compounding. Important to know for credit cards, loans, and mortgages. Higher APR = more expensive debt. Always ask for this number before borrowing.

The real rate of return on savings, accounting for compound interest. A savings account with 4.5% APY means your money actually earns 4.5% over the year when compounding is factored in. Always compare APY, not the base rate.

Anything you own that has economic value — cash, investments, real estate, a car, even intellectual property. Assets can appreciate (go up in value), depreciate (go down), or generate income. Your net worth is your assets minus your liabilities.

How you divide your investments among different asset types — stocks, bonds, real estate, cash. The right allocation depends on your age, risk tolerance, and goals. A 25-year-old and a 60-year-old shouldn't have the same mix.

A period when stock prices have fallen at least 20% from recent highs. 'Bearish' means pessimistic. Bears attack by swiping downward. Again — the metaphors. Not great, but here we are.

The original cryptocurrency, created in 2009 by the pseudonymous Satoshi Nakamoto. It's a decentralized digital currency with a fixed supply of 21 million coins. The gold standard of crypto, for better or worse.

A decentralized, public digital ledger that records transactions across many computers. Once data is recorded, it's nearly impossible to change. The technology underlying most cryptocurrencies and many other applications.

When you buy a bond, you're lending money to a government or company. They promise to pay you back with interest on a set schedule. Bonds are generally safer than stocks but grow more slowly. The US government's bonds are considered the safest investment in the world.

A period when stock prices are rising or expected to rise. 'Bullish' means optimistic about the market. Named because bulls attack by thrusting upward — Wall Street loves its weird metaphors.

A spreadsheet showing who owns what percentage of a company — founders, investors, employees with options. It tracks every round of funding and how each one dilutes existing owners. In a startup, the cap table determines who gets rich when the company sells.

A tax on the profit you make when you sell an investment for more than you paid. Hold the investment for over a year and you pay the lower 'long-term' rate (0–20%). Sell within a year and it's taxed as ordinary income — which is usually much higher.

The share of profits — typically 20% — that PE and hedge fund managers keep when an investment performs well. It's taxed as capital gains (lower rate) rather than income, which is why it's at the center of a long-running tax fairness debate in Washington.

A savings product where you lock your money away for a fixed period (3 months to 5 years) in exchange for a higher interest rate. The catch: withdraw early and you pay a penalty. Great if you won't need the money.

An asset you pledge to a lender as security for a loan. If you can't repay, the lender takes the collateral. Your house is collateral on your mortgage. Your car on an auto loan. Collateral lets you borrow more and at lower rates — but the stakes are higher if things go wrong.

Interest calculated on both the principal and the accumulated interest from previous periods. Over time, this creates exponential growth. Einstein may or may not have called it the eighth wonder of the world, but it genuinely is kind of miraculous.

A valuation method that values a company by comparing it to similar publicly traded businesses. If similar companies trade at 10x EBITDA and your target has $50M EBITDA, it might be worth $500M. Fast and simple — but only as good as the comparables you choose.

The government's main tool for measuring inflation. It tracks how much a fixed 'basket' of everyday goods and services — groceries, rent, gas, healthcare — costs over time. When CPI rises, your money buys less than it used to.

A three-digit number (300–850) that represents your creditworthiness. Based on payment history, debt levels, credit age, and more. Higher is better. Lenders use it to decide if you can borrow and at what rate.

A valuation method that estimates what a company is worth today based on the cash it's expected to generate in the future. Future cash is 'discounted' back because a dollar tomorrow is worth less than a dollar today. Looks precise on paper; depends entirely on assumptions that are educated guesses.

Money owed to someone else, with an obligation to pay it back — usually with interest. Debt isn't inherently bad (mortgages and student loans can be smart tools), but it costs money to carry and can spiral if mismanaged.

Conditions attached to a loan that the borrower must comply with — like maintaining a certain debt-to-earnings ratio or not making large acquisitions without lender approval. Breaking a covenant can trigger immediate repayment of the loan. They're the lender's leash on a leveraged company.

Your total monthly debt payments divided by your gross monthly income. Lenders use it to decide whether to approve you for a mortgage or loan. Most lenders want your DTI below 43%. The lower it is, the less risky you look on paper.

Financial services — lending, borrowing, trading — built on blockchain networks without banks or intermediaries. It's like regular finance but with more complexity, higher risk, and significantly more ways to accidentally lose all your money.

Spreading your investments across different assets, sectors, or geographies so that one bad bet doesn't sink everything. The classic version of 'don't put all your eggs in one basket,' but with money.

A payment made by a company to its shareholders, usually quarterly. If you own stock in a profitable company, it may share some of those profits with you as dividends. It's like getting a small paycheck just for owning something.

Investing a fixed amount of money at regular intervals, regardless of market conditions. When prices are low, you buy more shares. When high, fewer. Over time, this averages out your purchase price and removes the stress of timing the market.

The upfront cash you pay when buying a home — the portion not covered by your mortgage. Conventional wisdom is 20% to avoid paying PMI (private mortgage insurance), but many programs allow 3–5%. The more you put down, the lower your monthly payment and interest costs.

Committed capital that a PE fund has raised from investors but not yet deployed into deals. It's cash sitting on the sidelines waiting for the right opportunity. High levels of dry powder across the industry means a lot of competition for every deal.

The deep-dive investigation a buyer does before acquiring a company — financials, contracts, legal exposure, customer concentration, team quality. It's how you find out whether the numbers in the pitch deck actually hold up. Skipping it is how disasters happen.

Earnings Before Interest, Taxes, Depreciation, and Amortization. A rough measure of a company's operating profitability, stripping out financing and accounting decisions. PE firms love it because it makes companies look more profitable. Critics call it 'earnings before the bad stuff.'

Three to six months of living expenses saved in an easily accessible account. It's your financial shock absorber for unexpected events like job loss, car repairs, or medical bills. Build this before investing.

The total value of a company, including both equity and debt, minus cash. Think of it as the price you'd actually pay to acquire a business outright and assume its debts. More useful than market cap for comparing companies with different capital structures.

Ownership. In investing, equity means owning a share of a company — stockholders have equity. In real estate, equity is the portion of your home you actually own (value minus what you still owe on the mortgage). More equity = more of the thing is truly yours.

A neutral third party that holds money or assets until specific conditions are met. In real estate, an escrow account holds your property tax and insurance payments throughout the year, then pays them when due. It protects both buyers and sellers in a transaction.

A basket of securities — like stocks or bonds — that trades on an exchange just like a single stock. ETFs let you buy a diversified slice of the market in one click, often with very low fees.

How a PE firm eventually sells its stake in a portfolio company to realize its return. The three main routes: IPO (take it public), strategic sale (sell to a larger company), or secondary sale (sell to another PE firm). Every deal starts with the exit in mind.

The annual fee a mutual fund or ETF charges you, expressed as a percentage of your investment. It comes out automatically — you never write a check — but it quietly compounds against you over decades. Lower is almost always better.

The cash a business generates after paying for everything it needs to keep running — salaries, rent, equipment. It's what's left over that could actually be returned to investors, used to pay down debt, or reinvested. Revenue is vanity, profit is sanity, free cash flow is reality.

Federal Deposit Insurance Corporation insurance covers up to $250,000 per depositor, per bank, if a bank fails. This is why your money in a regular bank account is safe even if the bank goes under.

The central bank of the United States. Its dual mandate is to maximize employment and keep inflation stable. Its main tools are setting interest rates and controlling the money supply. When the Fed sneezes, markets catch a cold.

The Federal Insurance Contributions Act taxes — 6.2% for Social Security and 1.45% for Medicare — taken out of every paycheck. Your employer pays another 7.65% on top. If you're self-employed, you pay both halves: 15.3% total. It's one of the few taxes with no standard deductions or exemptions.

How the government uses spending and taxation to influence the economy. When the economy is slow, the government might increase spending or cut taxes to stimulate growth (expansionary). When inflation runs hot, it might do the opposite (contractionary). Congress and the President set fiscal policy.

The total value of all goods and services produced in a country in a given period. It's the primary measure of economic health. Two consecutive quarters of negative GDP growth is the definition of a recession.

Gross income is what you earn before any deductions — taxes, health insurance, retirement contributions. Net income is what actually lands in your bank account. The gap between the two surprises a lot of first-time workers.

Making a secondary investment specifically designed to offset potential losses in your primary one. Think of it as buying insurance on a bet. It reduces your upside a little, but protects you if things go wrong.

A savings account — often from an online bank — that pays significantly more interest than a traditional savings account. While big banks might offer 0.01% interest, high-yield accounts often offer 4–5% APY.

The portion of your home's value that you actually own — the market value minus what you still owe on the mortgage. It builds as you pay down your loan and as the home appreciates. It can be borrowed against, but that turns your home into collateral for new debt.

A tax-advantaged account for people with high-deductible health plans. Contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. It's the only account with a triple tax advantage — which is why financial nerds love it.

A type of investment fund that tracks a market index (like the S&P 500) instead of trying to beat it. They're passive, cheap, and historically outperform most actively managed funds over long periods.

The rate at which prices for goods and services rise over time, reducing purchasing power. When inflation is 5%, a $100 grocery bill becomes $105 next year. Measured by the Consumer Price Index (CPI) in the US.

The cost of borrowing money, expressed as a percentage. Set by the Federal Reserve for banks, which then affects mortgage rates, car loans, and savings accounts. Low rates encourage spending and borrowing; high rates cool the economy.

When a private company sells shares to the public for the first time, listing on a stock exchange. It's how startups and private businesses raise large amounts of capital — and how early investors and employees finally cash out.

The annualized return on an investment, expressed as a percentage. PE firms use it to measure deal performance. A 25% IRR means your money grew at 25% per year while it was invested. Sounds great until you learn it can be gamed by returning capital quickly.

When a private equity firm buys a company using mostly borrowed money — sometimes 70–80% debt. The acquired company's own assets are often used as collateral for the loans. If it works, the returns are massive. If it doesn't, the company is left drowning in debt it didn't choose to take on.

How quickly and easily you can convert an asset into cash without losing value. Cash is perfectly liquid. A house is not — it takes months to sell. Stocks fall in between. When markets panic, liquidity dries up fast.

The business of buying, selling, and combining companies. An acquisition is when one company buys another. A merger is when two companies combine as equals (though true mergers of equals are rare — someone usually has more leverage). Investment banks earn enormous fees facilitating these deals.

Borrowing money from your brokerage to buy more investments than you could with your own cash. It amplifies both gains and losses. If the trade goes bad, you still owe the borrowed money — even if your investment went to zero.

The rate you pay on the last dollar you earned — the top bracket your income reaches. This is different from your effective tax rate (the average across all your income). Your marginal rate is what matters when deciding whether another dollar of income or a tax deduction is worth it.

The total market value of a company's outstanding shares. Calculated as: share price × number of shares. A company with a $1 stock price but 10 billion shares is worth $10 billion. Size isn't always obvious.

When a company's own management team buys the business, usually with PE backing. Management puts in some equity, a PE firm provides most of the capital, and together they take the company private. The logic: who knows a business better than the people running it?

A savings account hybrid that typically offers higher interest rates than a regular savings account, comes with limited check-writing or debit card access, and is FDIC insured. Not to be confused with money market funds, which are investment products and carry more risk.

A loan used to buy real estate where the property itself serves as collateral. You make monthly payments over 15 or 30 years covering both principal (the loan balance) and interest. Miss enough payments and the bank takes the house.

When you buy a company at a low valuation multiple (e.g., 5x EBITDA) and sell it at a higher one (e.g., 8x EBITDA). Even if the company's profits didn't change, you made money just because the market valued it more generously at exit. It's one of PE's favorite tricks.

A pooled investment vehicle where many investors' money is combined to buy a diversified portfolio of stocks, bonds, or other assets. Professionally managed, but you pay for that management through fees. ETFs have largely replaced them for cost-conscious investors.

What you own minus what you owe. Assets (savings, investments, home value, car) minus liabilities (mortgage, student loans, credit card debt, car loan) equals your net worth. Positive and growing is the goal.

A unique digital asset verified on a blockchain. Unlike Bitcoin (where every coin is interchangeable), each NFT is one-of-a-kind. Used for digital art, collectibles, and more. The market peaked in 2021 and has since come back to earth considerably.

Contracts that give you the right — but not the obligation — to buy or sell a stock at a set price before a set date. A 'call' option bets the stock goes up. A 'put' option bets it goes down. They can amplify gains or limit losses, but they expire worthless if you're wrong.

When you spend more than you have in your checking account. Banks may cover it (and charge a fee), or the transaction may be declined. Overdraft protection links your checking to savings to cover the shortfall automatically.

A measure of how much investors are paying for each dollar of a company's earnings. A P/E of 20 means you're paying $20 for every $1 in annual profit. Higher P/E can mean investors expect big growth — or that the stock is overpriced.

Insurance you're required to pay if your down payment is less than 20% of the home's value. It protects the lender — not you — if you default. It typically costs 0.5–1.5% of your loan annually and disappears once you reach 20% equity.

When a central bank creates new money and uses it to buy government bonds from banks, pumping cash into the financial system to stimulate the economy. It's the Fed's unconventional tool when cutting interest rates alone isn't enough. Critics call it 'money printing.'

The process of realigning your portfolio to its target asset allocation. If stocks have a great year and now make up 80% of your portfolio when you wanted 70%, you sell some stocks and buy other assets to get back on track.

An economic downturn typically defined as two consecutive quarters of negative GDP growth. Characterized by rising unemployment, falling business profits, and reduced consumer spending. Technically not fun for anyone.

Replacing your existing mortgage with a new one — usually to get a lower interest rate, reduce your monthly payment, or access equity. It resets your loan term and typically costs 2–5% of the loan in closing costs, so you need to stay long enough to break even.

An individual retirement account where you contribute after-tax dollars. Your investments grow tax-free, and qualified withdrawals in retirement are also tax-free. Ideal if you expect to be in a higher tax bracket in retirement.

Borrowing a stock, selling it, hoping the price falls, then buying it back cheaper and pocketing the difference. It's how investors bet against a company. The risk: if the stock goes up instead of down, your losses are theoretically unlimited.

A cryptocurrency designed to maintain a stable value, usually pegged to a fiat currency like the US dollar. USDC and Tether are examples. Used to avoid volatility while staying in the crypto ecosystem. Not all stablecoins are actually stable.

The rare, painful combination of high inflation AND a stagnant or shrinking economy — with high unemployment on top. It's every central banker's nightmare because the usual tools don't work: cutting rates fights recession but makes inflation worse; raising rates fights inflation but deepens the recession.

When a company divides its existing shares into multiple new ones, lowering the price per share without changing the total value. A 4-for-1 split means your one $400 share becomes four $100 shares. Nothing actually changes — it's like making change for a $20 bill.

A tax that a government charges on goods imported from another country. The importer pays it, which makes foreign goods more expensive and encourages people to buy domestic instead. Tariffs protect local industries but often raise prices for consumers.

The rate at which your income is taxed — but only the income within that bracket. The US uses a progressive system, so higher earners pay higher rates only on the portion above each threshold, not on everything they earn. 'Moving into a higher bracket' doesn't mean all your income gets taxed at that rate.

An expense that reduces your taxable income — meaning you pay taxes on less money. It's not a dollar-for-dollar reduction in your tax bill; it's a reduction in the income being taxed. Common deductions include mortgage interest, student loan interest, and charitable donations.

A non-binding document outlining the key terms of a proposed investment or acquisition before lawyers write the real contracts. It covers valuation, ownership percentage, board seats, and investor protections. Non-binding in theory; sets the tone for everything that follows.

When a country imports more goods and services than it exports — it's spending more on foreign products than it's earning from selling its own abroad. The US has run a trade deficit for decades. Whether that's a problem is one of the most debated topics in economics.

How wildly a stock or market swings in price. High volatility means big moves up and down, fast. Low volatility means steady, boring movement. Volatility itself isn't good or bad — it's a measure of uncertainty. Most people underestimate how uncomfortable it feels when it's their own money.

A W-2 is the tax form you get as an employee — your employer withholds taxes from your paycheck. A 1099 is what you get as a freelancer or contractor — no taxes are withheld, and you're responsible for paying them yourself, including both employee and employer Social Security and Medicare.

The average rate a company is expected to pay to finance its assets, blending the cost of equity and the cost of debt. Used in DCF models as the discount rate. Tweak it slightly and your valuation swings wildly — which is why two analysts can look at the same company and reach very different numbers.

Software or hardware that stores the cryptographic keys needed to access and manage your cryptocurrency. A hot wallet is connected to the internet (more convenient, less secure). A cold wallet is offline (less convenient, more secure).

The income generated by an investment, expressed as a percentage of its price. A stock that pays $3 in dividends and costs $60 has a 5% yield. A bond that pays $40 on a $1,000 investment yields 4%. Yield is how you measure how much an investment is paying you right now.