These Personal Finance Terms Will Help You Become A Money Guru


Hey, sorry to disturb you from that extremely important Instagram sesh — we also are guilty of scrolling through our discover feeds for far too long — but we’d like to talk about your money. Hold the snore; we’re here to show you how to become an ass-kicking personal finance wizard by understanding a handful of key words. Yep, that’s it. Here are the most basic of finance terms everyone needs to know to control their financial destiny.

401(k) A qualified retirement plan offered by an employer that allows employees to contribute a percentage of their salary from each paycheck. Sometimes, companies will match employee contributions.

Active Income The income a person receives for performing a service (actual work).

Adverse Credit History Essentially a record of poorly paid credit cards and loans. Adverse credit history can negatively impact your credit.

Amortization — The act of paying off debt in regular payments over time.


AnnuityA contract between you and an insurance company in which the company promises to pay you periodically after purchasing the annuity.

APR (Annual percentage rate) The annual cost of a loan, often expressed in percentage terms.

Bank Credit The amount of credit a person has through a banking institution, often through cards or loans.

Bankruptcy A state in which a person’s assets are liquidated and he or she is freed from debt. Bankruptcy messes hard with credit.

Bond A form of debt that an entity owes you. Basically, you loan money to a company, organization or even the government, and it’ll promise to pay you back with interest.

Bonus A form of financial compensation, often paid out by an employer, in exchange for exceptional work or performance.

Compound Interest Interest that includes not only that of present payments, but also the interest of previous payments.


Credit History A record of a person’s ability to pay back debt.

Credit Score A number, which sits on a scale between 330 to 830, that indicates how healthy your credit history is.

Defaulting When someone is unable to pay his or her debt over a certain amount of time.

Delinquency When someone fails to repay debt within the agreed term.

Guarantor Someone who contractually promises to help pay another person’s debt if that person defaults.

Interest — An amount, usually represented as a percentage, that a lender charges on top of the already-existing amount due. Interest is typically an annual percentage.

Liability A person’s obligation to pay back their debt.

Liquidity The ability of an asset (like a house or car) to be transformed into cash without losing any value.

Loan The giving of an asset, like money, a gift or property, to someone in exchange for future repayment.

Mutual Fund An investment strategy that allows you and other investors to pool funds that all go toward a collection of stocks, bonds or other forms of investment.


Net Worth How much money a person’s total assets are worth factored in with any liabilities.

Overdraft Spending more on a debit and credit from a lending institution than you have, or when the account hits zero.

Principal The original investment amount, before any interest is added.

Revolving Credit When a customer pays a commitment fee to a lender to receive a certain amount of money, and when that money is paid off, the amount of money lent to the customer renews.

Tax-Deferred Postponing taxes past their due date.

Withdrawal Removing funds from an account.