Glossary
Plain-language meanings of money words, from A to Z.
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- 1099 form
A form that shows money you were paid as a contractor or gig worker, or other income like interest. Usually no tax was taken out.
See also: W-2 form, Self-employment tax
- 401(k)
A retirement savings plan through your job. Money comes out of your paycheck automatically, and your employer may add some too.
Some jobs, like schools and nonprofits, offer a similar plan called a 403(b).
See also: Employer match, Roth IRA
- 50/30/20 rule
A budgeting guideline that splits take-home pay into 50% for needs, 30% for wants, and 20% for savings and extra debt payments.
It’s a starting point, not a rule. If your needs take more than half your pay, that’s common, especially where rent is high.
See also: Budget, Take-home pay
A
- APR
Annual percentage rate. The yearly cost of borrowing money, including interest and some fees, shown as a percent.
Use APR to compare loans. A lower APR usually means the loan costs less. A payday loan that charges $15 for every $100 you borrow for two weeks works out to an APR of almost 400%.
See also: Interest, Payday loan
B
- Balance
The amount of money in an account, or the amount you still owe on a debt.
- Bond
A loan you make to a government or company. They pay you interest and pay you back later. Bonds usually go up and down less than stocks.
See also: Stock, Index fund
- Budget
A plan for where your money will go, so you know what you can spend before you spend it.
See also: Take-home pay
- Buy Now, Pay Later (BNPL)
A way to split a purchase into a few payments, often 4 payments over 6 weeks. Many plans charge no interest, but most charge late fees.
Some plans take each payment from your debit card or bank account by themselves. If the money isn’t there, you could pay a late fee and a bank fee.
See also: Interest, Credit score
C
- Checking account
A bank or credit union account for everyday money. You use it to get paid, pay bills, and buy things with a debit card.
See also: Savings account, Debit card
- Child Tax Credit
A tax credit for families with children under 17. Part of it can come back as a refund, even if you owe no tax.
See also: Earned Income Tax Credit (EITC), Tax refund
- Compound interest
Interest that gets added to your balance, so next time you earn (or owe) interest on the interest too.
Compounding helps you when you save and hurts you when you owe. That’s why starting to save early, even a little, makes a difference.
See also: Interest
- Credit report
A record of your borrowing and bill-paying history, kept by companies called credit bureaus.
You can get your credit reports for free at AnnualCreditReport.com, the official site. Check them for mistakes. You can dispute anything that’s wrong.
See also: Credit score
- Credit score
A three-digit number that shows lenders how likely you are to pay back money you borrow.
Your score is based on your credit report. Paying bills on time matters most. The most common scores run from 300 to 850, and higher is better.
See also: Credit report, Credit utilization
- Credit union
A not-for-profit alternative to a bank that is owned by its members. It often has lower fees and lower loan rates than big banks.
- Credit utilization
How much of your credit card limits you're using right now, shown as a percent.
For example, a $300 balance on a card with a $1,000 limit is 30% utilization. Using less of your limit usually helps your credit score.
See also: Credit score
D
- Debit card
A card that takes money straight out of your checking account when you pay. It's not a loan like a credit card.
See also: Checking account, Overdraft fee
- Debt avalanche
Paying off debts by putting extra money toward the one with the highest interest rate first. It saves the most money.
See also: Debt snowball, APR
- Debt snowball
Paying off debts by putting extra money toward the smallest balance first. Quick wins can help you keep going.
See also: Debt avalanche
- Deposit insurance
Government protection for money in a bank (FDIC) or credit union (NCUA). If an insured bank or credit union fails, you get your money back, up to a limit.
See also: Credit union
- Direct deposit
When your paycheck goes straight into your bank or credit union account, with no paper check.
Many employers can split your direct deposit, so part of each paycheck goes into savings automatically.
E
- Earned Income Tax Credit (EITC)
A tax credit for people who work and have low to moderate incomes. It can pay you money even if you owe no tax.
See also: Child Tax Credit, Tax refund
- Emergency fund
Money set aside only for surprises, like a car repair or a medical bill, so you don't have to borrow.
Even a small amount helps. Many people start with a goal of $500, then build up to one month of expenses.
- Employer match
Money your employer adds to your retirement account when you save in it. It's free money, so try to save enough to get all of it.
- Expense
Money that goes out, for things like rent, food, your phone, or getting to work.
- Expense ratio
The yearly fee a fund charges, shown as a percent of the money you have in it. Lower is better.
See also: Index fund
G
- Gross pay
What you earn before taxes and other deductions come out. Your take-home pay is less.
See also: Take-home pay
I
- Income
Money that comes in to you, like a paycheck, tips, or payments for gig work.
See also: Take-home pay, Expense
- Index fund
A fund that buys a little of many stocks or bonds at once, to match a whole market. It spreads out your risk and usually has low fees.
See also: Stock, Bond, Expense ratio
- Interest
The price of borrowing money. You pay interest when you borrow, and you can earn interest when you save.
See also: APR, Compound interest, Principal
L
M
- Minimum payment
The smallest amount you can pay on a bill, like a credit card, without being charged a late fee.
Paying only the minimum keeps your account in good standing, but most of it can go to interest. That can keep you in debt for years.
See also: Interest
O
- Overdraft fee
A fee your bank may charge when you spend more than what's in your account and the bank covers the difference.
P
- Payday loan
A small, short-term loan that's usually due on your next payday. The fees are very high compared to other loans.
See also: APR, Credit union
- Principal
The amount you borrowed, not counting interest.
Each loan payment is usually split: part pays the interest, and the rest lowers your principal.
See also: Interest
R
- Rollover
Paying just the fee on a payday or title loan to push the due date back. You still owe the full amount, and you pay a new fee each time.
See also: Payday loan, Title loan
- Roth IRA
A retirement account you open yourself. You put in money you've already paid taxes on, and later you can take it out tax-free in retirement.
See also: 401(k)
S
- Savings account
A bank or credit union account for money you want to keep, not spend. It usually pays a little interest.
See also: Checking account, Emergency fund
- Self-employment tax
Social Security and Medicare tax for people who work for themselves, like gig workers. It's about 15% of your earnings after expenses.
See also: 1099 form
- Stock
A small piece of ownership in a company. Its price goes up and down with how the company and the market are doing.
See also: Bond, Index fund
T
- Take-home pay
The money that actually reaches you after taxes and other deductions come out of your paycheck. Also called net pay.
Build your budget on take-home pay, not on your hourly rate or salary. That’s the money you really have to work with.
See also: Budget
- Tax refund
Money the government pays back to you after you file, when more tax was taken out of your pay than you owed, or you get refundable credits.
See also: Withholding, Earned Income Tax Credit (EITC)
- Title loan
A short-term loan that uses your car to back it. If you can't pay it back, the lender can take your car.
See also: Payday loan, Rollover
V
- Vesting
The time you may need to work at a job before your employer's match is fully yours to keep if you leave.
See also: Employer match
W
- W-2 form
A form from your employer that shows what you earned last year and how much tax was taken out. You use it to file your taxes.
See also: 1099 form, Withholding
- Withholding
Tax your employer takes out of each paycheck and sends to the government for you.
See also: Tax refund, W-2 form