Words everyone pretends to know.

Amortization

Paying off a loan in regular scheduled payments, where each payment covers some interest and some of the loan itself.

Example: Early mortgage payments go mostly to interest; later ones go mostly to the principal.

Related: Principal, Interest, Mortgage

Learn more: What a mortgage is, How loans work

Annual income

All the money you earn in a year, before anything is taken out.

Example: If you earn $3,000 a month before taxes, your annual income is $36,000.

Related: Gross income, Net income

Learn more: Hourly wages versus salaries, Gross pay versus net pay

APR

The yearly cost of borrowing money, shown as a percentage. It includes interest and some fees.

Example: A credit card with a 24% APR charges about 2% a month on a balance you don't pay off.

Related: Interest, APY, Fixed interest rate, Variable interest rate

Learn more: What APR means, How interest works, How credit cards work

APY

How much a savings account actually pays you in a year, including interest earned on your interest.

Example: $1,000 in an account with a 2% APY grows to about $1,020 after a year if you add nothing.

Related: Interest, APR

Learn more: How interest works, Checking accounts versus savings accounts

Asset

Something you own that has money value.

Example: Savings, a car, or a house can all be assets.

Related: Liability, Equity

Learn more: What investing means

Balance

The amount of money in an account, or the amount you still owe.

Example: Your checking balance is $420. Your credit card balance is $150 owed.

Related: Credit utilization, Overdraft

Learn more: How bank accounts work, How credit cards work

Beneficiary

The person you choose to receive money or property from an account, policy, or will if you die.

Example: You name your sister as the beneficiary on your workplace life insurance.

Learn more: What a will is

Closing costs

Fees you pay to finalize buying a home, on top of the down payment.

Example: Appraisal, title, and lender fees are common closing costs.

Related: Down payment, Mortgage, Escrow

Learn more: What a mortgage is

Coinsurance

The percentage of a medical bill you pay after you've met your deductible.

Example: With 20% coinsurance, you pay $200 of a $1,000 covered bill and the plan pays $800.

Related: Deductible, Copay, Out-of-pocket maximum

Learn more: Premiums, deductibles, and copays

Collateral

Something valuable you promise to a lender, which they can take if you don't repay.

Example: For a car loan, the car is the collateral.

Related: Principal, Mortgage

Learn more: How loans work

Contract

An agreement between people that the law can enforce.

Example: A lease, a phone plan, and a job offer you sign can all be contracts.

Related: Lease

Learn more: What a contract is

Copay

A set amount you pay for a covered health service, like a doctor visit.

Example: Your plan has a $30 copay for a regular doctor visit.

Related: Deductible, Premium, Coinsurance

Learn more: Premiums, deductibles, and copays

Credit report

A record of your borrowing and bill-paying history kept by credit bureaus.

Example: Your report lists your credit card, its limit, and whether you paid on time.

Related: Credit score, Credit utilization

Learn more: What a credit score is, How to build credit

Credit score

A number that sums up how reliably you've paid back borrowed money.

Example: Lenders may offer a lower interest rate to someone with a higher score.

Related: Credit report, Credit utilization

Learn more: What a credit score is, How to build credit, What damages your credit

Credit utilization

How much of your credit card limits you're using, as a percentage.

Example: A $300 balance on a $1,000 limit is 30% utilization.

Related: Credit score, Balance

Learn more: What a credit score is, How credit cards work

Deductible

The amount you pay for covered care each year before your insurance starts sharing the cost.

Example: With a $1,500 deductible, you pay the first $1,500 of covered bills yourself.

Related: Premium, Copay, Coinsurance, Out-of-pocket maximum

Learn more: Premiums, deductibles, and copays

Dependent

A person, usually a child or relative, who relies on you financially and may affect your taxes.

Example: A parent who supports their 8-year-old may be able to claim them as a dependent.

Related: Tax deduction, Tax credit

Learn more: Tax deductions versus tax credits

Direct deposit

Your paycheck sent electronically straight into your bank account.

Example: Your employer deposits your pay every other Friday without a paper check.

Related: Net income

Learn more: How bank accounts work, Gross pay versus net pay

Down payment

The part of a home's price you pay upfront; the rest is usually borrowed.

Example: 10% down on a $250,000 home is $25,000.

Related: Mortgage, Closing costs, Equity

Learn more: What a mortgage is

Equity

The part of something you truly own — its value minus what you still owe on it.

Example: A $300,000 home with $200,000 left on the mortgage has $100,000 in equity.

Related: Asset, Mortgage, Principal

Learn more: What a mortgage is

Escrow

Money held by a neutral third party until it's needed — often for property taxes and home insurance.

Example: Part of each mortgage payment goes into escrow, and the servicer pays your tax bill from it.

Related: Mortgage, Closing costs

Learn more: Understanding escrow, What a mortgage is

FICA

The Social Security and Medicare taxes taken out of most paychecks.

Example: Your pay stub shows separate lines for Social Security and Medicare — together, that's FICA.

Related: Tax withholding, Gross income

Learn more: Gross pay versus net pay

Fixed interest rate

An interest rate that stays the same for the whole loan.

Example: A 30-year fixed mortgage keeps the same rate for all 30 years.

Related: Variable interest rate, APR

Learn more: How interest works, What a mortgage is

Gross income

What you earn before taxes and other deductions are taken out.

Example: 40 hours at $20 an hour is $800 gross pay for the week.

Related: Net income, Annual income, Tax withholding

Learn more: Gross pay versus net pay

In-network

Doctors and facilities that have a deal with your insurance plan, usually costing you less.

Example: Seeing an in-network doctor might cost a $30 copay; out-of-network could cost far more.

Related: Copay, Deductible

Learn more: In-network versus out-of-network providers

Inflation

Prices generally rising over time, so the same money buys a bit less.

Example: If groceries cost $100 last year and $104 this year, prices rose 4%.

Related: Interest, APY

Learn more: Understanding inflation

Interest

The price of using someone else's money — you pay it when you borrow and earn it when you save.

Example: Borrow $1,000 at 10% for a year with simple interest and you'd owe $100 in interest.

Related: APR, APY, Principal

Learn more: How interest works, What APR means

Lease

The contract between you and a landlord that sets the rent, length, and rules for renting.

Example: A 12-month lease says you'll pay $1,100 a month from June to May.

Related: Security deposit

Learn more: How to read a lease

Liability

Money you owe.

Example: A student loan and a credit card balance are both liabilities.

Related: Asset, Equity

Learn more: Understanding debt

Mortgage

A loan used to buy a home, where the home is the collateral.

Example: You borrow $225,000 from a lender and repay it monthly for 30 years.

Related: Principal, Interest, Escrow, Down payment, Amortization

Learn more: What a mortgage is, Understanding escrow

Net income

What you actually get after taxes and deductions — your take-home pay.

Example: Gross pay of $800 might become about $650 net after withholding.

Related: Gross income, Tax withholding

Learn more: Gross pay versus net pay

Out-of-pocket maximum

The most you'd pay for covered in-network care in a plan year; after that, the plan pays 100% of covered costs.

Example: With a $6,000 out-of-pocket max, a huge covered hospital bill caps your share at $6,000 for the year.

Related: Deductible, Coinsurance, Copay

Learn more: Premiums, deductibles, and copays

Overdraft

Spending more than what's in your bank account; the bank may cover it and charge a fee, or decline it.

Example: You have $20 and buy $35 of groceries — that's a $15 overdraft.

Related: Balance

Learn more: How bank accounts work, How debit cards work

Premium

The regular amount you pay to keep an insurance plan active, whether or not you use it.

Example: You pay a $250 monthly premium for your health plan.

Related: Deductible, Copay

Learn more: Premiums, deductibles, and copays

Principal

The original amount borrowed (or the part still owed), not counting interest.

Example: Borrow $10,000 — the principal is $10,000. Interest is extra.

Related: Interest, Amortization

Learn more: How loans work, What a mortgage is

Security deposit

Money you pay a landlord upfront that they hold to cover unpaid rent or damage beyond normal wear.

Example: You pay a $1,200 deposit and get it back after move-out minus any allowed deductions.

Related: Lease

Learn more: What a security deposit is, How to read a lease

Tax credit

An amount subtracted directly from the tax you owe.

Example: A $500 credit cuts a $2,000 tax bill to $1,500.

Related: Tax deduction, Dependent

Learn more: Tax deductions versus tax credits

Tax deduction

An amount subtracted from the income you're taxed on, which lowers your tax indirectly.

Example: A $1,000 deduction at a 12% tax rate saves about $120.

Related: Tax credit, Dependent

Learn more: Tax deductions versus tax credits

Tax withholding

Income tax your employer takes from each paycheck and sends to the government for you.

Example: Your stub shows federal income tax withheld; at tax time, that's counted toward what you owe.

Related: W-2, Gross income, FICA

Learn more: Gross pay versus net pay, What a W-2 is

Variable interest rate

An interest rate that can go up or down over time, usually following a benchmark rate.

Example: Most credit cards have variable APRs, so your rate can change.

Related: Fixed interest rate, APR

Learn more: How interest works, What APR means

W-2

A yearly form from your employer showing what you earned and the taxes withheld.

Example: You get your W-2 early in the year and use it to file your tax return.

Related: Tax withholding

Learn more: What a W-2 is