Glossary of Common Financial Terms

1. Asset: Something of value that you own. It can be used to produce more value, like money, investments, or real estate.

2. Budget: A plan that outlines what you expect to earn and spend in a given period, often monthly or yearly.

3. Compound Interest: The process by which interest is added to the original amount of money, and then future interest is calculated based on this new, larger amount.

4. Credit Score: A numerical representation of your creditworthiness, based on your past credit history.

5. Debt: Money that you owe to others. This can be from loans, credit cards, mortgages, or any other form of borrowing.

6. Diversification: Spreading your investments across different types of assets to reduce risk.

7. Emergency Fund: A reserve of cash set aside to cover unexpected expenses or financial emergencies.

8. Estate Planning: The process of arranging for the distribution of an individual’s assets after their death.

9. Financial Literacy: Understanding how money works, including how to earn, manage, invest, and donate money.

10. Interest: The fee you pay for borrowing money, or the money you earn from lending or investing.

11. Investment: An asset or item purchased with the hope that it will generate income or increase in value in the future.

12. Liability: Any financial obligation or debt that you owe.

13. Mutual Fund: An investment vehicle that pools together money from many individuals to invest in a diversified portfolio of stocks, bonds, or other assets.

14. Net Worth: The total value of your assets minus the total value of your liabilities.

15. Portfolio: A collection of investments owned by an individual or organization.

16. Retirement Plan: A financial plan that outlines your financial goals for retirement and the actions and decisions you need to achieve those goals.

17. Risk: The potential for financial loss in an investment.

18. Savings Account: A bank account that earns interest and is often used for money that you plan to save but may need to access quickly.

19. Tax Bracket: The range of income that is taxed at a particular rate.

20. Will: A legal document that outlines how an individual wishes their assets to be distributed after their death.

21. 401(k): A type of retirement savings plan sponsored by an employer, where you can save and invest a piece of your paycheck before taxes are taken out.

22. Cryptocurrency: A type of digital or virtual currency that uses cryptography for security and operates independently of a central bank.

23. IRA (Individual Retirement Account): A type of savings account that is designed to help you save for retirement and offers many tax advantages.

24. Insurance: A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.

25. Deduction: An expense that a taxpayer can subtract from their income to reduce the total amount that is subject to tax.

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