It's essential to stay on top of your personal finances and work toward your long-term goals. But as you learn more about how to achieve those goals, you may hear new financial terms that can make the process feel overwhelming and confusing. This is especially true if you're just starting to think critically about your finances.
The below glossary explains some basic terms and definitions you may want to understand as you embark on your personal finance journey.
Personal finance glossary
A budget is an estimation of your income and expenses. It allows you to track and plan how you will spend your money, which can help you make financial decisions around paying off debt and saving for retirement.
Credit is what's given when a lender grants a borrower money in exchange for later payment. The amount of credit on your credit card is a good example. Check out these credit FAQs to learn more.
Your credit score is a number between 280-850, depending on the credit bureau. It is meant to show how creditworthy an individual is. The higher the score the better your credit, and you can see some financial benefits from this such as better terms on loans.
This is money that's borrowed that needs to be paid back. For example, your mortgage is a debt you owe to the bank.
This is money that's set aside for use in case of an emergency. Depending on how much you have saved, an emergency fund could cover long-term expenses if you lose your job or with short-term unexpected events such as a car repair.
Expenses are what you spend money on. Expenses include common household bills, credit card payments, groceries and anything else that costs.
While the term is broad, covering a variety of specialties and certifications, a financial advisor is a professional with skills and knowledge to assist with a range of financial matters. They can help you make decisions around managing your money for long-term planning, including retirement and your kids' education, buying a home or more short-term dreams such as buying a car.
Health savings account
Also known as an HSA, this is a type of savings account with certain tax benefits. You can use your HSA to pay for medical costs such as new glasses.
The money you bring in on a regular basis through your job, investments or other source. In terms of making a budget, be sure to use your take-home pay, which is your income after taxes, benefits and other deductions.
Life insurance is a tool that can help cover your family financially in the event of your passing. For a life insurance policy, you'll select the amount and type of coverage you need and then pay a premium over a certain time period. Want to know how much life insurance coverage you may need? Try our life insurance needs calculator.
This is a loan granted to purchase a piece of property where the lender charges interest and can take the title to the property if payments are not made. You make payments toward your mortgage regularly over a certain period of time, generally 15 or 30 years.
Retirement accounts are where you can invest money for future retirement funds. These can include employer-sponsored 401(k)s and pension plans, as well as individual retirement accounts. Saving for retirement is often a key focus of personal financial planning.
A savings account is an account at a bank or credit union where you can deposit funds and earn a small amount of interest.
A will is a document that spells out how you would like your estate to be handled after your death. When formally probated, a will can help ensure that your money and assets are left to the heirs you designate.
Your journey to understanding personal finance doesn't have to be complicated.
Everything you learn along the way can help as you think about your short- and long-term financial goals.
Want to learn more about personal financial planning? Check out these six personal financial planning tips.