Budgeting and Personal Finance Terms to Know

Key Takeaways


Compound Interest

Interest earned on previously accumulated interest as well as the principal

Annual Percentage Rate (APR)

Yearly interest rate charged on borrowed money


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Annual Percentage Rate (APR)
Yearly interest rate charged on borrowed money. The rate is expressed as a percentage and indicates how much interest the borrower will pay over the course of a year.

Things a person owns (even if they still owe money against them).

Compound Interest
Interest earned on previously accumulated interest as well as the principal.

Credit Rating/Score
A number between 280-850, depending on the credit bureau meant to show how creditworthy an individual is/how likely a borrower is to repay a debt. Higher scores mean better credit, which can lead to financial benefits such as better terms on loans.

Credit Report
A record of a borrower’s credit history. It is produced by the credit bureaus and typically consists of four sections: personal information, financial account history, history of credit applications, and public records. The information is used to calculate a consumer’s credit score, which is one of the primary factors  considered in evaluating a credit application.

A plan for saving and spending based on expected income and expenses.

50/30/20 Budget
Budgeting method that divides a person's monthly after-tax income into three spending categories: 50% for needs, 30% for wants and 20% for savings or paying off debt.

Money that has been borrowed that needs to be paid back. For example, mortgage is a debt owed to the bank.

Emergency Fund
Money that is set aside in case of emergencies.

Things that you spend money on, ex: bills, car payments, groceries, credit card payments.

Fixed Expenses
Expenses that remain constant.

Estimating a business or person's future financial performance.

Gross Income
Total income before taxes are deducted.

The money that is brought in on a regular basis through one's job, investments or other sources of money. In terms of making a budget, be sure to use your take-home pay, which is income after taxes, benefits and other deductions.

The cost of borrowing money.

Interest Rate
The cost of borrowing money, expressed as a percentage, usually over a period of one year.

Net Income
Total income after taxes are deducted.

Net Worth
The total value of a person or company, calculated by subtracting liabilities from total assets.

The amount of money that has been borrowed.

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