Read here for a financial topic glossary.

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Asset Allocation

Like the saying goes: "Don't put all your eggs in one basket." Well, asset allocation is just that: putting your money into a combination of investment types - like stocks and bonds—to help spread out the risk.


Call it the "middle man" of investment types. Bonds are generally on the lower end of the risk spectrum. When you buy a bond, you're lending the issuer (can be a company, government, municipality) money. How that money is paid back is determined by the conditions you bought the bond under. Bonds may not be purchased in a Youth Account.


It's what you put in your piggy bank and keep in your bank account. Cash has the least amount of risk (unless someone swipes your coin jar). But you may not be earning money by just holding onto that cash. No risk, no reward as they say.

Cash back

Cash back refers to purchases you make using a credit card, in which the credit card company "credits" you for what you spend. Let's say your credit card gives 5% cash back with all purchases. That means you get back $5 in cash for every $100 in purchases you make with the card. While some companies will actually send a check for this amount, others may use it to reduce the amount of your monthly bill. When evaluating a cash back award, remember not all purchases are treated the same. Sometimes you only earn the full cash back with certain types of purchases. Read the fine print!


Compounding is the effect where the value of an investment increases because the earnings on an investment, both capital gains and interest, earn interest as time passes. This differs from linear growth, where only the principal earns interest each period.

Credit card balance

Credit card balance is the total amount of money you owe from your purchases in any given month. WIthin that, your statement balance is what you owe at the end of your last billing cycle. While paying your statement balance by the payment date is typically enough to avoid interest charges, you should consider paying your current balance in full, which could improve your credit utilization which could improve your credit score.

Credit card interest rate

This is the rate of interest that a credit card company will charge you for any unpaid balances each month. If you use your credit card to get a cash advance, some companies will charge interest from the day that cash advance is received. Note that credit card interest rates are higher than most consumer interest rates, such as car loans or mortgages.

Beware that while some credit cards may offer a low "introductory" interest rate, that rate may rise over time.

Credit history

Your credit history is basically your track record of paying back loans over time. Your credit card bill, your mortgage, your student loans, a car loan—any kind of outstanding loan you have is considered. That means that every payment you make becomes part of your credit history. Making payments late or skipping them altogether is going to negatively impact your history. Here's another thing about credit history—not having one can cost you. Lenders who see that you've never taken out and paid back a loan of any type see you as a larger credit risk than someone who has a track record of taking out and repaying loans.

Credit limit

Your credit limit refers to the amount cap of purchases your credit card company will allow you to make in a month. However, if you're carrying a balance (meaning you didn't pay your entire bill from some prior month) your credit limit is reduced by that balance. For example, if your credit limit is $2,500, but you carry an upaid balance of $200, when it's time to pay the bill, the following month you can only make $2,300 in purchases. When it's time to pay the bill, the following month you can only make $2,300 in purchases. While you're technically allowed to spend up to your full credit limit, most credit experts suggest that you only spend about 30% in any given month in order not to harm your credit rating.

Credit score

Credit score is a rating that lenders us to help evaluate how likely it is that you'll repay a loan. There are 5 factors that contribute to this score: payment history, credit utilization, length of credit history, new credit and credit mix. A higher score means that banks and credit card companies think it's more likely you'll repay your debts. To be on the safe side, Fidelity recommends to save enough to cover 3 – 6 months living expenses.


This takes asset allocation one step further by spreading your money among different investment types. There are different companies, industries, and business sizes for each investment option on the market—helping you spread out your risk even more.

Emergency fund

An emergency fund is money you set aside for unexpected events—a job loss, an illness, a flat tire, etc. You might also hear this referred to as a rainy day fund. Since you may need this money at any time (after all, no one can predict an emergency), many financial professionals suggest keeping the money for your emergency fund in relatively lower-risk types of investments, such as a bank savings account. Fidelity recommends to save enough to cover 3 – 6 months living expenses.


Equity is one of those financial lingo words that's actually way simpler than it sounds. Equity means ownership. Psst…it's just another word for stock. So, when you buy a share of stock in a company, that's another way of saying you have equity, or part ownership. So when investors on TV say they want a 30% equity stake in an up-and-coming company, what they really mean is that they want to own 30% of its shares.

Essential expenses

These are things you spend money on that you can't live without, like housing, utilities, and food. Different people are going to have different views of what's essential. For instance, if you have debts, you may want to consider your payments as essential. Some people consider health insurance essential. Same with a phone and a car. Hey, you might even consider movies essential. The point is different people are going to have different definition of "essentials." But when you create a budget, remember the 50/15/5 rule, and be sure to dedicate about 50% of your after-tax income to your essential expenses.


An Exchange Traded Fund is a fund that track indexes like the S&P 500®. An ETF trades like a common stock on a stock exchange—experiencing price changes throughout the day as they are bought and sold. Most ETFs don't try to outperform their corresponding index, but simply attempt to replicate its performance.

Health Savings Account (HSA)

A health savings account (HSA) is an individual, tax-advantaged account available in conjunction with HSA-eligible health plan (also known as a High-Deductible Health Plan [HDHP]) intended to pay for qualified medical expenses. For federal taxes, contributions are pre-tax, grow free of taxes, and are tax-free when withdrawn for qualified medical expenses.


You know how old folks say how "back in the day" a dollar would go so much further in life? Inflation is the overall increase in the price of goods and services. It lowers the value of your money over time, which means a dollar isn't the same as "back in the day."

Interest payments

Every loan, whether it's a student loan, a car loan, or even a credit card balance (which is basically a loan you take out each month from the credit card issuer), has two components—principal (the amount you borrowed) and the interest (the amount the lender charges you for the right to borrow money from them). The principal is something you must repay by the end of the term of the loan. So a five-year car loan must be repaid in full at the end of five years, usually in monthly installments. With each payment you're not only repaying the principal you're also making a smaller interest payment. The higher the interest rate, the higher the payment.

Investment return

This is the amount an investment has grown over time. When looking at investment returns, it's important to note the time period being shown. Investment returns can be shown for a wide range of time periods, including monthly, quarterly, annually, over multiple years, and over the life of the investment. Here's another important thing to remember—investment returns are not guaranteed. Any investment that has the potential to increase in value also typically has the potential to lose value. And even more importantly, just because an investment has provided a certain level of return in the past is no guarantee that it will do so in the future.


An Individual Retirement Account (IRA), is for individuals who don't have access to an employer workplace plan and or are looking to save outside the plan. Contributions are made with after tax money and may be tax deductible. Earnings are not taxed until withdrawn and a non-qualified distribution can result in a 10% tax penalty.

Minimum credit card payment

Minimum payment amount is the smallest amount you're allowed to pay to ensure the credit card company doesn't consider your account delinquent. But don't be fooled—making the minimum payment will still result in interest charges on the amount you don't pay. So while making the minimum credit card payment only won't hurt your credit score, it could take a bite out of your finances in other ways.

Mutual funds

Take all those investment types, pool them together and you've got yourself a mutual fund. Mutual funds let you to pool your money with other investors to purchase a collection of stocks and bonds that you might not be able to buy on your own.

Payroll tax

This is money that's deducted from your paycheck. Here's how it works: All employees are required to fill out and sign a W-4 form, on which they declare the amount of withholding (note that while there's a minimum amount that has to be declared, an employee can include more in withholdings than is required by the IRS).

The IRS, in turn, provides the income tax calculation based on those declarations and federal income taxes are deducted based on that formula. State taxes (and local income taxes where applicable) are determined in much the same way, with individual states' tax boards providing a formula for taxes to be withheld. Note that in addition to the taxes described above, your paycheck will also be subject to Social Security and Medicare taxes.


Rebalancing is an essential part of managing your portfolio. Your mix of investments will likely change over time, depending on how your different investments perform. It's important to periodically review your asset allocation, to make sure it still aligns with your goals—if it no longer aligns with your objectives and your timeline, consider rebalancing.

Roth IRA

With a Roth IRA, your contributions always come from money that has already been taxed. As a result, you can withdraw your contributions at any time. Unlike a traditional IRA, your potential tax-free earnings are not taxed provided certain requirements are met.

Short-term savings

This is money that you set aside for something you think you might need within the next three years or so. Many financial professionals suggest keeping the money for your emergency fund in relatively lower-risk types of investments, such as a savings account. To be on the safe side, Fidelity recommends to save enough to cover 3 -6 months of living expenses.


Considered among the riskiest of the investment types, stocks also have a sweet side to them: where there's higher risk, there's potential for higher returns—if you're game for riding the ups and downs of the market.

Student debt

Student debt is money that you owe based on loans taken out to fund your education. It's important to remember that not all loans are the same. Private loans, like from banks, come with a higher interest rate than public loans from the government. It's a good idea to pay off your higher-interest loans first, which could save you money over time. You may have a number of options when it comes to paying off your loans—you can pay back equal amounts each month, structure your repayment schedule so that you're making smaller payments early on (when you're probably earning less money), or tie your payments to your salary. Different types of loans have different options available, so it's important to educate yourself.

Student loan interest rate

Like any loan you take out, student loans charge interest. That means that in addition to repaying the full amount of the loan, you have to pay a little (or in some cases a lot) for the right to take out the loan in the first place (that's how lenders make money). Depending on the type of student loan you take out, interest rates may vary widely. For instance, loans from private institutions, like banks, tend to have much higher interest rates than loans from government agencies.

Traditional IRA

An Individual Retirement Account (IRA), is for people who don't have access to an employer workplace plan (like a 401(k)) and or are looking to save outside the plan. Contributions are made with after-tax money and may be tax deductible. When you make withdrawals, you pay taxes on the original amount you had put into the account, plus any growth. Another thing to remember is that you have to start taking money out of a Traditional IRA beginning the year you turn 72. A non-qualified distribution can result in a 10% tax penalty.

What else can affect a credit score?*

  1. Avoiding credit altogether
    The first step to good credit is establishing a credit history. So getting a credit card and using it wisely is a great first step.
  2. Using more than 30% of your credit limit
    Credit card companies tend to frown on that, as it makes them think you might be a chronic over spender.
  3. Not paying your bill on time or anything less than the minimum amount
    This is a huge red flag for credit card companies and makes them think you're not responsible when it comes to credit.
  4. Applying for multiple cards, especially in a short period of time
    Another red flag. Card companies consider having too many cards as a sign that spending could potentially get out of control.
  5. Not having a variety of credit
    It's good to show that you can manage different kinds of credit—student loans, credit cards, car loans, maybe even a mortgage someday. This shows that you're a responsible borrower.


Generally, a 401(k) is a workplace savings plan and an easy way to start investing and save for retirement. Your contributions come out of your paycheck—and before you pay taxes on them. Be sure to take advantage of any match offered through your employer's workplace savings plan.

Employer match

Employer match is money that your company may contribute to your account workplace retirement plan. While there are many different ways this can be calculated, in general the employer may "match" up to a certain portion of the money that you save. For example, let's say your job offers a 7% match. If you chose to set aside 7% of your paycheck into your 401(k), your employer would contribute a dollar-for-dollar "match" of that amount. If you set aside more, your company would only match the first 7%. If you set aside less than 7% (say 5%), the company would only match 5%. Remember, every employer plan has different provisions so make sure you fully understand what your employer offers.

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