Amortization – The process of paying down a debt, such as your mortgage, by making payments in equal installments over a set period of time.

Asset allocation – An investment strategy that considers your individual goals, your risk tolerance and your investment timeframe.

Bonds – A type of investment where you act as the bank by loaning money to a company, a city or the government. They then promise to pay you back in full plus interest.

Capital gains – When you sell a capital asset, such as your house, for more money than you originally paid for it this profit is known as a capital gain.

Dependent – A person in your life who depends on you for financial support, such as a child or partner.

Depreciation – When an asset loses value over time. For example, your car depreciates in value every year.

Diversification – Investing in a variety of different assets to reduce your risk. In other words, not putting all of your eggs (money) in just one basket (type of investment).

Dividend – Money that a company may pay to its shareholders (usually quarterly) out of its profits.

Escrow – When a third party, like a bank, facilitates a transfer of money on your behalf once a specific condition is met. For example, when you buy a house, your down payment might be held in escrow until a home inspection is passed, at which time your money would be transferred to the seller.

FICO score – A rating based on your credit information that helps lenders predict your behavior, such as your likelihood to pay your bills on time.

Inflation – The general increase in price for goods and services. As inflation rises, you’re able to buy less with each dollar you spend.

Insurance premium – The amount you pay for your insurance policy. It is determined by the level of risk your insurer is taking on by insuring you. Different types of policies have different premiums.

Insurance rider – Additional insurance that you can purchase or may be provided by the insurer on top of your basic policy. Think of it as an add-on to your insurance policy.

Interest rate – How much a lender charges you to borrow their money. It’s usually represented as an annual percentage.

Mutual fund – A professionally managed investment that pools together money from several investors in order to purchase securities (e.g. stocks).

Net worth – How much a person or company is worth. It can be calculated by subtracting total liabilities (e.g. debts) from total assets (e.g. cash).

Prospectus – A legal document that provides details about an investment that can help investors make informed decisions.

Security – A financial asset that can be traded, such as a stock or bond.

Trust – An arrangement where someone’s property or money is legally held or managed by someone else for a
set period of time. For example, a parent might hold an inheritance in trust for a child until their eighteenth birthday.

Variable expense – An expense such as food, clothing or entertainment that you can control. Unlike fixed expenses such as rent or property taxes, you can decide how much you want to spend on your variable expenses.