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Glossary

Every term this site uses, defined in a sentence or two and grouped by the five things you actually do with money. No definition here leans on jargon that isn't itself defined on this page.

Earning and income

The gap between what you earn and what you spend funds everything else; the earning side is increase your income.

Gross income: Total pay before anything is deducted — salary, bonus, commission, business revenue. It is the number a raise negotiation moves.
Net (take-home) pay: What actually lands in your account after tax, insurance, and retirement contributions. Build budgets and savings rates on this figure, not on gross.
Marginal vs effective tax rate: Marginal is the rate on your next dollar; effective is total tax divided by total income, and is always lower. Marginal is the one that decides pre-tax versus Roth.
Human capital: Your future earning ability, treated as an asset. Early in a career it outweighs your portfolio, which is why high-income skills pay off faster than cutting costs.
Equity compensation (RSUs): Company shares granted as pay, taxed as ordinary income when they vest. Holding them ties both your salary and your net worth to one employer.
Self-employment tax: Social Security and Medicare tax for people without an employer: 15.3% of net self-employment earnings, half of it deductible. The Social Security half stops above a wage base that resets annually. Everyone freelancing pays it.
W-2 vs 1099: A W-2 employee has tax withheld and half of payroll tax paid for them; a 1099 contractor owes self-employment tax and quarterly estimates. The same headline number is worth less as a 1099.
Side hustle: Income earned outside the main job — side hustles, or an online business. It arrives after fixed costs are covered, so almost all of it can be saved.
Passive income: Money that keeps arriving after the work is done: dividends, rent, royalties. Every version needs capital or heavy front-loaded labour first — passive income.

Saving and budgeting

This is where the plan is won or lost: how to save a million dollars, and the first checkpoint, saving $100k.

Savings rate: The share of take-home pay you save and invest, and a better predictor of your timeline than income. At 20%, financial independence takes about 29.8 years from zero; at 50%, 14.5 (savings rate).
Emergency fund: Three to six months of essential expenses in cash, instantly reachable. Its job is to stop a broken transmission becoming credit card debt — emergency fund.
Sinking fund: Monthly saving toward a known future bill — car repairs, insurance, a wedding — so it is scheduled rather than shocking. Size it with the savings goal calculator.
Zero-based budget: Every dollar assigned a job before the month starts, so income minus assignments equals zero. The most demanding method in budgeting, and the most effective.
50/30/20 rule: Half of take-home pay to needs, 30% to wants, 20% to saving and debt. A fair opening shape, provided you read the 20% as a floor.
Lifestyle creep: Spending expanding to absorb every raise, so the savings rate stays flat while income doubles. The reason high earners reach 45 with nothing — frugal living.
Pay yourself first: Automating the transfer to savings and investments on payday, before discretionary spending gets a vote. The most reliable of the millionaire habits.
High-yield savings account: A federally insured savings account paying a competitive rate, usually online-only. Right home for an emergency fund, wrong home for money you won't touch for a decade.
APY: Annual percentage yield: the rate a deposit account pays once compounding is counted, which makes it comparable across banks. APR is its mirror image on money you owe.
Avalanche vs snowball: Two payoff orders. Avalanche attacks the highest interest rate first and costs the least; snowball attacks the smallest balance first and gets finished more often. Both in get out of debt.
Debt-to-income ratio: Monthly debt payments divided by monthly gross income. Lenders use it to approve mortgages; you can use it as a speed limit on borrowing.

Investing

Saved money that isn't invested loses to inflation quietly. The account-by-account setup is investing.

Compound interest: Returns earned on previous returns as well as on the original money. At 7% it turns $820 a month into $1,000,000 over 30 years, of which only $295,089 came from you (compound interest).
Rule of 72: Divide 72 by the annual return to estimate a doubling time. At 7% that is roughly every 10.3 years — check it in the compound interest calculator.
Index fund: A fund that buys a whole market — an S&P 500 or total-market index — instead of picking stocks. Cheap, diversified, the default here: index funds.
ETF vs mutual fund: Two wrappers around the same idea: an ETF trades like a stock all day, a mutual fund prices once after the close. For a monthly index buyer it barely matters.
Expense ratio: The percentage a fund takes from your money each year, deducted silently from returns. The gap between 0.03% and 1.00% is worth about a quarter of a 40-year outcome.
Dollar-cost averaging: Investing a fixed amount on a fixed schedule regardless of price. It removes the timing decision, which is the one most people get wrong (dollar-cost averaging).
Asset allocation: How money is divided between stocks, bonds, and everything else. It explains most of your return and nearly all of your volatility — asset allocation.
Rebalancing: Selling whatever has grown past its target share and buying whatever lagged, restoring your allocation. Once a year is plenty.
Diversification: Owning enough different things that no single failure can hurt you badly. One total-market index fund does it; a pile of employer stock does the reverse.
Volatility: How violently a price swings, in both directions. It is the admission price for stock returns, not evidence that something has gone wrong.
Drawdown: The peak-to-trough fall in a portfolio's value, as a percentage. Knowing you could sit through a 50% one is worth more than any risk-tolerance questionnaire.
Correction vs bear market: A correction is a fall of 10% or more from a recent peak; a bear market is 20% or more. Both are ordinary, and neither is an instruction to act.
Dividend: Cash paid out of profits to shareholders, usually quarterly. Not free money — the share price falls by roughly the amount paid.
Dividend yield: Annual dividends divided by share price. An unusually high yield normally signals a collapsing price rather than a generous company (dividend investing).
Total return: Price change plus dividends, which is the only return that counts. The 7% behind every projection on this site is a total return.
Bond: A loan to a government or company that pays interest and repays the principal at maturity. It returns less than stocks; its job is steadiness, not growth.
REIT: A company that owns income-producing property, trades like a stock, and must pay out most of its taxable income. Real estate without a mortgage or a tenant.
Capital gain: Profit on an investment you sold. Held longer than a year it is long-term and taxed below salary rates; a year or less is short-term, taxed as ordinary income.
Sequence-of-returns risk: A bad market arriving early in retirement, when withdrawals turn temporary losses into permanent ones. The same average return in a different order changes everything, which is why it dominates financial independence planning.
Nominal vs real return: Nominal is the raw percentage; real is what survives inflation. The 7% used here is meant as a real return, so the projected million is in today's buying power.

Accounts and taxes

Accounts are containers, not investments — you still choose what goes inside. Every dollar limit below is statutory and inflation-adjusted, so none is printed here; current figures live on 401(k) and Roth IRA.

401(k): An employer retirement account funded straight from payroll, with an annual IRS limit and usually a traditional or Roth choice — 401(k).
Employer match: Money your employer adds when you contribute, commonly 50% or 100% of your contributions up to a percentage of salary. Contributing less than the full match is the most expensive routine mistake in personal finance.
Vesting: The schedule on which employer contributions or granted shares actually become yours. Leave early and you forfeit whatever hasn't vested.
Traditional vs Roth: Traditional means a deduction now and tax on withdrawal; Roth means tax now and none later. It is a bet on your marginal rate today against your rate in retirement (Roth IRA).
IRA: A retirement account you open yourself, independent of any employer, with its own annual limit. It comes in traditional and Roth versions and can hold index funds.
Backdoor Roth: Contributing to a traditional IRA and converting it to Roth, used by people earning above the Roth income phase-out. The pro-rata rule on existing pre-tax IRA balances makes it messier than it sounds.
Contribution limit: The most you may put into a tax-advantaged account in one year. All of these move with inflation, so check the current IRS figure rather than one you remember.
Catch-up contribution: Extra room above the normal limit, granted from a set age onward. Both the qualifying age and the amount are statutory and have been revised repeatedly.
Required minimum distribution (RMD): The amount the IRS obliges you to withdraw each year from pre-tax retirement accounts past a set age. Roth IRAs are exempt for the original owner, and the age has moved more than once recently.
Tax-advantaged vs taxable account: Sheltered accounts protect growth but restrict access; a taxable brokerage account is flexible and taxed on dividends and realised gains. Fill the sheltered space first — order in investing.
Tax-loss harvesting: Selling a losing position in a taxable account to book the loss against gains, then buying something similar but not identical. Repurchase the same security within 30 days and the wash-sale rule voids the loss.
HSA: A health savings account paired with a qualifying high-deductible health plan: deductible going in, untaxed growing, untaxed out for medical costs. The only triple-tax-free account.
529: An education savings account with no federal deduction, tax-free growth, and tax-free withdrawals for qualified education costs. Many states add a deduction of their own.
Depreciation: A paper expense landlords deduct against rental income, spread over 27.5 years for residential property. It cuts tax without costing cash, which is one way real estate investing differs from stocks.

Milestones and measurement

These are the terms for checking whether any of the above is working. The full sequence is how to make a million dollars.

Net worth: Everything you own minus everything you owe — the one number that tracks the whole plan. Typical values: average net worth.
Assets vs liabilities: Assets are what you own: cash, investments, property. Liabilities are what you owe: mortgage, student loans, card balances. Net worth is the difference and nothing else.
Liquid net worth: Net worth minus what you can't readily turn into cash, mainly home equity and retirement money you can't yet reach. Usually the more honest measure of your options.
Median vs mean: The median is the middle household; the mean is dragged upward by the very rich. Federal Reserve Survey of Consumer Finances, 2022 edition: median US household net worth about $192,700, mean near $1.06 million (millionaire statistics). Treat any unlabelled "average wealth" figure as useless.
Percentile: Your rank against everyone else: the 80th percentile means 80% of households have less. Split by age bracket in net worth by age.
Financial independence: Enough invested that work becomes optional, conventionally 25 times annual spending — financial independence.
FIRE: Financial Independence, Retire Early: the same arithmetic run at a high savings rate, so the finish line arrives decades sooner. At 50% saved, roughly 14.5 years from zero.
4% rule (safe withdrawal rate): Withdrawing 4% of the portfolio in the first year of retirement and adjusting that dollar amount for inflation thereafter. It is where the 25-times figure comes from: 4% of $1,000,000 is $40,000 a year.
Coast FI: Having enough already invested that, left untouched, it reaches your target by retirement age. Further contributions become optional; you only cover current spending.
Millionaire: A person or household worth $1,000,000. The wrinkle: some surveys count net worth including home equity, others investable assets only, and the second group is far smaller — which is why the counts differ (worldwide, by state).

The milestones get faster as they go. At $1,000 a month and 7%, the first $100k takes 6.6 years, $100k to $500k another 13.0, and $500k to $1 million only 8.0 more — about 27.5 years end to end, or 19.6 at $2,000 a month. Working backwards from an age changes the monthly figure sharply: millionaire by 30, by 40, by 50, or how long it takes, with your own numbers in the millionaire calculator.

A term missing, or a definition you think is wrong? Send it via contact; how figures and sources are chosen is set out in the editorial policy and the about page. Starting from nothing, start at the front page.

Educational content, not financial, tax, or legal advice. Figures are illustrations based on stated assumptions, not guarantees; markets involve risk, including loss of principal.