Financial terms & acronyms

Short definitions for terms and acronyms used across our calculators and blog. Use the links below to jump by letter.

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401(k)(Named after the IRS code section.): A retirement savings plan offered by employers. You contribute from your paycheck, often with a tax break, and sometimes with an employer match.

APR(Annual Percentage Rate): Annual percentage rate. The interest rate charged on a loan or credit card over a year, used to calculate how much interest you pay.
APY(Annual Percentage Yield): Annual percentage yield. The rate you actually earn on savings over a year, including compounding.

Back-end DTI(Back-end Debt-to-Income): Housing payment plus all other monthly debt payments, as a percentage of gross monthly income. Many lenders cap this around 36%.

Compound interest: Interest calculated on the principal plus any interest already earned or owed, so you earn or pay interest on interest over time.

DTI(Debt-to-Income): Debt-to-income ratio. Total monthly debt payments divided by gross monthly income, expressed as a percentage.

Emergency fund: Money set aside in a liquid account for unexpected expenses or job loss. Often three to six months of essential expenses.

FDIC(Federal Deposit Insurance Corporation): Federal Deposit Insurance Corporation. Insures deposits at U.S. banks up to a limit per account type.
FICA(Federal Insurance Contributions Act): Federal Insurance Contributions Act. The taxes that fund Social Security and Medicare, withheld from your paycheck.
Front-end DTI(Front-end Debt-to-Income): Housing payment only, as a percentage of gross monthly income. A common guideline is 28% or less.

Gross income: Income before taxes and deductions. Lenders and many guidelines use gross (not take-home) for ratios like DTI.

HOA(Homeowners Association): Homeowners association. Monthly or annual fees for some properties, often covering shared amenities or maintenance.

IRA(Individual Retirement Account): Individual retirement account. A tax-advantaged account you open on your own (not through an employer). Traditional and Roth are the main types.

Liquid: Easy to access without a big penalty or delay. Cash and savings accounts are liquid; a 401(k) or house is not.

Net pay: Take-home pay after deductions (taxes, benefits, retirement). What actually hits your bank account.
Net worth: Total assets (what you own) minus total liabilities (what you owe). A snapshot of your financial position.

Principal: The amount borrowed or invested, before interest or returns. Extra principal payments on a loan reduce the balance.

Rollover: Moving money from one retirement account (e.g. a 401(k)) into another (e.g. an IRA or new 401(k)) without paying tax if done correctly.
Roth: A type of IRA or 401(k) where contributions are made after tax and qualified withdrawals in retirement are tax-free.

Savings rate: The share of your income you save, often expressed as a percentage of gross or take-home pay.

Traditional: A type of IRA or 401(k) where contributions are often tax-deductible now and withdrawals in retirement are taxed as income.

Vesting: How long you must stay at a company before you keep employer contributions (e.g. 401(k) match) if you leave. Your own contributions are always yours.