Personal finance, in plain language
Every term you'll meet while tracking your money — defined clearly, with examples and links to the related ideas.
32 terms
Budgeting
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50/30/20 Rule
A budgeting framework that splits after-tax income into 50% needs, 30% wants, and 20% savings or debt repayment.
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Anti-Budget
A minimalist budgeting approach where you automate savings and bills, then spend the rest freely without category tracking.
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Category Budgeting
A budgeting approach that allocates a specific amount to each spending category and tracks actual spending against those targets.
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Digital Envelopes
A digital adaptation of the cash envelope method, where app-based category buckets enforce per-category spending limits without using physical cash.
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Envelope Method
A cash-based budgeting system where physical or digital envelopes hold a fixed amount per category and spending stops when the envelope is empty.
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Loud Budgeting
A social-first approach to budgeting where you openly tell friends and family what you cannot afford or choose not to spend on, removing the stigma around financial limits.
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Rollover Budget
A budgeting feature where unspent money in a category at month-end carries forward into the next month instead of resetting to zero.
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Zero-Based Budgeting
A budgeting method where every unit of income is assigned a job until income minus allocations equals zero.
Concepts
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APR vs APY
APR is the annual interest rate without compounding effects; APY includes compounding and is always equal to or higher than APR for the same nominal rate.
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Budget Variance
The difference between budgeted and actual amounts in a category or overall budget, used to spot drift and refine future plans.
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Cash Flow
The movement of money in and out of your accounts over a period; positive cash flow means income exceeds spending, negative means the opposite.
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Lifestyle Inflation
The tendency for spending to rise in step with income, so that higher earnings produce a more expensive life rather than higher savings.
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Net Worth
The value of everything you own minus everything you owe; the single most complete snapshot of personal financial position.
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Personal Bank Reconciliation
The process of comparing your tracked transactions against your bank statement to confirm that every entry matches and no charges are missing or wrong.
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Year-to-Date (YTD)
The cumulative total of an amount or metric from the start of the calendar year up to a current point in time.
Debt
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Debt Avalanche
A debt repayment strategy that targets the highest interest rate first while paying minimums on the rest, minimizing total interest paid.
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Debt Snowball
A debt repayment strategy that targets the smallest balance first while paying minimums on larger debts, prioritizing momentum over total interest savings.
Income
Investing
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Compound Interest
Interest earned on both the original principal and the accumulated interest from previous periods, producing exponential growth over time.
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FIRE Movement
Financial Independence, Retire Early: a movement built around aggressive saving and investing to reach a portfolio that funds living costs without paid work.
Saving
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Emergency Fund
A liquid savings reserve, typically three to six months of essential expenses, kept separate from regular accounts to absorb unexpected income or cost shocks.
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Pay Yourself First
A saving strategy where you transfer a fixed amount to savings or investments the moment income arrives, before paying any expenses.
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Savings Rate
The share of your income you save or invest, expressed as a percentage; the single best predictor of long-term wealth building.
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Sinking Fund
A dedicated savings pot for a known future expense, funded a little each month so the cost is covered when it arrives.
Spending
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Discretionary Spending
Spending on non-essential items and experiences you choose freely, such as dining, entertainment, travel, and hobbies.
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Expense Tracking
The practice of recording every outflow of money by date, amount, and category to produce an accurate picture of where money goes.
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Fixed Expenses
Recurring costs that stay roughly the same each period regardless of usage, such as rent, insurance, and subscription fees.
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Mandatory vs Discretionary Expenses
A core distinction between expenses you must pay to maintain basic life and obligations, and expenses you choose freely; the boundary determines budget flexibility.
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Recurring Expense
Any expense that repeats on a predictable schedule, whether monthly, quarterly, or annually, including subscriptions, memberships, insurance, and utilities.
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Subscription Creep
The slow accumulation of small recurring subscriptions that individually feel cheap but collectively consume a meaningful share of monthly income.
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Variable Expenses
Costs that change month to month based on usage and choices, such as groceries, fuel, utilities, and dining out.