Personal Finance Glossary

Seventy-plus core personal-finance terms defined with primary-source references. Each entry links to the relevant CalcFi calculator where the math is implemented. Comprehensive, sourced, free.

Browse alphabetically or use the table of contents.

4

401(k)

Employer-sponsored retirement plan in the US. Pre-tax (traditional) or after-tax (Roth) contributions. 2026 limits: $24,000 elective deferral, $7,500 catch-up for age 50+, $11,250 SECURE 2.0 catch-up for ages 60-63. Calculator →

403(b)

Retirement plan for employees of public schools, nonprofits, and certain ministers. Similar limits to 401(k) with some variation in allowed catch-up contributions. Calculator →

5

529 Plan

Tax-advantaged education savings account. Contributions are made with after-tax dollars; growth is tax-free; qualified education withdrawals are tax-free. Most states offer income tax deductions for contributions to their own state plan. Calculator →

A

AGI (Adjusted Gross Income)

Gross income minus specific adjustments (HSA, IRA, student loan interest, self-employment tax). The starting point for itemized vs standard deduction and most income-based phase-outs. Calculator →

Amortization

The gradual repayment of a loan over time through scheduled payments of principal and interest. Standard amortization formula: P × [r(1+r)^n] / [(1+r)^n − 1], where P is principal, r is the periodic interest rate, n is total number of payments. Calculator →

AMT (Alternative Minimum Tax)

Parallel tax system designed to ensure higher-income taxpayers pay a minimum amount. Calculated after exemption and compared to regular tax; the higher applies. Affects fewer taxpayers post-TCJA. Calculator →

APR (Annual Percentage Rate)

The simple annual rate charged on a loan without compounding. Used in mortgage and loan disclosures under Regulation Z. Distinguished from APY by absence of compounding. Calculator →

APY (Annual Percentage Yield)

The effective annual rate of return on a deposit account including compounding. For monthly compounding: APY = (1 + APR/12)^12 − 1. Calculator →

ARM (Adjustable Rate Mortgage)

A mortgage with an interest rate that adjusts periodically after an initial fixed period. A 5/1 ARM has a 5-year fixed period followed by annual adjustments. Rate determined by index (often SOFR) plus margin. Calculator →

Asset Allocation

The distribution of a portfolio across asset classes (stocks, bonds, cash, alternatives) to balance risk and return. Common heuristics include the 60/40 portfolio and age-based glide paths. Calculator →

B

Bend Points

Thresholds in the Social Security PIA formula where the benefit replacement rate changes. As of 2026, 90% applies to first $1,226 of AIME, 32% to AIME between $1,226-$8,617, 15% above. Updated annually by SSA based on wage indexing. Calculator →

Bond Yield

The annual return on a bond expressed as a percentage of price or face value. Inversely related to bond price — when yields rise, prices fall. Calculator →

C

Capital Gains Tax

Tax on the profit from selling an asset held for investment. Short-term (≤1 year) taxed as ordinary income; long-term (>1 year) taxed at preferential rates (0%, 15%, or 20% depending on income). Calculator →

Coast FIRE

A FIRE variant where the saver has accumulated enough that current portfolio compounding alone will reach the full FIRE number by traditional retirement age, even without further contributions. Calculator →

Compound Interest

Interest earned on both the original principal and previously accrued interest. Future value formula for periodic contributions: FV = PMT × [(1+r)^n − 1] / r. Calculator →

Core CPI

CPI excluding food and energy prices, used to filter out short-term volatility and identify underlying inflation trends. Often referenced in Federal Reserve communications. Calculator →

CPI (Consumer Price Index)

BLS-published measure of the average price change of a fixed basket of goods and services purchased by urban consumers. CPI-U is the all-urban version. Reported monthly with a one-month lag. Calculator →

D

Debt-to-Income Ratio (DTI)

Monthly debt payments divided by gross monthly income. Front-end DTI counts only housing; back-end counts all monthly debt. Most conventional mortgage lenders cap back-end DTI at 43-50%. Calculator →

Discount Rate

The interest rate charged by the Federal Reserve to depository institutions for loans from the discount window. Set by Federal Reserve Banks; typically higher than the federal funds rate. Calculator →

Dollar Cost Averaging (DCA)

Investing a fixed dollar amount on a regular schedule regardless of market level. Reduces sequence-of-returns risk for someone with a lump sum but historically underperforms lump-sum investing because markets rise on average. Calculator →

Donor-Advised Fund (DAF)

A charitable giving account at a sponsoring public charity. Contributor receives immediate tax deduction (up to 60% AGI for cash). Sponsor invests and distributes per contributor's advice. Simpler and lower-overhead than a private foundation. Calculator →

E

Effective Tax Rate

Total federal income tax divided by gross income. Distinct from marginal rate (rate on last dollar). Most filers have effective rate substantially lower than marginal rate. Calculator →

Estate Tax

Federal tax on the transfer of property at death. 2026 exemption $13.6M individual / $27.2M married. Above the exemption, top rate is 40%. Calculator →

F

Federal Funds Rate

The overnight interbank lending rate, set by the Federal Open Market Committee. The Fed's primary policy lever. Anchors short-term rates throughout the economy but indirectly influences longer-term rates. Calculator →

FICA (Federal Insurance Contributions Act)

US payroll tax funding Social Security (6.2% on wages up to the annual wage base, $168,600 in 2024, indexed) and Medicare (1.45% on all wages, plus 0.9% Additional Medicare on wages above $200,000 single/$250,000 joint). Calculator →

FIRE (Financial Independence, Retire Early)

A movement and math framework: save 50-75% of income, invest in low-cost index funds, accumulate 25× annual expenses (the inverse of the 4% safe withdrawal rate), retire when 4% of portfolio covers desired spending. Calculator →

Fixed Rate Mortgage

A mortgage where the interest rate remains constant for the life of the loan. Most common terms in the US are 30-year and 15-year. Predictable monthly payment but typically higher initial rate than ARM products. Calculator →

Front-End Ratio

Housing payment (PITI: principal, interest, taxes, insurance) as a percentage of gross monthly income. Most lenders target ≤28% for conventional underwriting. Calculator →

Future Value (FV)

The projected value of a present sum or stream of payments at a future date, given an interest rate. FV = PV × (1+r)^n for a single sum. Calculator →

G

GDP per Capita

Gross Domestic Product divided by population, a standard measure of average economic output per person. Published quarterly by BEA for the US, annually by the World Bank for cross-country comparison. Calculator →

Gift Tax Annual Exclusion

Amount per recipient per year that can be gifted without filing a gift tax return or using lifetime exemption. 2026 amount is $18,000 per recipient. Calculator →

H

HSA (Health Savings Account)

A tax-advantaged savings account paired with a High Deductible Health Plan. Triple tax advantage: deductible contributions, tax-free growth, tax-free qualified withdrawals. 2026 limits: $4,400 single / $8,750 family. Calculator →

I

ICHRA (Individual Coverage Health Reimbursement Arrangement)

An employer-funded arrangement that reimburses employees for individual market health insurance, established under IRS Notice 2019-49. Provides an alternative to group health plans for small employers. Calculator →

Inflation-Adjusted Return

Real return after accounting for inflation. Formula: (1 + nominal) / (1 + inflation) − 1. A 7% nominal return with 3% inflation produces a real return of approximately 3.88%. Calculator →

IRA (Individual Retirement Arrangement)

Tax-advantaged retirement account. Traditional IRA: pre-tax contribution, tax-deferred growth, taxed on withdrawal. Roth IRA: after-tax contribution, tax-free growth and qualified withdrawal. 2026 contribution limit: $7,000 / $8,000 if 50+. Calculator →

J

Jumbo Loan

A mortgage exceeding the conforming loan limit set annually by FHFA. Above the limit ($766,550 in most US counties for 2024, higher in high-cost areas), loans must be jumbo with typically stricter underwriting and slightly higher rates. Calculator →

L

Lean FIRE

FIRE variant with relatively low annual spending (~$25-40k), requiring a smaller portfolio (typically $625k-$1M) to support the safe withdrawal rate. Calculator →

M

Marginal Cost of Borrowing

The total cost of an additional dollar borrowed, accounting for interest paid over the loan's life and the opportunity cost of capital. Used in refinance and prepayment analysis. Calculator →

Marginal Tax Rate

The rate applied to the last dollar of taxable income. Determined by which bracket your income falls into. Distinct from effective rate. Calculator →

Modified AGI (MAGI)

AGI with specific deductions added back. Used for Roth IRA phase-outs, Premium Tax Credit eligibility, Net Investment Income Tax thresholds, and other income-based tests. Calculator →

Mortgage Insurance Premium (MIP)

Insurance required on FHA loans, paid by the borrower. Unlike PMI on conventional loans, MIP generally cannot be cancelled and requires refinancing into a conventional loan to remove. Calculator →

N

Net Investment Income Tax (NIIT)

Additional 3.8% tax on investment income above MAGI thresholds ($200,000 single / $250,000 married joint). Applies to dividends, interest, capital gains, rents, and royalties. Calculator →

Net Worth

Total assets minus total liabilities. The standard scorecard metric for financial health. Tracked over time to measure progress independent of income. Calculator →

P

PCE (Personal Consumption Expenditures)

BEA-published measure of US consumer spending. The PCE deflator is the Federal Reserve's preferred inflation gauge — Core PCE is targeted at 2% annually. Calculator →

PITI (Principal, Interest, Taxes, Insurance)

The four components of a total monthly housing payment. Used in DTI calculations and affordability analysis. Calculator →

PMI (Private Mortgage Insurance)

Insurance required on conventional mortgages with less than 20% down payment. Automatically cancelled at 78% LTV based on original amortization, per the Homeowners Protection Act. Borrower may request cancellation at 80% LTV. Calculator →

PMMS (Primary Mortgage Market Survey)

Freddie Mac's weekly survey of ~100 lenders, published Thursdays at noon ET. Reports 30-year fixed, 15-year fixed, and 5/1 ARM rates. The de-facto reference rate for US mortgages. Calculator →

Premium Tax Credit

Refundable tax credit that lowers cost of health insurance purchased through the ACA marketplace. Sliding scale based on household income and family size. Calculator →

Prime Rate

The interest rate banks charge their most creditworthy commercial customers. Typically tracks the federal funds rate at fed-funds + 300 basis points. Influences credit card APRs, HELOCs, and personal loan rates. Calculator →

R

Real Estate Investment Trust (REIT)

A company that owns or finances income-producing real estate. REITs trade like stocks but pass through rental income via mandated dividend distributions (90%+ of taxable income). Calculator →

Real Wage

Wage adjusted for inflation, typically using CPI. Tracks purchasing-power evolution rather than nominal dollar growth. BLS publishes real average hourly earnings monthly. Calculator →

Refinance Breakeven

Months required to recoup refinance closing costs through monthly payment savings. Months to breakeven = closing costs / monthly savings. Generally worth refinancing if you plan to stay past breakeven point. Calculator →

RMD (Required Minimum Distribution)

Annual minimum withdrawal required from traditional retirement accounts (Traditional IRA, 401(k)) starting at age 73 (SECURE 2.0). Calculated as account balance / IRS life-expectancy factor. Calculator →

Roth Conversion

Moving pre-tax retirement assets (Traditional IRA, Traditional 401(k)) to a Roth account. Conversion amount is taxed as ordinary income in conversion year. No income limits on conversions. Calculator →

Roth IRA

An IRA where contributions are made with after-tax dollars, growth is tax-free, and qualified withdrawals are tax-free in retirement. Income phase-outs apply. Calculator →

Rule of 72

Approximation for years to double an investment at a given annual return: years = 72 / annual return %. Accurate within 0.1 years for 5-10% returns. True formula: ln(2)/ln(1+r). Calculator →

S

Safe Withdrawal Rate (SWR)

The percentage of a retirement portfolio that can be withdrawn annually (adjusted for inflation) with high probability of not depleting funds over a target retirement length. The Bengen 4% rule originated in 1994; recent research suggests 3.3-3.7% is more conservative. Calculator →

Sequence of Returns Risk

The risk that a poor market period early in retirement can permanently impair portfolio sustainability, even if subsequent returns are strong. Drives interest in dynamic withdrawal strategies and bond ladders for early retirement. Calculator →

Sequence Risk Mitigation

Strategies to reduce vulnerability to poor early-retirement returns: bond ladders, dynamic withdrawals, cash buffers, asset glide paths reducing equity exposure approaching retirement. Calculator →

Social Security PIA (Primary Insurance Amount)

The monthly Social Security benefit a worker is entitled to at full retirement age. Computed from Average Indexed Monthly Earnings (AIME) via the bend-point formula. Calculator →

Standard Deduction

A fixed dollar amount that reduces taxable income. 2026 projected: $15,000 single, $30,000 married filing jointly, $22,500 head of household. Alternative to itemized deductions. Calculator →

T

T-Bill (Treasury Bill)

Short-term US Treasury debt with maturity of one year or less (4-week, 13-week, 26-week, 52-week). Sold at a discount; yield is the difference between purchase price and face value at maturity. Calculator →

Tax Loss Harvesting

Selling losing investments to realize capital losses, offsetting capital gains and up to $3,000 of ordinary income annually. Carry-forward of unused losses indefinitely. Calculator →

Total Expense Ratio (TER)

Annual fund operating expenses as a percentage of assets. Drag on performance. A 0.05% ER vs 1.0% ER difference on $500,000 over 30 years at 7% return is approximately $300,000 in fees. Calculator →

Treasury Yield Curve

The plot of yields on US Treasury securities across maturities from 1-month to 30-year. Shape indicates economic expectations: normal upward-sloping, inverted (recession signal), flat (transition). Calculator →

Trinity Study

1998 paper by Cooley, Hubbard, and Walz analyzing safe withdrawal rates from retirement portfolios using historical market returns. Validated the 4% rule for 30-year retirements. Calculator →

U

U-3 Unemployment

The official BLS unemployment rate. Counts people without jobs who are actively seeking work. Distinct from broader measures like U-6 which include discouraged and underemployed workers. Calculator →

Y

Yield Curve Inversion

Condition where short-term Treasury yields exceed long-term yields. Specifically, when the 10-year minus 2-year (2s10s spread) goes negative. Historically a strong recession indicator with 6-18 month lead time. Calculator →

Yield Spread

The difference between yields on two securities. The mortgage-Treasury spread (30Y mortgage minus 10Y Treasury) typically runs 150-300 basis points and signals lender risk perception. Calculator →

Yield to Maturity (YTM)

The total return anticipated on a bond if held until maturity, including all coupon payments and the difference between purchase price and face value. Calculator →

Term missing? Email via the CalcFi about page — we add definitions on request. All glossary entries are CC BY-SA 4.0; please attribute "CalcFi Glossary" with a link.