Financial terms made easy so you can understand money, improve your budgeting, and make smarter financial decisions with confidence.
Financial Terms
Money touches every part of our lives, yet so many of us were never taught the language that surrounds it. From budgeting to investing to everyday banking, financial terms can feel confusing or overwhelming, and that confusion often keeps people from taking control of their money.
This guide breaks down the essential terms everyone should know in clear and straightforward language.
Whether you’re just starting your financial journey or brushing up on the basics, understanding these concepts will help you make confident, informed decisions about your future.
You deserve to feel empowered with your money.
Each term includes a short, friendly definition designed to help you understand the concept quickly.
Use this guide as a reference whenever you come across a financial term you’re unsure about. Bookmark it, print it, or keep it handy as you build your financial confidence.
BUDGETING & MONEY MANAGEMENT
Budget: A monthly plan for how you’ll use your money, like spending and saving.
Cash Flow: Money coming in (income) and going out (expenses).
Fixed Expenses: Costs that remain the same each month, such as rent or insurance.
Variable Expenses: Costs that change month to month, like groceries or gas.
Sinking Fund: Money is saved gradually for a future expense, such as a holiday or car repairs.
Net Income: Your take‑home pay after taxes and deductions.
Gross Income: Your income before taxes and deductions.
Withholding: The amount taken from your paycheck for taxes.
Zero‑Based Budgeting: A budgeting method in which every dollar is assigned a specific purpose.
Discretionary Spending: Non‑essential spending, like dining out or entertainment.
BANKING & SAVING
Account Balance: the money in your bank account.
Emergency Fund: Savings for unexpected expenses or income loss.
Interest Rate: The cost of borrowing or the money you earn on savings.
APY (Annual Percentage Yield): The actual yearly return on savings, including compound interest.
Compound Interest: You earn interest on both the money you save and the interest that money has earned.
Laddering: A savings strategy using multiple accounts or CDs/GICs with different maturity dates.
Liquidity: How quickly something can be turned into cash.
Mortgage: A loan used to buy property, usually a home.
Amortization: How loan payments are split between principal and interest over time. The time required to pay off a loan, such as a mortgage.
Bank Draft: Guaranteed cheque from a bank.
Financial Statement: A report that shows your income, expenses, assets, and debts.
Short-term savings: Money you set aside for goals you expect to reach within one year. You keep it in safe, easy‑to‑access accounts like a high‑interest savings account.
Long-term savings: Money you save for goals that are more than one year away. You typically invest it to allow it to grow over time. Examples include retirement, home ownership, or your child’s education.
CREDIT & DEBT
Debt: Money you owe.
Credit Score: A number that shows how reliable you are as a borrower.
Debt‑to‑Income Ratio (DTI): How much of your income goes toward debt payments?
APR (Annual Percentage Rate): The total yearly cost of borrowing, including fees.
Principal: The original amount borrowed, not including interest.
Collateral: An asset you pledge to secure a loan.
Default: You miss a loan or credit card payment
INVESTING BASICS
Investment: Putting money into something to make it grow.
Assets: Anything you own that has value. (car, house, investments)
Liabilities: Money you owe.
Net Worth: Assets minus liabilities.
Capital Gains: Profit from selling an investment for more than you paid.
Capital Loss: When you sell an investment for less than you paid.
Market Value: The price something would sell for now.
Diversification: Spreading investments across different assets to reduce risk.
Bond: A loan you give to the government or a company. They pay you interest.
Mutual Fund: Money pooled by many people, managed by professionals, invested in stocks, bonds, or both.
ETF (Exchange Traded Fund): An investment fund traded on the stock exchange like a stock.
Index Fund: A low‑cost fund that tracks a market index.
Dividend: Money paid to you by a company if you own its shares.
Rebalancing: Adjusting your investments back to your target mix.
ROI (Return on Investment): How much you earned compared to what you invested.
Equity: The portion of an asset you truly own.
Dollar‑Cost Averaging (DCA): Investing a fixed amount regularly, regardless of market conditions.
Portfolio: All your investments together.
Registered Retirement Savings Plan (RRSP): A Canadian account that lets your investments grow tax-deferred.
Registered Education Savings Plan (RESP): A Canadian account for saving for a child’s education.
Tax-Free Savings Account (TFSA): A Canadian account to save and invest money tax-free.
Security: A general term for investments like stocks and bonds.
Share: Part ownership of a company.
Stock: Another word for share.
Volatility: How much investment prices go up and down.
Withholding Tax: Tax taken off income before you get paid.
Yield: How much money you make from an investment, as a percentage.
Balance sheet: A snapshot of what you own and what you owe. It lists your assets, your debts, and your net worth. It helps you view your financial position at a specific point in time.
RETIREMENT & LONG‑TERM PLANNING
RRSP/ 401(k) / TFSA / IRA: Retirement accounts with tax advantages.
Vesting: How much of your employer’s contributions do you own over time?
Asset Allocation: How do you divide your investments among stocks, bonds, etc?
Time Horizon: How long do you plan to invest before needing the money?
Pension: A retirement plan that provides guaranteed income.
Beneficiary: The person who gets money when you die or from a trust.
TAXES & INFLATION
Income Tax: Tax you pay on what you earn.
Inflation: The rise in prices over time.
Tax Bracket: A range of income is taxed at a specific rate.
Tax Deduction: Reduces your taxable income.
Tax Credit: Reduces the amount of tax you owe directly.
Withholding Tax: Money is taken from your paycheck for taxes before you receive it.
BEGINNER‑FRIENDLY TERMS
Depreciation: When an asset loses value over time.
Fiduciary: A financial professional is legally required to act in your best interest.
Risk Tolerance: How comfortable are you with investment volatility?
Expense Ratio: The annual fee charged by investment funds.
Recession: A period of economic decline.
Bull Market / Bear Market: Bull: rising market. Bear = falling market.
Learning financial terminology empowers you.
When you understand the words behind the money, you gain clarity, confidence, and the ability to advocate for your financial well‑being.
As you continue exploring these terms and applying them in real life, remember that every step you take builds a stronger foundation for your financial future.
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