Wealth Terms Levels 1-7

Wealth

The value of everything you own minus everything you owe.

Net worth

Your assets minus your liabilities.

Asset

Something you own that has economic value.

Liability

Money or obligations that you owe.

Income

Money you receive, usually from working, investing, or owning a business.

Earned income

Money earned by working, such as wages or salary.

Passive income

Income that can continue coming in without you actively working for every dollar.

Active income

Income that generally requires your time or labor.

Cash flow

Money coming into and going out of your finances or business.

Revenue

Money a business brings in from selling products or services.

Profit

Money left after a business pays its expenses.

Loss

When expenses exceed income or an investment decreases in value.

Gross income

Income before certain deductions or expenses are taken out.

Net income

Income remaining after applicable expenses and deductions.

Savings

Money set aside rather than spent.

Emergency fund

Money reserved for unexpected expenses.

Capital

Money or other resources available to invest or operate a business.

Liquidity

How easily something can be converted into cash without losing much value.

Solvency

The ability to meet long-term financial obligations.

Purchasing power

How much goods and services your money can buy.

Inflation

A general increase in prices that reduces purchasing power.

Deflation

A general decrease in prices.

Interest

The cost of borrowing money or the return earned from lending/saving money.

Compound interest

Earning returns on both your original money and previously earned returns.

Simple interest

Interest calculated only on the original principal.

Principal

The original amount of money invested or borrowed.

Return

The money gained or lost from an investment.

Rate of return

The percentage an investment gains or loses over a period.

Opportunity cost

What you give up by choosing one option instead of another.

Risk

The possibility that an investment or decision produces a worse result than expected.

Reward

The potential benefit received for taking a risk.

Diversification

Spreading money among different investments to reduce dependence on one investment.

Financial independence

Having enough resources or income that you don’t need to depend on employment to cover your life.

Financial freedom

A broad term meaning having enough financial resources and control to live without being heavily constrained by money.

Bank account

An account used to store and manage money through a financial institution.

Checking account

A bank account designed for everyday spending and transactions.

Savings account

An account designed primarily for storing money and earning interest.

High-yield savings account (HYSA)

A savings account that generally pays a higher interest rate than traditional savings accounts.

Certificate of deposit (CD)

A bank deposit that pays a predetermined interest rate in exchange for leaving money deposited for a specific period.

Money market account

A bank account that typically pays interest and may offer limited transaction capabilities.

Credit

The ability to borrow money and repay it later.

Credit score

A numerical estimate of how likely someone is to repay borrowed money.

Credit report

A record of your credit accounts and borrowing history.

Credit utilization

The percentage of available revolving credit currently being used.

Debt

Money borrowed that must be repaid.

Good debt

Debt that can potentially help build wealth or produce future value.

Bad debt

Debt that primarily finances consumption and produces little or no financial benefit.

Loan

Money borrowed that is expected to be repaid, usually with interest.

Mortgage

A loan used to purchase real estate.

Collateral

Property pledged to secure a loan.

Default

Failing to meet the terms of a loan or credit agreement.

Delinquency

A payment that is overdue.

Credit limit

The maximum amount a lender allows you to borrow on a credit account.

APR

Annual percentage rate; the yearly cost of borrowing expressed as a percentage.

APY

Annual percentage yield; the effective yearly interest earned on money, including compounding.

Amortization

Paying a loan down through scheduled payments over time.

Refinancing

Replacing an existing loan with a new loan, often to obtain different terms.

Leverage

Using borrowed money to increase the potential size of an investment.

Overleveraged

Using so much debt that the debt creates excessive financial risk.

Investment

Something you put money into with the expectation of generating a return.

Investor

A person or organization that puts money into assets with the goal of earning a return.

Portfolio

The collection of investments owned by an investor.

Brokerage account

An account used to buy and sell investments.

Broker

A person or company that facilitates investment transactions.

Stock

A share representing ownership in a company.

Share

A single unit of ownership in a company or investment fund.

Equity

Ownership value in an asset or company.

Bond

A debt investment in which an investor lends money to an entity in exchange for interest and repayment.

Issuer

The entity that creates and sells a security, such as a company issuing bonds.

Security

A financial asset that can be traded, such as a stock or bond.

Mutual fund

An investment fund that pools investors’ money to buy a collection of assets.

ETF

Exchange-traded fund; a basket of investments that trades on a stock exchange like a stock.

Index fund

A fund designed to track a particular market index.

Index

A measurement representing the performance of a group of investments.

S&P 500

An index tracking approximately 500 major U.S. companies.

Market capitalization

The total market value of a company’s outstanding shares.

Large-cap

A company with a relatively large market capitalization.

Mid-cap

A company with a medium-sized market capitalization.

Small-cap

A company with a relatively small market capitalization.

Dividend

Money a company distributes to shareholders.

Dividend yield

Annual dividend payments expressed as a percentage of a stock’s price.

Capital gain

Profit from selling an asset for more than you paid for it.

Capital loss

Loss from selling an asset for less than you paid for it.

Bull market

A market experiencing sustained rising prices or optimism.

Bear market

A market experiencing significant declines or pessimism.

Volatility

How much and how quickly an investment’s price fluctuates.

Market correction

A significant decline from a recent market high, commonly around 10% or more.

Market crash

A severe and rapid decline in asset prices.

Bearish

Expecting prices to fall.

Bullish

Expecting prices to rise.

Long position

Owning an investment with the expectation that its value will increase.

Short selling

Selling borrowed shares with the intention of buying them back later at a lower price.

Asset allocation

How your investment portfolio is divided among asset classes.

Rebalancing

Adjusting investments back toward your desired asset allocation.

Dollar-cost averaging

Investing a consistent amount of money at regular intervals regardless of market prices.

Lump-sum investing

Investing a large amount of money at once.

Buy and hold

Purchasing investments and holding them for a long period.

Speculation

Taking significant risk based on the expectation that an asset’s price will move favorably.

Fundamental analysis

Evaluating an investment using financial and economic information.

Technical analysis

Studying price movements and trading data to evaluate potential investments.