Finance Glossary
Essential financial terms explained clearly for better money management and investment decisions.
APR
Annual Percentage Rate — the yearly cost of borrowing, including interest and fees expressed as a percentage.
Example: A mortgage with 6.5% APR costs more than one with 6.5% interest rate due to added fees.
Compound Interest
Interest calculated on both the principal and previously accumulated interest.
Example: $10,000 at 7% compounded annually becomes $19,671 after 10 years.
Amortization
The process of spreading loan payments over time, with early payments covering mostly interest and later ones reducing principal.
Example: A 30-year mortgage amortizes over 360 monthly payments.
Net Worth
Total assets minus total liabilities. The most comprehensive measure of personal financial health.
Example: Assets of $500,000 minus debts of $200,000 = net worth of $300,000.
Liquidity
How quickly and easily an asset can be converted to cash without losing value.
Example: Cash is perfectly liquid; real estate is relatively illiquid.
ROI
Return on Investment — the percentage gain or loss on an investment relative to its cost.
Example: Buying a stock for $100 and selling for $130 yields a 30% ROI.