All the basic terms you need to know about wealth.


Asset: An item a person or entity owns that has financial value or is expected to have financial value in the future.


Wealth: Your overall financial picture that includes all your assets.


Asset or wealth has many forms. Most common forms include cash, savings, stocks, ETFs, mutual funds, bonds, cryptocurrencies, commodities, real estates, patents, copyrights, arts, collections, and businesses.


Cash: Money in coins or notes.


Savings: Represents a net surplus of funds for an individual or household after all expenses and obligations have been paid.


Stock: A type of investment that, when purchased, gives you partial ownership of the company. Also known as a share.


Exchange-traded fund: An ETF is a diversified group of securities often tied to an index, such as the S&P 500. These funds are traded like stocks.


Index: A tracker that measures the market performance of a particular sector, often by using a group of different securities to represent a theoretical investor portfolio. The S&P 500 and the Dow Jones Industrial Average are indices.


Mutual fund: A financial instrument that uses a pot of money from many different investors to buy a diversified mix of stocks, bonds, and other securities.


Bonds: A type of investment that is essentially a loan from the investor to the bond issuer (a government or a corporation). The bond issuer pays back the invested money, with interest, at specified intervals of time. Bonds carry less risk than stocks.


Cryptocurrency: A form of decentralized digital currency not tied to any nation or standard.


Commodities: An economic unit that can be bought or sold but has the same value regardless of who produced it. Oil, gold, and wheat are all examples of commodities.


Real estate: The land along with any permanent improvements attached to the land.


Patent: A government authority or license conferring a right or title for a set period, especially the sole right to exclude others from making, using, or selling an invention.


Copyright: The exclusive legal right, given to an originator or an assignee to print, publish, perform, film, or record literary, artistic, or musical material, and to authorize others to do the same.


Arts: The expression or application of human creative skill and imagination, typically in a visual form such as painting or sculpture, producing works to be appreciated primarily for their beauty or emotional power.


Collections: A group of objects or an amount of material accumulated in one location, especially for some purpose or as a result of some process. For example, a stamp collection, or a book collection.


Business: An organization or enterprising entity engaged in commercial, industrial, or professional activities. Businesses can be for-profit entities or non-profit organizations.


Liability (or debt): Money that an individual or entity owes someone else.


Liability has many forms. Most common forms include overdraft, bank loans, mortgages, credit line, and unpaid taxes, etc.


Overdraft: A deficit that occurs when you withdraw an amount of money from an account that exceeds the account balance. Doing this often triggers a penalty from the financial institution.

Bank Loan: When a bank offers to lend money to consumers for a certain time period. As a condition of the bank loan, the borrower will need to pay a certain amount of interest per month, or per year.


Mortgage: A loan you take out to buy a piece of property, where the piece of property is the collateral. That means if you fail to make payments, the lender can seize the property.


Collateral: A borrower's item, property, or asset that a lender accepts as a guarantee of a loan. If the borrower fails to make loan payments, collateral can become the property of the lender.


Refinance: To replace a loan, such as a mortgage, with a different loan that has a better interest rate or other more favorable terms.


Credit Line: A type of loan that allows you to borrow and repay money, usually on a revolving basis, such as a HELOC or a credit card.


Tax: The act of levying or imposing a tax by a taxing authority. Taxes include income, capital gains, or estate.


Tax Credit: A factor that reduces your final tax bill directly.


Tax Deduction: A factor that lowers the amount of income you pay taxes on, which in turn can reduce the amount of taxes you pay.


Equity: Your ownership of an asset after you've accounted for the liability you owe on it. For example, if you bought a house with a mortgage, your equity in the home is the home's value minus your outstanding loan balance.


Net Worth (or net wealth): The total value of all of your assets minus the total amount of your liabilities.


Balance Sheet: A personal balance sheet provides an overall snapshot of your wealth at a specific period in time. It is a summary of your assets (what you own), your liabilities (what you owe), and your net worth (assets minus liabilities).


Income: Money received, especially on a regular basis, for work or through investments.


Discretionary income: The earned money left over after taxes, health insurance, rent or a mortgage payment, and all other living expenses have been covered.


Income has many forms. Most common forms include salaries, interests, dividends, capital gains, etc.


Salary: A fixed regular payment, typically paid on a monthly or biweekly basis but often expressed as an annual sum, made by an employer to an employee.


Interest: The amount paid to an entity for lending its money or letting another entity use its funds.


Compound Interest: A method of calculating interest where you earn a percentage not just of the principal amount but the principal plus any previously earned interest. Compound interest is the eighth wonder of the world.


Time-value of Money: The financial principle that states that money received or earned now is always worth more than money earned in the future, due to the nature of compound interest.


Dividend: The payouts companies make on a recurring basis to the investors who own their shares. Dividend payments typically come out of a company's earnings.


Capital Gain: The profit that results from selling an asset that has grown in value. Capital gains are taxed at a more favorable rate than regular income.


Capital Loss: The loss an investor experiences when they sell an asset that has lost value. Investors can claim these losses on their taxes, which can help them recover some of the money.


Return on Investment: ROI is a measurement of how much a particular asset has grown in value since you bought it relative to how much you paid for it.


Compound Return: The rate of return for capital over a cumulative series of time.


Expenses: The money that something costs you or that you need to spend in order to do something.


Personal Expenses: Include necessities like laundry, cell phone service, clothing, personal care products, prescriptions, car insurance and registration, recreation, and more.


Gross Income: The total amount of income you earn — both salaries and any other income — before taxes, insurance, and retirement contributions are taken out.


Net Income: The total income you end up with after all expenses.


Income Statement: A personal income statement provides an overall snapshot of your income and expenses at a specific period in time. It is a summary of your income (salaries, dividends, and profits from bonds or stocks, etc.), your expenses (rent, utility payments, and mortgage payments, etc.), and your net income (income minus expenses).


Cash Flow: The movement of a person's, household's, or business's money—coming in as income and going out as expenses.


Cash Flow Statement: A personal cash flow statement measures your cash inflows (money you earn) and your cash outflows (money you spend) to determine if you have a positive or negative net cash flow.

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