Finally Decipher Common Financial Jargon: 12 Financial Terms You Need to Know
Admin • July 7, 2023
Are there financial terms you’ve heard so often that you think you understand them but would have a hard time defining? As we navigate financial waters, we often find that we have opportunities to grow our understanding of common financial terms.
While you certainly don’t need to get a finance degree to be successful in your personal finances, you can become well-versed in common terms so you can make informed and educated decisions.
Whether you want to brush up on common financial jargon for yourself, or want to share these with a young adult starting their financial journey, we hope you’ll find value in this easy to understand definitions.
Top 4 Financial Buzzwords in 2023
Since the COVID-19 pandemic, there have been many financial buzzwords flying around in the news. And while you may have a vague understanding of what’s happening, it’s best to clearly understand these financial terms so you can confidently navigate the economy.
- Shrinkflation . This refers to downsizing the amount of product in a particular package (such as a bag of chips) while the price remains the same. Companies know that savvy consumers will notice if the price of an item increases. But consumers may be less likely to notice a smaller amount of the product. This strategy is a response to the rising prices of goods. As a consumer, you can try a different, less expensive brand, compare products per ounce instead of per package, and try shopping at different stores.
- The Fed. Interest rates have starkly risen this year, and we often hear it’s “the Fed” who’s raising them. The Federal Reserve System is our country’s central bank. They are responsible for creating the United State’s monetary policy, regulating banks, operating the country’s payment systems, and maintaining the stability of our financial systems. To combat inflation and avoid a recession, the Fed has consistently risen interest rates ( 10 times since March 2022 ). This makes it more expensive to borrow money, but more financially beneficial to save money in an interest-bearing account.
- Risk Assessment. The market volatility in the past couple of years has left many consumers concerned about their finances, leading many to reach out to financial advisors for a comprehensive risk assessment. Financial advisors can help determine your level of risk (more on that below!), asset allocations, investment diversification, and risk management strategies.
- Recession. This word has definitely been thrown around this year and last. An official recession is typically declared after the economy is already in one, thus making it hard to predict. Recessions are marked by significantly prolonged periods of decreasing economic activity. Officially speaking, two consecutive quarters of negative gross domestic product. Recessions are typically marked by a decrease in the stock market, high unemployment rates, low consumer confidence, and general fear and apprehension. A great antidote for the uncertainty that can accompany a recession (or talks of a recession) is having a solid financial plan in place with an advisor you trust.
Credit and Loan Terminology
Loans can be a powerful provision for both individuals and businesses. Mortgages often help families buy a home, auto loans help people secure their transportation, credit cards offer flexibility and convenience, and business loans help entrepreneurs start and grow their businesses.
Unfortunately, however, the terminology surrounding credit and loans can make them feel intimidating and overwhelming. Familiarize yourself with these terms so you can be confident and empowered the next time you need to apply for a loan or chat with your credit card company.
- Annual Percentage Rate. This is simply the total annual cost of your loan (including any accompanying fees!) . This comprehensive number allows you to easily shop around for the best price and understand exactly what your annual cost will be. Coupled with the loan’s interest rate, the APR is a powerful piece of data to help you understand the total cost of your borrowed funds.
- Amortization . This is the process of repaying your loan over a period of time. An amortization schedule shows exactly how much of your payment is going toward interest, and how much is going toward the principal. There are handy amortization calculators you can use to show you the total cost of your loan, and even how making extra payments impacts your total cost throughout the loan.
- Secured vs Unsecured loans . There are different requirements for obtaining different types of credit and loans, and a large part of that depends on the type of loan. Secured loans are backed by collateral such as your home, car, or even a cash deposit. These can include personal loans, credit cards, mortgages, home equity loans, auto loans, and business loans. Secured loans typically offer lower interest rates than unsecured loans and have longer repayment terms. Unsecured loans are not backed by collateral and instead are established based on the borrower’s creditworthiness (e.g. income, credit history, and debt-to-income ratio). These can include student loans, credit cards, signature loans, personal loans, and business loans. These types of loans typically have higher interest rates and shorter repayment terms.
- Credit utilization ratio . This ratio, displayed as a percentage, refers to the amount of credit you have available to you versus the amount you actually utilize. For example, if you have a total of $50,000 in credit card limits spread amongst your credit cards, but only use $10,000 of it, your credit utilization ratio would be 20%. A lower credit utilization ratio shows that you can handle having access to a lot of credit while only utilizing a small portion. On the other hand, a high credit utilization ratio shows that you use most or all of the credit available to you (something lenders don’t like to see). Your credit utilization is periodically reported to the major credit bureaus, so it’s important to pay attention and keep your ratio as low as possible.
Investing Terminology
Investing can be an effective tool in personal finance to grow and preserve your wealth. To make wise and prudent investment decisions, you should understand these common investing terms.
- Dollar-cost averaging. This investment strategy involves regularly investing a fixed dollar amount regardless of how much the asset costs or how the markets are performing. It’s a popular strategy for long-term investments and promotes discipline and eliminates the need to continually think about your investment choices. For example, you invest $600 every month into a chosen fund, regardless of how many shares it buys you. In some months, your $600 will buy a lot of shares, and in other months, it might buy you very few. The idea of dollar-cost averaging is that over a long period, your fund purchase prices will even out. Think of it as the opposite of “timing the market”.
- Capital gains. This is the difference between what you bought an asset (real estate, stocks, cryptocurrency, etc.) for and how much you sell it for. Short-term capital gains are when you held the asset for less than a year before selling and long-term capital gains are when you held an asset for more than a year before selling. Most capital gains are subject to taxation. The amount of tax depends on the asset, the holding period (short-term versus long-term), and your tax bracket. A tax professional can help you determine your capital gains tax rate.
- Risk tolerance. All investing carries a certain level of risk and everyone has their own level of risk tolerance. Your financial ability, your mental willingness, and your time horizon (how long you plan on holding your investment) all play into your risk tolerance. A well-balanced, personalized investment plan can help you feel comfortable with the amount of risk you’re taking with your money.
- Rebalancing. When you and an advisor put together your investment strategy, you will allocate your portfolio to reflect your risk tolerance and desired returns. As the market changes, the value of your assets will increase or decrease, causing your desired allocation to become unbalanced. Periodically rebalancing your portfolio to your original allocations will help you maintain your original investment preferences.
Decipher Your Finances with Five Pine Wealth Management
At Five Pine Wealth Management , we love educating our clients so that they can feel empowered in their finances. We know that not everyone has a finance degree but that doesn’t mean you can’t know what’s going on with your portfolio.
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Key Takeaways Maxing out your employer match provides an immediate 50-100% return and is the easiest way to accelerate your 401(k) growth. Reaching $1 million in your 401(k) depends more on consistent contributions over time than on being the highest earner or picking winning investments. High earners can potentially contribute up to $70,000 annually through a mega backdoor Roth conversion if their employer plan allows after-tax contributions. Hitting seven figures in your 401(k) might sound like a pipe dream, but it's more achievable than you think. With the right 401(k) investment strategies and a disciplined approach, becoming a 401(k) millionaire is within reach for many mid-career professionals. Let's walk through exactly how you can get there. The Math Behind Becoming a 401(k) Millionaire Before we discuss strategies, let's look at the numbers. Understanding the math helps you see that reaching $1 million isn't about getting lucky — it's about time, consistency, and thoughtful planning. Starting Age Annual Contribution Balance at 65* 30 $15,000 $1.5 million 30 $20,000 $2 million 40 $25,000 $1.3 million *Assumes 7% average annual return Time matters, but it's never too late to build substantial wealth if you're willing to prioritize your retirement savings. 7 Steps to Build Your 401(k) to Seven Figures Now that you understand the math, let's break down the specific strategies that will get you there. Step 1: Max Out Your Employer Match (The Easiest Money You'll Ever Make) If your employer offers a 401(k) match, contributing enough to capture it fully is the absolute first step: it’s free money that provides an immediate 50-100% return on your investment. Let's say your employer matches 50% of your contributions up to 6% of your salary. If you earn $150,000 and contribute $9,000 (6% of your salary), your employer adds $4,500. That's a guaranteed 50% return before your money even hits the market. Not taking full advantage of an employer match is like turning down a raise. Make sure you're contributing at least enough to capture every dollar your employer offers. Step 2: Gradually Increase Your Contribution Rate Once you've secured your employer match, the next step is increasing your personal contribution rate over time. For 2025, the 401(k) contribution limit is $23,500 (or $31,000 if you're 50 or older with catch-up contributions). Here's a practical approach: Every time you get a raise or bonus, direct at least half toward your 401(k). If you get a 4% raise, bump your contribution by 2%. Many plans now offer automatic annual increases. If yours does, set it to increase your contribution by 1-2% annually until you hit the maximum. You'll barely notice the change, but your future self will thank you. Step 3: Master Tax-Advantaged Retirement Accounts Through Strategic Contributions Traditional 401(k) contributions reduce your taxable income now, which is ideal if you're in a high tax bracket today. Roth 401(k) contributions don't reduce current taxes, but withdrawals in retirement are tax-free — valuable if you're earlier in your career or expect a higher income later. A hybrid approach works for many of our clients. Step 4: Optimize Your 401(k) Investment Strategies Your contribution rate matters, but so does what you're investing in. We regularly see clients who contribute aggressively but choose overly conservative investments that don't provide enough growth. Keep costs low . Target-date funds and index funds typically offer the lowest expense ratios. Every 0.5% in fees you avoid can add tens of thousands to your retirement balance over 30 years. Rebalance annually . Market movements throw your allocation off balance. Set a reminder once a year to review and rebalance your portfolio back to your target allocation. Avoid the temptation to chase performance . Last year's top-performing fund is rarely this year's winner. Stick with broadly diversified, low-cost options. Step 5: Consider a Mega Backdoor Roth Conversion If you're a high earner who's already maxing out regular 401(k) contributions, a mega backdoor Roth conversion can accelerate your retirement savings. Here's how it works: Some employer plans allow after-tax contributions beyond the standard $23,500 limit. The total contribution limit for 2025 (including employer contributions and after-tax contributions) is $70,000 ($77,500 if you're 50+). If your plan permits, you can make after-tax contributions up to that limit, then immediately convert those contributions to a Roth 401(k) or roll them into a Roth IRA. This gives you tax-free growth on substantially more money than the regular contribution limits allow. Not all plans offer this option, and the rules can be complex. Check with your HR department to see if your plan allows after-tax contributions and in-plan Roth conversions or rollovers. Step 6: Avoid These Common 401(k) Mistakes Even with great 401(k) investment strategies, mistakes can derail your progress toward seven figures. Avoid: Taking loans from your 401(k) . While it might seem convenient, you're robbing yourself of compound growth. The money you borrow stops working for you, and you're paying yourself back with after-tax dollars. Cashing out when changing jobs . Rolling over your 401(k) to your new employer's plan or an IRA allows your money to continue growing tax-deferred. Cashing out triggers taxes and penalties that can set you back years. Panic selling during market downturns . Market volatility is normal. The clients who reach $1 million are those who stay invested through ups and downs, not those who try to time the market. Step 7: Stay Consistent (Even When It's Boring) The path to becoming a 401(k) millionaire isn't exciting (and that’s a good thing!). The most successful savers aren't those who constantly tweak their strategy or chase the latest investment trend. They're the ones who set up automatic contributions, review their allocation once a year, and otherwise leave their 401(k) alone. Let Five Pine Help You Build Your Million-Dollar Plan Reaching $1 million in your 401(k) is absolutely achievable with the right strategy and discipline. Whether you're just starting your career or playing catch-up in your 40s and 50s, the steps remain the same: maximize contributions, optimize your investments, take advantage of tax-advantaged retirement accounts, and stay consistent. At Five Pine Wealth Management , we help clients build comprehensive retirement strategies that go beyond just their 401(k). We can analyze your current contributions, recommend optimal allocation strategies, and help you coordinate your employer plan with other retirement accounts. Want to see what your path to seven figures looks like? We help clients build these roadmaps every day. Email us at info@fivepinewealth.com or give us a call at 877.333.1015. Let's talk about your specific situation. Frequently Asked Questions (FAQs) Q: Should I prioritize maxing out my 401(k) or paying off debt first? A: Start by contributing enough to capture your full employer match — that's an immediate 50-100% return you can't get anywhere else. Beyond that, prioritize high-interest debt (credit cards, personal loans) since those interest rates typically exceed investment returns. Q: Should I stop contributing during market downturns to avoid losses? A: No — continuing to contribute during downturns is actually one of the best strategies for building wealth. When prices are lower, your contributions buy more shares, setting you up for greater gains when the market recovers. Q: I'm 55 with only $300K saved. Is it too late to reach $1 million? A : While reaching exactly $1 million by 65 might be challenging, you can still build substantial wealth. Maxing out contributions, including catch-up ($31,000/year), could get you to $750K-$850K depending on returns. Disclaimer: This is not tax or investment advice. Individuals should consult with a qualified professional for recommendations appropriate to their specific situation.
Key Takeaways Both spouses should understand the family’s finances, even if only one manages them, to prevent confusion or stress during life’s unexpected events. Regular money check-ins, shared account access, and attending financial planning meetings together help couples build confidence and clarity. Partnering with a fiduciary advisor ensures both spouses have support, education, and guidance for comprehensive wealth management and long-term peace of mind. Money is one of the most common sources of stress in relationships. Some couples argue about spending habits, while others quietly hand off all financial responsibilities to one spouse and never revisit the arrangement. At first glance, this setup can feel efficient: one partner pays the bills, manages investments, and handles taxes while the other takes care of different responsibilities. However, there is a risk to this method. If something unexpected happens, the spouse who hasn’t been involved in financial decisions can feel completely lost. Even highly capable, intelligent people often tell us they don’t know where accounts are located, how much income is coming in, or what investments they own. When life throws a curveball, like illness, death, or divorce, that lack of knowledge creates unnecessary anxiety during an already difficult time. The solution is not to necessarily make both partners money managers, but to ensure both understand the big picture. Let’s walk through why this matters, what it looks like in practice, and how you can start today. Financial Planning for Couples Effective financial planning for couples goes beyond having the right investment mix or adequate insurance coverage. It requires both spouses to understand the big picture of their financial life, even if only one manages the day-to-day details. This doesn't mean both partners need to become financial experts. Instead, it means creating transparency and basic literacy that protects your family's financial security regardless of what life throws at you. Here are a few essentials: Regular check-ins : Schedule monthly or quarterly “money talks” where you review accounts, upcoming expenses, and investment performance. This keeps both partners informed. Shared access : Make sure both spouses have login information for bank, investment, and retirement accounts. A secure password manager can help keep things organized. Big-picture clarity : Even if one spouse handles the details, both should know where you stand with assets, liabilities, income, and goals. Think of it as insurance against uncertainty. If one spouse suddenly has to take the reins, they aren’t starting from zero. Couples Money Management Couples' money management doesn’t have to mean “50/50 responsibility for every financial task.” Instead, think about it as defining roles while keeping communication open. Many households operate on a “primary manager” system. One person writes the checks, monitors the accounts, and interacts with financial advisors. That’s perfectly fine, as long as the other spouse has visibility. Problems arise when the "non-manager" is completely shut out. Some practical ways to stay connected: Attend meetings together : Whether it’s with your accountant, attorney, or financial planner, both spouses should be present. Hearing the same information firsthand helps prevent misunderstandings. Document everything : Create a simple household financial binder (digital or physical) that includes account numbers, insurance policies, estate documents, and contact info for professionals you work with. Ask questions : No question is too small. If you don’t understand how an investment works or why you own it, speak up. Practice decision-making together: Involve both partners in financial decisions, even small ones. This builds confidence and familiarity with your financial priorities and decision-making process. Fiduciary Financial Planning: The Professional Partnership Advantage Working with a fiduciary financial advisor creates an additional layer of protection for couples navigating financial planning together. Fiduciary advisors are legally required to act in your best interest, providing objective guidance that supports both partners' financial security. A good fiduciary advisor will insist on meeting with both spouses regularly, ensuring that financial strategies are understood and agreed upon by both partners. They can also provide education and support to help less financially-inclined spouses build confidence and understanding over time. This professional relationship becomes especially valuable during transitions. When one spouse dies or becomes incapacitated, having an advisor who knows both partners and understands the family's complete financial picture provides stability during chaos. Comprehensive Wealth Management Comprehensive wealth management goes beyond investments. It covers cash flow, taxes, estate planning, insurance, and long-term care strategies. For couples, it also means creating contingency plans. What happens if one spouse passes away? Will the survivor know how to access accounts? What if the “financial spouse” faces cognitive decline later in life? Will the other partner have the confidence to step in? These are not fun scenarios to imagine, but planning for them is an act of love. Comprehensive wealth management ensures: Estate documents are in place and up to date (wills, powers of attorney, trusts). Beneficiaries are correct on retirement accounts, insurance, and other assets. Tax planning strategies are understood by both spouses, so surprises don’t derail long-term goals. Cash flow is sustainable even if income sources shift (such as after retirement or the loss of a business owner’s salary). When couples approach wealth management together, they reduce the risk of financial upheaval during life’s transitions. When Life Changes Everything: Rebuilding Financial Confidence After Loss Despite the best preparation, losing a spouse creates emotional and financial challenges that feel overwhelming. If you find yourself suddenly managing finances alone, remember that feeling lost is normal and temporary. Start by taking inventory of your immediate needs. Focus on essential expenses and cash flow first. Most other financial decisions can wait while you process your grief and adjust to your new reality. Don't make significant financial changes immediately. Grief affects judgment, and rushed decisions often create problems later. Give yourself time to understand your new situation before making significant moves. Lean on your professional team. This is exactly when having existing relationships with financial advisors, attorneys, and accountants becomes invaluable. They can provide stability and guidance during an unstable time. Consider working with a counselor who specializes in financial therapy or grief counseling. Processing the emotional aspects of sudden financial responsibility is just as important as understanding the technical details. Taking the Next Step Together If you and your spouse have fallen into the habit of letting one person manage all the finances, it’s not too late to shift. Schedule a money talk this week. Write down your accounts. Ask questions. Set a reminder to attend your next financial planning meeting together. At Five Pine Wealth Management , we can guide couples through these conversations. Whether you’re in the wealth accumulation phase, approaching retirement, or already enjoying it, we help both partners feel equally confident in their financial picture. Don't wait until a crisis forces financial literacy upon you. Call (877.333.1015) or send us an email today at info@fivepinewealth.com to schedule a consultation and start building the financial transparency and security your family deserves. Frequently Asked Questions (FAQs) Q: What if one spouse has no interest in learning about finances? A: Start small and focus on the essentials. Your spouse doesn't need to become a financial expert, but they should know where important documents are located, understand your basic monthly expenses, and know how to contact your financial advisor. Q: How often should we review our finances together if only one person manages them day-to-day? A: Quarterly check-ins work well for most couples. Schedule a regular 30-minute conversation to review your progress toward goals, discuss any major upcoming expenses, and ensure both partners stay informed about your overall financial picture. Q: What's the most important thing for the non-financial spouse to understand first? A: Cash flow and immediate needs. Know where your checking accounts are, how much you typically spend each month, what bills are on autopay, and how to access emergency funds. This knowledge provides immediate stability if they suddenly need to take over financial management.
