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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We’re all feeling it these days: the underlying feeling of uncertainty about what lies ahead. Each day, we see headlines about inflation, Social Security’s future, or market swings. Unsurprisingly, Gallup tells us that the top three American fears have to do with money: the economy, availability/affordability of healthcare, and inflation. If you’re in your 50s and 60s, these concerns probably hit even closer to home. You’re not just thinking about the economy in general terms. You’re wondering how it will affect your specific retirement plans. Your mind likely turns to: Increasing healthcare costs – can you absorb unexpected costs on a fixed income? Inflation and market volatility – will the value of the dollar diminish your retirement savings? Social Security uncertainty – will it exist when you retire? Having enough saved – will your retirement budget hold up when the time comes? About 1 in 4 Americans over 50 are delaying retirement , and it’s not hard to understand why. With thoughtful planning and the right strategies, you can build confidence in your ability to maintain your lifestyle on a fixed income, regardless of what economic curveballs come your way. 5 Key Strategies to Prepare for Living on a Fixed Income Uncertainty doesn’t have to derail your retirement plans. By addressing these five critical areas, you can build a foundation that allows you to enjoy the retirement you’ve worked toward. 1. Review (And Potentially Adjust) Your Retirement Timeline One of the most powerful tools you have is flexibility with your retirement timeline. While certain ages qualify you for benefits or withdrawals from certain accounts, there’s no concrete age you have to retire at. Traditional retirement at 62 or 65 might not make sense for your unique situation; you should feel free to alter your timeline to make sense for you and your family. Consider Your Social Security Strategy Your Social Security benefits increase each year you delay claiming them beyond your full retirement age, up until age 70. For many people, this creates a meaningful boost to their guaranteed monthly income. If you can afford to wait, this strategy alone can significantly strengthen your fixed-income foundation. Explore Phased Retirement Options Rather than going from full-time work to complete retirement overnight, consider a gradual or phased transition. Many of our clients find success with: Part-time consulting in their field of expertise Freelance work that leverages their skills Small business ventures they've always wanted to try Investment properties that generate passive income This approach not only eases the financial transition but often provides a sense of purpose and engagement during early retirement. 2. Fine-Tune Your Investment Mix and Retirement Income Strategy Adjusting your portfolio is an ongoing responsibility, not a one-time task before retirement. Continue to revisit and rebalance as a proactive part of your retirement plan. Equally important is creating multiple income streams to reduce your reliance on any single source. Diversify Your Retirement Income Sources Think of building several income bridges instead of relying on one massive one. Your retirement income might come from Social Security, traditional retirement accounts (401(k), IRA), Roth accounts for tax-free withdrawals, and taxable investment accounts for flexibility. Each serves a different purpose in your overall strategy. Is Your Portfolio Inflation-Resistant? Cash can feel safe, but inflation quietly erodes its purchasing power over time. If you want an honest look at the hard numbers of inflation, see the Bureau of Labor Statistics CPI Inflation Calculator . For example, we see that $1,000,000 in 2015 has the buying power of $1,380,194 in 2025. You would need an extra (almost) $380,000 to make up for inflation. Inflation is a reality of the economy that everyone deals with, but your investment strategies can mitigate its impact on your net worth. Consider allocating a portion of your portfolio to assets that historically perform well during inflationary periods. Don’t Abandon Growth Too Soon If you're retiring in your early 60s, you could have 20-30 years ahead of you. Being overly conservative with your investments might feel safer in the short term, but it could leave you struggling to maintain your lifestyle later. A balanced approach that includes growth-oriented investments can help ensure your money lasts as long as you do. 3. Reduce Outstanding Debts The Federal Reserve’s most recent Survey of Consumer Finances reports that the average older adult (ages 65 and up) carries between $95,000 and $172,000 in debt. The bulk of those debts is from outstanding mortgage balances, but credit card and medical debts contribute significantly. Prioritize Your Debt Payoff Strategy High-interest debts from credit cards and personal loans can take up a lot of room on a fixed income. Consider whether it makes sense to use some of your current higher income to aggressively pay down these balances before you retire. There are two primary ways of tackling multiple debts: Avalanche: Pay off your balances starting with the highest interest rates. Snowball: Pay off your balances from smallest to largest. Entering retirement debt-free can be a very freeing experience. Consider Your Mortgage Your mortgage situation is more nuanced. Some retirees find comfort in owning their home outright, while others benefit from maintaining their mortgage if it's at a low interest rate, and money can be invested for higher returns. The right choice depends on your specific situation and comfort level. 4. Plan for Healthcare Costs and Insurance Transitions Healthcare expenses are frequently retirees' most underestimated cost. Add in Medicare's maze of coverage options, and it's no wonder many retirees feel unprepared. Planning for these expenses and understanding your options before you need them can prevent costly surprises that strain your fixed income. Understand Your Medicare Options If you're 65 or older: Enroll in Medicare during your Initial Enrollment Period (IEP), which begins 3 months before your 65th birthday and extends 3 months after Consider supplemental coverage options: Medigap (if you choose Original Medicare Parts A and B) Medicare Advantage (Part C) as an alternative to Original Medicare Prescription Drug Coverage (Part D), if not included in your plan If you’re under 65 and retiring, consider: COBRA coverage from your employer allows you to keep your current plan for up to 18 months, but you'll pay the full premium plus administrative fees (typically $400-$700 per person monthly) Your spouse's employer plan (if available and you're eligible) An Affordable Care Act (ACA) marketplace plan Prepare for the end of employer-sponsored insurance coverage about a year in advance to avoid lapses in coverage. Build a Healthcare Reserve According to the 2025 Fidelity Retiree Health Care Cost Estimate , a 65-year-old individual may require approximately $172,500 in after-tax savings to cover health care expenses in retirement. Consider establishing a separate savings account specifically for medical expenses. Health Savings Accounts (HSAs), if you're eligible, offer triple tax advantages and can be particularly valuable for retirement healthcare planning. 5. Create a Flexible Retirement Budget It’s wise to reevaluate where your money is going every month so you can enjoy once-in-a-lifetime retirement opportunities fully. This, combined with an emergency fund, helps avoid lifestyle creep and the stress of unexpected expenses. Plan for the “Retirement Smile” Retirement spending tends to move in a “U” shape: higher spending in early retirement, less in the middle, and back up again towards the end. While your bucket list trips and experiences are significant expenses, they’re often one-and-done. Most people do these things early on in retirement and slow down into a more predictable financial rhythm. Towards the end of retirement, costs often increase again to cover long-term care needs. Organize Your Budget Into Categories Consider dividing your retirement expenses into essential costs (housing, utilities, healthcare), lifestyle expenses (travel, dining, hobbies), and discretionary spending (gifts, major purchases). Cover your essentials with your most reliable income sources like Social Security, while funding lifestyle expenses through portfolio withdrawals that can adjust during market downturns. How Can You Reduce Your Future Cost-of-Living? Consider ways you can capitalize on your existing assets to better position yourself for the future. If you’ve built significant home equity, downsizing or moving to a more affordable city may be a great option, as you’ll benefit from liquidity and reduced costs. Rely on A Trusted Fiduciary Financial Planner If you’re feeling anxious about the future, know this: you’re not stuck doing it on your own. With the help of a fiduciary financial planner, you can not only see if your plan holds up against inflation and economic uncertainties, but they will: Prioritize tax-efficient retirement withdrawal strategies Strategize Required Minimum Distributions (RMDs) Create a sustainable withdrawal strategy The best thing you can do for a healthy retirement is to leverage the experts. At Five Pine Wealth Management , we create comprehensive financial plans that align with your financial goals and personal values. If you'd like to discuss how these strategies might apply to your specific situation, we're here to help. Email us at info@fivepinewealth.com or call 877.333.1015 to schedule a conversation about your retirement planning needs.
Your 40s arrive with a unique mix of clarity and urgency. You've likely figured out what you want from life, but suddenly retirement no longer feels like a distant concept. If you're looking at your financial situation and feeling behind, you're not alone. Many people in their 40s experience this same wake-up call. The good news is that this decade offers some of the most powerful opportunities to accelerate your wealth-building journey. Think of your 40s as your financial prime time. You're earning more than you ever have, you understand money better than in your 20s and 30s, and you still have 20-25 years to let compound growth work its magic. Instead of dwelling on what you should have done differently, let's focus on what you can do right now to make this decade count. The Reality Check: Where You Stand vs. Where You Want to Be Before exploring strategies, let's acknowledge the elephant in the room. Many financial experts recommend saving three times your annual salary by age 40. If you're reading this and thinking, "I'm nowhere near that," take a deep breath. Life happens. Maybe you started your career later, switched fields, dealt with medical expenses, helped family members, or simply prioritized other goals during your 30s. The key is to start from where you are today, not where you think you should be. Your 40s bring unique advantages: higher earning potential, greater financial discipline, and often more stable life circumstances. Many successful investors didn't hit their stride until their 40s or later. You're not behind; you're just getting started on a more intentional path. Retirement Savings Strategies That Work in Your 40s Your retirement savings strategy in your 40s should differ from someone in their 20s or 30s. You have less time but more resources, which means you need to be both aggressive and smart about your approach. First, maximize your employer's 401(k) match if you haven't already. This is free money, and missing out on it is like leaving cash on the table. Additionally, consider increasing your contribution rate by 1-2% each year, or whenever you receive a raise. This gradual approach makes the adjustment less painful while significantly boosting your long-term savings. Roth conversions become particularly powerful in your 40s. If you expect to be in a higher tax bracket in retirement or if you want to leave tax-free money to heirs, converting some traditional IRA or 401(k) funds to Roth accounts can be a smart move. The key is to do this strategically, perhaps in years when your income is temporarily lower or when you can manage the tax impact. Don't overlook the power of diversification beyond your 401(k). A taxable investment account gives you flexibility and access to your money before age 59½ without penalties. This can be crucial for achieving early retirement goals or covering major expenses that may arise before the traditional retirement age. Catch-Up Retirement Contributions: Start the Habit Now Once you reach 50, you can make catch-up contributions to your retirement accounts, which significantly increases your savings potential. For 2025, this means an additional $7,500 in 401(k) contributions (bringing your total to $31,000). However, you don't have to wait until 50 to think like someone making catch-up contributions. Start now by treating your savings rate as if you're already eligible for these higher limits. If you can save an extra $600 per month ($7,200 annually) starting at 45, you'll have built the habit by the time you're actually eligible for catch-up contributions. Retirement Milestones by Age 40: A New Perspective Traditional retirement milestones can be discouraging if you're starting later or if life hasn’t gone as planned. Instead of focusing on arbitrary multiples of your salary, consider these more practical benchmarks for your 40s: The Emergency Fund Foundation : Before aggressively pursuing retirement savings, ensure you have a solid emergency fund in place. This prevents you from having to tap retirement accounts during tough times. Aim for 3-6 months of expenses, adjusted for your specific situation. The Debt Freedom Focus : High-interest debt can quickly derail retirement plans. If you're carrying credit card debt or other high-interest obligations, addressing these might be more valuable than maximizing retirement contributions beyond your employer match. The Income Replacement Goal : Rather than focusing on net worth multiples, think about what percentage of your current income you're on track to replace in retirement. A good target is 70-80% of your pre-retirement income, but this depends on your lifestyle and retirement plans. The Flexibility Buffer : Your 40s are a great time to build financial flexibility. This means having investments outside of retirement accounts that you can access without penalties, creating multiple income streams, and maintaining career skills that keep you marketable. Insurance: Life and disability insurance coverage should reflect your current income and family needs. Estate Planning : A basic will, power of attorney, and healthcare directive should be in place. Making Your Peak Earning Years Count Your 40s often represent your peak earning years, and how you manage this increased income will significantly impact your financial future. The temptation to inflate your lifestyle with every raise is real, but this decade calls for more strategic thinking. Consider implementing a "pay yourself first" approach where you immediately redirect any income increases to savings and investments. If you get a $5,000 raise, automatically increase your 401(k) contribution by $3,000 and your taxable investment account by $2,000. You'll barely notice the difference in your take-home pay, but you will thank yourself in the future. This is also the time to think seriously about additional income streams. Whether it's consulting in your field, starting a side business, or investing in rental real estate, diversifying your income sources provides security and potential for acceleration. Building Wealth Beyond Retirement Accounts While retirement accounts are crucial, they shouldn't be your only wealth-building tool. Your 40s are an excellent time to diversify your investment approach and build wealth that's accessible before traditional retirement age. Consider opening a taxable investment account if you haven't already done so. This provides flexibility and liquidity while still offering growth potential. Focus on tax-efficient investments, such as index funds, and consider holding dividend-paying stocks or REITs for their income potential. Real estate can be particularly powerful in your 40s. Whether it's paying off your primary residence early, investing in rental properties, or exploring REITs, real estate adds diversification and potential inflation protection to your portfolio. Don’t Forget the “You” Factor We’d be remiss not to mention this: life in your 40s is busy. You might be managing aging parents, teenagers, or a toddler (or all three). You may be helping your partner through a career change or navigating one yourself. It’s a lot. Which is precisely why intentional financial planning matters now more than ever. You don’t need to do it perfectly. You just need a plan that’s rooted in your real life — your values, your vision, and your goals. A good financial advisor can help you prioritize, simplify, and clarify the next best steps, even if you feel like you’ve fallen behind. Ready to Create Your Personal Financial Strategy? Feeling overwhelmed by all the options and strategies available? You don't have to navigate this journey alone. At Five Pine Wealth Management , we specialize in helping individuals and families in their 40s and beyond create comprehensive financial plans that align with their goals and circumstances. Whether you're looking to maximize your retirement savings, explore catch-up strategies, or build a diversified investment portfolio, our team can help you develop a personalized approach tailored to your situation. We work with clients at various stages of their financial journey, from those just getting serious about retirement planning to those with substantial assets seeking to optimize their strategies. Don't let another year pass wondering if you're on the right track. Schedule a conversation with our team to discuss your financial goals and explore how we can help you make the most of your financial prime time.
