Financial Glossary

Example: Freelancers get 1099s instead of W-2s, with no taxes withheld.

Example: If your employer matches 50% up to 6%, contributing 6% of your $60K salary gets you $1,800 free.

Example: On $5,000/month income: $2,500 needs, $1,500 wants, $1,000 savings.

Example: When you sync your bank account, Nova retrieves your latest transactions and updates your balance in real-time.

Example: A 30-year mortgage is amortized with payments that cover interest first, then more principal over time.

Example: A credit card with 18% APR costs you $18 per year for every $100 you carry as a balance.

Example: A 4.5% APY on $10,000 earns you $450 in one year with monthly compounding.

Example: An investment growing from $10,000 to $10,800 has an 8% annual return.

Example: Pay $200,000 for an annuity that pays you $1,000/month for life.

Example: Lender requires $500 appraisal confirming $400K home is worth what you're paying.

Example: A house bought for $200K that's now worth $250K has appreciated by $50K (25%).

Example: A common allocation is 60% stocks, 30% bonds, 10% cash.

Example: A checking account with $5,000 and a house worth $300,000 are both assets.

Example: Transfer $5,000 to 0% APR card for 18 months to pay down without accruing interest.

Example: The 2008 financial crisis was a bear market with stocks falling 50%+.

Example: List your spouse as 401(k) beneficiary so they inherit it tax-efficiently.

Example: A 2020 Honda Civic with 30K miles might have a blue book value of $22,000.

Example: A 10-year Treasury bond paying 4% gives you $400/year on $10,000 invested.

Example: A monthly budget allocates $2,000 for rent, $500 for groceries, $300 for entertainment, etc.

Example: From 2009-2020 was the longest bull market in history.

Example: If you buy stock for $1,000 and sell for $1,500, you have $500 in capital gains.

Example: Selling stock for $5K more than you paid triggers capital gains tax on that $5K profit.

Example: If you earn $5,000 and spend $4,000, you have $1,000 positive cash flow.

Example: Whole life insurance accumulates cash value you can borrow against or withdraw.

Example: Owe $200K on $400K home; refinance for $250K to get $50K cash for renovations.

Example: A 1-year CD at 5% locks up $10,000 but guarantees $500 interest.

Example: A charged-off $3,000 debt stays on credit report for 7 years and drops score 100+ points.

Example: On a $400K home, expect $8,000-20,000 in closing costs (inspections, title insurance, etc.).

Example: After 90 days unpaid, your $2,000 medical bill might be sent to collections.

Example: If you invest $1,000 at 5% annual compound interest, after 10 years you'll have $1,629.

Example: San Francisco cost of living is 2x the national average; rural Texas is 20% below.

Example: A score above 700 is generally considered good and qualifies for better interest rates.

Example: If you have a $10,000 credit limit and owe $3,000, your utilization is 30%.

Example: Hardware wallets (Ledger, Trezor) provide the most secure storage.

Example: Bitcoin and Ethereum are popular cryptocurrencies.

Example: Pay minimum on all debts, but put extra money toward 18% credit card before 5% car loan.

Example: Combine 3 credit cards (18% APR) into one personal loan (10% APR) to save on interest.

Example: Paying $500 extra on credit cards each month to become debt-free faster.

Example: Using the Avalanche method, you'd pay minimums on all debts while putting extra money toward your 18% credit card before your 5% car loan.

Example: Pay off $500 credit card first, then $2,000 medical bill, then $15,000 student loan.

Example: With $50,000 in debt and $200,000 in assets, your ratio is 25%. Under 30% is generally healthy.

Example: If your debt payments are $2,000/month and income is $6,000/month, your DTI is 33%.

Example: With a $1,000 deductible, you pay the first $1,000 of a claim yourself.

Example: A $30K car typically depreciates to $20K after 3 years (33% depreciation).

Example: A new car typically depreciates 20-30% in the first year.

Example: Your employer deposits your $3,000 paycheck directly into your checking account.

Example: Dining out, entertainment, hobbies are discretionary; rent and groceries are not.

Example: Instead of investing all in one stock, spread across stocks, bonds, and real estate.

Example: A stock paying 3% annual dividend on $10,000 investment gives you $300/year.

Example: Investing $500/month means you buy more shares when prices are low, fewer when high.

Example: A 20% down payment on a $400K house is $80,000.

Example: Financial experts recommend 3-6 months of living expenses in an emergency fund.

Example: $500 cash in 'groceries' envelope - once empty, no more grocery spending that month.

Example: A $300K house with a $200K mortgage has $100K equity.

Example: Your $2,000 mortgage includes $1,600 principal/interest + $400 escrow for taxes/insurance.

Example: VOO is an ETF that tracks the S&P 500 and trades throughout the day.

Example: A 0.5% expense ratio on $10,000 costs you $50/year.

Example: Your checking and savings are safe up to $250,000 even if your bank goes bankrupt.

Example: If your annual expenses are $50,000, your FI Number is $1,250,000 (25 × $50,000).

Example: Fee-only financial advisors are fiduciaries; commissioned brokers may not be.

Example: Save $10,000 for a down payment within 2 years.

Example: Save $20,000 for a house down payment in 3 years, or pay off $10,000 in credit card debt by year-end.

Example: A score of 75+ indicates good financial health. Each component is weighted: savings rate (25%), debt ratio (25%), credit utilization (20%), emergency fund (15%), net worth growth (15%).

Example: Save 50-70% of income to reach 25x annual expenses, then retire at 40.

Example: Rent ($1,500), car payment ($350), and insurance ($200) are fixed expenses.

Example: Buy on Jan 1, pay by Jan 25 during grace period to avoid interest charges.

Example: $70,000 salary is gross income; take-home might be $52,000 after taxes.

Example: Applying for a mortgage triggers a hard inquiry, which may lower your score by 5-10 points temporarily.

Example: HSA contributions are tax-deductible, grow tax-free, and withdrawals for medical expenses are tax-free.

Example: High-yield accounts offer 4-5% APY vs 0.01% at traditional banks (450x more interest).

Example: A $400K home with a $250K mortgage has $150K in equity.

Example: A $400 inspection might reveal $10,000 in roof damage, saving you from a bad purchase.

Example: An S&P 500 index fund owns all 500 stocks in the index.

Example: With 3% inflation, $100 today will only buy $97 worth of goods next year.

Example: If you have $300K home insurance and $500K life insurance, your total coverage is $800K.

Example: Having $100K life insurance when you need $500K creates a $400K insurance gap.

Example: A savings account with 2% interest pays you $20/year on $1,000.

Example: On a $200K interest-only mortgage at 6%, you pay $1,000/month but don't reduce the $200K.

Example: If your $10,000 investment grew to $11,500 over a year, your performance is +15%.

Example: Contribute up to $6,500/year ($7,500 if over 50) to traditional or Roth IRAs.

Example: A mortgage of $200,000 and a car loan of $15,000 are liabilities.

Example: A $500,000 life insurance policy protects your family's financial future if you die unexpectedly.

Example: Checking account = high liquidity. Real estate = low liquidity.

Example: A company with 1 million shares at $50/share has a $50 million market cap.

Example: Credit cards typically require 1-3% of balance or $25, whichever is greater.

Example: Money market accounts may offer 3-4% APY with limited check-writing ability.

Example: A Monte Carlo simulation might show an 85% chance of maintaining your lifestyle in retirement across 10,000 simulated market scenarios.

Example: A 30-year mortgage for $300K at 6.5% interest results in monthly payments of ~$1,896.

Example: Vanguard Total Stock Market Fund (VTSAX) is a popular mutual fund.

Example: Rent, groceries, insurance, and minimum debt payments are needs.

Example: On $5,000 gross pay, net income might be $3,700 after taxes and 401(k).

Example: If you have $100,000 in assets and $30,000 in debt, your net worth is $70,000.

Example: If your net worth increased from $100,000 to $105,000, your change is +$5,000 (+5%).

Example: Buying a $30K car means giving up investing that $30K for retirement.

Example: With $50 in your account, a $75 purchase creates a $25 overdraft, often with a $35 fee.

Example: Automatically transfer 20% of paycheck to savings before anything else.

Example: Your bank credentials are entered directly on Plaid's secure servers. Nova only receives read-only access to your transaction data.

Example: Your portfolio might include stocks, bonds, mutual funds, and ETFs across multiple accounts.

Example: A 60/30/10 allocation means 60% stocks, 30% bonds, 10% cash. Adjust based on age and risk tolerance.

Example: A $150/month auto insurance premium costs $1,800/year.

Example: On a $200K mortgage, the principal is $200K; your payments gradually reduce it.

Example: PMI costs 0.5-1% annually on loan amount: $1,500-3,000/year on $300K mortgage.

Example: With a 1% property tax rate, a $400K home costs $4,000/year in property taxes.

Example: Freelancers earning $60K pay ~$15K annually in taxes, split into $3,750 quarterly.

Example: If stocks outperform and represent 70% instead of your target 60%, you sell some stocks and buy bonds.

Example: Your Netflix subscription, rent payment, and bi-weekly paycheck are all recurring transactions.

Example: Refinancing from 7% to 5% on a $200K mortgage saves ~$225/month.

Example: 401(k), IRA, and Roth IRA are common retirement accounts.

Example: If you invest $1,000 and it grows to $1,200, your ROI is 20%.

Example: High risk tolerance = 90% stocks. Low risk tolerance = 40% stocks, 60% bonds.

Example: Contribute $6,500/year, and all growth is tax-free after age 59½.

Example: You need your routing number to set up direct deposit or ACH transfers.

Example: At 8% return, your money doubles in 72 ÷ 8 = 9 years.

Example: The 4% rule: withdraw 4% yearly from $1M portfolio = $40,000/year for 30+ years.

Example: Emergency fund, retirement accounts, and down payment savings.

Example: If you earn $5,000/month and save $1,000, your savings rate is 20%.

Example: Auto loans and mortgages are secured loans.

Example: Save $250/month for 12 months to have $3,000 for next year's vacation.

Example: Checking your credit score through Nova Net Worth is a soft inquiry and won't lower your score.

Example: Your spending patterns might show higher restaurant costs on weekends and more grocery spending during holidays.

Example: Owning 100 shares of Apple stock means you own a tiny fraction of the company.

Example: If you're in the 24% tax bracket, each additional dollar earned is taxed at 24%.

Example: A $5,000 mortgage interest deduction saves you $1,200 if you're in the 24% bracket.

Example: A $500K 20-year term policy might cost $30/month for a healthy 30-year-old.

Example: $100 today earning 5% is worth $105 next year, so $100 now > $100 later.

Example: Contributing $6,500 to a traditional IRA might reduce your current taxes by $1,560.

Example: A $1 million umbrella policy costs ~$200/year and protects your net worth from lawsuits.

Example: Personal loans and credit cards are typically unsecured.

Example: You might spend $400 on groceries one month and $300 the next.

Example: With a 4-year vesting schedule, you own 25% more of employer contributions each year.

Example: Cryptocurrency is highly volatile - Bitcoin can swing 10%+ in a single day.

Example: Your W-2 shows you earned $70,000 and had $12,000 withheld for federal taxes.

Example: Dining out, streaming subscriptions, hobbies, and vacations are wants.

Example: Wire transfers cost $15-30 but arrive same-day, unlike 3-5 day ACH transfers.

Example: With $200K saved, saving $2K/month at 7% return, you might reach a $1.25M FI Number in 15 years.

Example: Earn $5,000, allocate every dollar: $2,000 rent, $500 food, $1,000 savings, etc.