Money Terms Glossary

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50/30/20: The 50/30/20 rule is a simple budgeting method that divides your income into three categories: 50% for needs, 30% for wants, and 20% for savings or debt repayment. It helps create a balanced approach to managing your finances.
If your monthly income is $3,000, you’d allocate $1,500 to needs (e.g., rent and groceries), $900 to wants (e.g., dining out and entertainment), and $600 to savings or paying off debt.
Budget: A budget is a financial plan that allocates your income to cover expenses, savings, and financial goals over a specific period. It helps you track spending, manage money effectively, and avoid overspending.
If your monthly income is $3,000, your budget might allocate $1,200 for housing, $300 for groceries, $400 for savings, and the remainder for other living expenses.
Budget Buffer: A budget buffer is a financial cushion created by setting aside extra money in your budget to cover unexpected expenses or income shortfalls. It helps protect your budget from disruptions and ensures you can stay on track financially.
If your monthly expenses total $2,500, you might set aside an additional $300 as a buffer to cover unplanned costs, like an unexpected utility bill or a last-minute repair.
Budgeting Method: A budgeting method is a structured approach to managing your income, expenses, and savings. It helps you plan how to allocate your money to meet financial goals, cover necessities, and reduce debt.
Popular budgeting methods include the zero-based budget, where every dollar is assigned a purpose, and the 50/30/20 rule, which divides income into needs, wants, and savings.
Business Activities: Business activities refer to the core tasks and operations a company performs to generate revenue and achieve its objectives. These activities typically fall into three categories: operating (daily operations), investing (acquiring assets), and financing (raising capital).
A handmade jewelry business’s primary business activity is designing, crafting, and selling jewelry, while secondary activities might include marketing or sourcing materials.
Business Classification: Business classification refers to the process of categorizing a business based on its primary activities, industry, or structure. This classification helps with tax filing, compliance, statistical reporting, and determining eligibility for grants or funding.
A business that makes and sells handmade candles would be classified under the NAICS code 339999 – All Other Miscellaneous Manufacturing, indicating its primary activity is manufacturing.
Business Plan: A business plan is a written document that outlines a company's goals, target market, financial projections, and operational strategy. It serves as a roadmap for starting, managing, and growing a business, often required when seeking funding from investors or lenders.
A business plan for a coffee shop might include sections on local demand, bean price forecasting, projected sales, marketing strategies, and startup costs.
Business Registration: Business registration is the process of officially establishing your business with the appropriate government authorities. This often includes choosing a business name, structure (e.g., sole proprietorship, LLC), and obtaining any required licenses or permits.
A handmade soap maker registering their business as an LLC in their state to operate legally and protect personal assets is completing business registration.
CAGR: CAGR or Compound Annual Growth Rate is the mean annual growth rate of an investment, portfolio, business, or market over a specified period of time. It assumes that growth happens at a steady rate and that profits are reinvested at the end of each year. CAGR provides a smoothed rate of return, eliminating the volatility, intermediate cash flows (dividends or withdrawals), and fluctuations that can occur year-to-year.
Cash Envelope System: The cash envelope system is a budgeting method where you allocate cash into labeled envelopes for specific spending categories, such as groceries, dining out, or entertainment. Once the cash in an envelope is spent, no more money can be used for that category until the next budgeting period.
If your monthly grocery budget is $300, you would withdraw $300 in cash and place it in an envelope labeled "Groceries." You would then use only that cash for grocery shopping throughout the month.
Cash Flow: Cash flow is the movement of money in and out of your finances over a specific period. Positive cash flow occurs when income exceeds expenses, while negative cash flow means expenses are greater than income.
If you earn $4,000 a month and spend $3,500 on living expenses and debt payments, you have a positive cash flow of $500.
Compound Annual Growth Rate: Compound Annual Growth Rate or CAGR is the average annual growth rate of a market, business, or investment over a specific period. CAGR is a simplified metric giving a smoothed rate of growth or return, without accounting for the volatility, risk, and fluctuations that can occur year-to-year. It's often used to analyse markets, stocks, or other investments.
Compound Interest: Compound interest is the interest earned on both the initial principal amount and the accumulated interest from previous periods. Over time, this creates a compounding effect, allowing your money to grow faster compared to simple interest.
If you invest $1,000 at an annual interest rate of 5% compounded annually, after one year, you earn $50 in interest. In the second year, you earn interest on $1,050, resulting in $52.50, and so on, with the amount growing each year.
Debt Avalanche Method: The debt avalanche method is a repayment strategy where you pay off debts with the highest interest rates first, while making minimum payments on others. This approach minimizes the total amount of interest paid and shortens the repayment timeline.
If you have three debts with interest rates of 20%, 15%, and 5%, you would focus extra payments on the 20% debt first while making minimum payments on the others.
Debt Snowball Method: The debt snowball method is a repayment strategy where you pay off your debts in order of smallest to largest balance, regardless of interest rates. By tackling the smallest debts first, you build momentum and motivation as you eliminate balances one by one.
If you have debts of $500, $2,000, and $5,000, you would focus on paying off the $500 debt first while making minimum payments on the larger debts.
Delayed Gratification: Delayed gratification is the ability to resist the temptation of immediate rewards in favor of achieving larger or more meaningful long-term goals. This skill is essential for managing finances, as it encourages saving and investing over impulsive spending.
Choosing to save $50 per month instead of spending it on unnecessary items allows you to build an emergency fund or save for a vacation over time.
Direct Selling Establishment: A direct selling establishment is a business that sells products directly to consumers without relying on a fixed retail location. Sales typically occur through events, markets, online platforms, or personal interactions.
A candle maker selling handmade candles at craft fairs and farmers' markets would be considered a direct selling establishment. They may use the NAICS code 454390 – Other Direct Selling Establishments.
Discretionary Spending: Discretionary spending refers to non-essential expenses used for personal enjoyment or lifestyle choices. It includes spending on wants rather than needs, such as dining out, entertainment, or hobbies.
Spending $75 on a concert ticket is discretionary, whereas paying $75 for your electricity bill is an essential expense.
Diversification: Diversification is a strategy to reduce risk by spreading investments, income sources, or efforts across multiple areas. In finance, it involves allocating assets across different classes, industries, or geographic regions. In income management, it means developing multiple streams of income to avoid reliance on a single source.
Investment Diversification: A portfolio that includes stocks, bonds, real estate, and mutual funds minimizes the impact of poor performance in any one area.
Income Stream Diversification: A freelancer who earns from client work, an online course, and royalties from a book is diversifying their income.
Early Wage Access (Earned Wage Access): Early Wage Access (aka Earned Wage Access) describes apps and payroll services that let workers access portions of paychecks ahead of payday. Early Wage Access apps promise convenience — small advances, instant transfers, and no credit check. But many rely on per-advance charges (flat fees, transfer costs, suggested tips) and payment-routing arrangements that can raise effective borrowing costs. People who repeatedly tap advances can face material cumulative expense and reduced take-home pay over time.
Earned Wage Access (Early Wage Access): Earned Wage Access (EWA – also see Early Wage Access) is a financial service that allows employees to access a portion of the wages they've already earned before their regular payday. These programs are often offered through employers or third-party apps. EWA claims to help workers manage cash flow between pay periods and avoid high-interest payday loans. But many operate like short-term loans with fees, opaque pricing, and weak consumer protections.
Electronic Shopping and Mail-Order Houses: Electronic shopping and mail-order houses are businesses that sell goods primarily through online platforms, catalogs, or other non-physical storefront methods. These businesses cater directly to consumers and rely on shipping and delivery to fulfill orders.
An Etsy shop owner who sells handmade crafts, such as jewelry or home decor, to customers nationwide or globally, would classify their business under the NAICS code 454110 – Electronic Shopping and Mail-Order Houses.
Emergency Budget: An emergency budget is a simplified, bare-bones financial plan designed to minimize expenses during periods of reduced income or financial hardship. It focuses solely on covering essential costs, such as housing, utilities, food, and transportation, while cutting out discretionary spending.
If you lose your job, an emergency budget might involve pausing subscriptions, reducing dining out, and focusing on paying rent, utilities, and groceries with any available income or savings.
Emergency Fund: An emergency fund is a savings account reserved for unexpected expenses, such as medical bills, car repairs, or job loss. It provides a financial safety net to avoid relying on debt during emergencies.
If your car breaks down and the repair costs $800, you can use money from your emergency fund to cover the expense without disrupting your monthly budget.
Essential Expenses: Essential expenses are necessary costs required to meet basic living needs. These include fixed and variable costs like housing, utilities, groceries, transportation, and healthcare.
Monthly rent, electricity bills, and basic groceries are essential expenses, whereas streaming subscriptions or dining out are considered discretionary.
Ethical Investing: Ethical investing is an investment strategy that prioritizes aligning financial decisions with personal values, focusing on companies or funds that meet environmental, social, and governance (ESG) criteria. It allows investors to support businesses that promote sustainability, social justice, or ethical practices while pursuing financial returns.
Investing in a renewable energy mutual fund instead of companies in the fossil fuel industry is an example of ethical investing.
Financial Cushion: A financial cushion is extra money set aside to cover unexpected expenses or temporary income shortages. It provides a safety net that helps prevent financial stress and reliance on debt during emergencies.
Keeping $1,000 in a high-yield savings account as a financial cushion can help cover unplanned expenses like car repairs or a sudden drop in income.
Financial Goals: Financial goals are specific objectives you set to manage your money effectively, such as saving for a major purchase, reducing debt, building wealth, or achieving financial independence. These goals can be short-term, mid-term, or long-term, depending on the timeline for achieving them.
A short-term goal might be saving $1,000 for an emergency fund in three months, while a long-term goal could be accumulating $1 million for retirement over 30 years.
Financial Independence: Financial independence is the state of having sufficient income or savings to cover your living expenses without relying on a traditional job. It allows you to live comfortably while pursuing personal goals or passions without financial constraints.
Someone with $1 million invested in a diversified portfolio generating $40,000 annually in passive income may achieve financial independence if their annual expenses are $40,000 or less.
Financial Literacy: Financial literacy is the ability to understand and effectively use financial skills, including budgeting, saving, investing, and managing debt. It empowers individuals to make informed decisions about their money and achieve financial well-being.
A financially literate person understands how compound interest works, can create a budget, and knows how to evaluate investment options for long-term growth.
Fixed Expenses: Fixed expenses are recurring costs that remain consistent in amount and are typically paid on a regular schedule, such as monthly or annually. These expenses are often essential and predictable, making them easier to plan for in a budget.
Rent, mortgage payments, insurance premiums, and subscription services like Netflix are all examples of fixed expenses because their costs stay the same each billing cycle.
Freelancing: Freelancing is a form of self-employment where individuals offer their skills and services to clients on a project or contract basis, rather than working as a traditional employee. Freelancers have the flexibility to choose their clients, projects, and work schedules.
A freelance graphic designer might create logos for various companies, charging each client individually for their services.
Generational Wealth: Generational wealth refers to financial assets, resources, or investments passed down from one generation to the next. It provides future generations with a financial foundation, enabling opportunities such as education, homeownership, or business ventures without starting from financial zero.
A family that builds wealth through investments, real estate, and savings can pass those assets to their children, providing them with a head start in life and financial security.
Gift, Novelty, and Souvenir Stores: Gift, novelty, and souvenir stores are retail establishments specializing in selling small, unique, or themed items, often intended as gifts, keepsakes, or collectibles. These stores frequently carry a variety of handmade or locally crafted products.
A boutique selling handmade jewelry, candles, and locally themed decor items would be classified under the NAICS code 453220 – Gift, Novelty, and Souvenir Stores.
Gig Economy: The gig economy refers to a labour market characterized by short-term, flexible work arrangements where individuals take on gigs, or temporary jobs, rather than traditional full-time employment. This includes freelance work, contract jobs, and on-demand services.
A person driving for Uber, delivering food with DoorDash, or freelancing as a writer on platforms like Upwork is participating in the gig economy.
Good Money Habits: Good money habits are consistent financial behaviors that help you achieve stability, build wealth, and reduce stress. Examples include budgeting regularly, saving a portion of your income, and avoiding unnecessary debt.
Setting up automatic transfers to a savings account each payday is a good money habit that ensures consistent progress toward your financial goals.
Grants and Loans: Grants and loans are financial resources provided to businesses or individuals to support operations, growth, or specific projects. Grants are typically non-repayable funds awarded based on eligibility, while loans must be repaid with interest over time.
A handmade crafts business owner might apply for a small business grant to fund new equipment or take out a loan to cover initial inventory costs.
Income Smoothing: Income smoothing is a financial strategy where you allocate earnings from high-income periods to cover expenses during low-income periods. This approach helps maintain financial stability despite irregular or fluctuating income.
A wedding photographer earning $10,000 during the summer and $2,000 in winter might save a portion of their summer income to cover fixed expenses like rent and utilities during slower months.
Independent Artists and Artisans: Independent artists and artisans are self-employed individuals who create original works of art, crafts, or goods. These professionals typically produce and sell their creations directly to consumers or through galleries, markets, or online platforms.
A painter selling their artwork at local art fairs or a craftsperson creating and selling handmade jewelry through Etsy would be classified as an independent artist or artisan, often using the NAICS code 711510 – Independent Artists, Writers, and Performers.
Inventory Costs: Inventory costs refer to the expenses associated with acquiring, producing, storing, and managing the goods a business intends to sell. These costs typically include raw materials, labor, storage, and other overhead expenses tied to inventory management.
A candle maker purchasing wax, wicks, and jars to create candles and paying for storage space to keep the finished products incurs inventory costs.
Irregular Income: Irregular income refers to earnings that vary in amount or frequency, often resulting from freelancing, seasonal work, commission-based jobs, or side hustles. It contrasts with a fixed income, which remains consistent over time.
A freelance graphic designer earning $5,000 one month and $2,500 the next has irregular income, as their pay depends on the number and value of completed projects.
Lifestyle Inflation: Lifestyle inflation occurs when a person's spending increases as their income grows, often on non-essential items or services. This can make it difficult to save or build wealth, as higher earnings are offset by higher expenses.
After receiving a raise, someone might upgrade their car, eat out more often, or subscribe to multiple streaming services, increasing their cost of living without boosting savings.
Line-Item Budget: A line-item budget is a detailed budgeting method where each expense is listed as a separate line under its category. This approach allows for precise tracking, making it easier to see where your money is going and identify areas for adjustment.
For a $3,000 monthly income, a line-item budget might include $1,200 for rent, $300 for groceries, $100 for dining out, $150 for utilities, and $200 for transportation, with each expense tracked individually.
LLC (Limited Liability Company): An LLC, or Limited Liability Company, is a business structure that combines the limited liability protection of a corporation with the flexibility and simplicity of a sole proprietorship or partnership. Owners, called members, are typically not personally responsible for the company’s debts or liabilities.
If you operate a small online shop as an LLC and the business incurs debt, your personal assets (like your home or savings) are generally protected from creditors.
Manufacturing: Manufacturing is the process of transforming raw materials or components into finished goods through manual labor, machinery, or chemical processes. It encompasses businesses that produce products for sale to consumers, retailers, or wholesalers.
A ceramic artist who creates pottery from raw clay and sells it as finished goods operates within the manufacturing sector and might use the NAICS code 327110 – Pottery, Ceramics, and Plumbing Fixture Manufacturing.
Minimalist Budget: A minimalist budget focuses on reducing expenses to essential needs and prioritizing savings or debt repayment. It simplifies financial management by cutting out non-essential spending and focusing on what truly matters.
In a minimalist budget, a $3,000 monthly income might be allocated to $1,200 for rent, $300 for groceries, $150 for utilities, and $500 for savings or debt repayment, leaving little to no room for discretionary spending like dining out or subscriptions.
Miscellaneous Manufacturing: Miscellaneous manufacturing refers to the production of goods that do not fit neatly into other specific manufacturing categories. It includes a wide range of unique or niche products, often handcrafted or customized.
A business making handmade candles, custom trophies, or novelty items would fall under this category and might use the NAICS code 339999 – All Other Miscellaneous Manufacturing.
Money Mindset: Money mindset refers to your attitudes, beliefs, and feelings about money, which influence how you earn, spend, save, and invest. A positive money mindset helps you make informed financial decisions and achieve your financial goals, while a negative mindset can lead to stress or poor financial habits.
Someone with a growth-oriented money mindset might focus on increasing income and investments, while someone with a scarcity mindset might feel anxious about spending even when financially stable.
NAICS: The North American Industry Classification System (NAICS) is a standardized system used by the United States, Canada, and Mexico to classify businesses based on their primary economic activities. Each business is assigned a six-digit code that identifies its industry and operational focus.
A business that creates handmade pottery would use the NAICS code 327110 – Pottery, Ceramics, and Plumbing Fixture Manufacturing to classify its primary activity.
NAICS Code: The North American Industry Classification System (NAICS) code is a six-digit number used to categorize businesses by their primary activities. It helps governments and organizations track economic activity, file taxes, and provide industry-specific support.
A jewellery maker who primarily handcrafts earrings would use the NAICS code 339910 – Jewelry and Silverware Manufacturing to classify their business.
Net Worth: Net worth is the total value of your assets minus your liabilities. It represents your financial position and wealth at a given point in time.
If you own assets worth $100,000 (e.g., a home, savings, and investments) and have liabilities of $40,000 (e.g., loans and credit card debt), your net worth is $60,000.
Passive Income: Passive income is money earned with minimal ongoing effort or involvement after the initial work is completed. It often comes from investments, rental properties, or scalable ventures like online courses or royalties.
Earning royalties from a self-published book, receiving rental income from a property, or earning dividends from stock investments are common sources of passive income.
Pay Yourself First: Pay yourself first is a financial strategy where you prioritize setting aside money for savings, investments, or debt repayment before allocating funds to other expenses. This ensures that you consistently work toward your financial goals.
If you earn $3,000 a month, you might automatically transfer $300 to your savings account as soon as you receive your paycheck, leaving the remaining $2,700 for bills and other expenses.
Primary Business Activity: Primary business activity refers to the main function or operation a business performs to generate the majority of its revenue. It determines how a business is classified for tax, registration, and compliance purposes.
A handmade soap maker who primarily creates and sells soaps would list their primary business activity as manufacturing under a related NAICS code, such as 325611 – Soap and Other Detergent Manufacturing.
Regulatory Compliance: Regulatory compliance is the process of ensuring that a business adheres to laws, regulations, and guidelines relevant to its industry and operations. It involves meeting standards for safety, taxes, environmental impact, licensing, and other legal requirements.
A handmade soap business ensuring their products meet FDA labelling regulations and maintaining proper tax filings demonstrates regulatory compliance.
Retail Trade: Retail trade involves the sale of goods or services directly to consumers for personal or household use. Retail businesses typically operate through physical stores, online platforms, or pop-up shops.
A business that sells handmade home decor items through an Etsy shop or a local boutique would fall under the retail trade sector, potentially using NAICS codes like 453220 – Gift, Novelty, and Souvenir Stores or 454110 – Electronic Shopping and Mail-Order Houses.
Return on Investment (ROI): Return on Investment (ROI) measures the profitability of an investment by comparing the gain or loss to the initial cost. It’s expressed as a percentage and is used to evaluate the efficiency or potential return of an investment.
If you invest $1,000 in a business and earn $1,500 back, your ROI is calculated as: (Gain minus Cost) divided by Cost, multiplied by 100. In this case: ($1,500 minus $1,000) divided by $1,000, multiplied by 100 equals 50%.
Revenue: Revenue is the total income a business generates from its sales or services before deducting any expenses. It represents the financial inflow from selling goods, providing services, or other business activities.
A handmade soap maker selling 500 bars of soap at $10 each would have a revenue of $5,000 before accounting for costs like materials or marketing.
Savings Goal: A savings goal is a specific financial target you set to save for a particular purpose, such as an emergency fund, vacation, or down payment. It includes the total amount needed and a timeline for achieving it.
Setting a goal to save $5,000 for a vacation within 12 months gives you a specific savings target and timeline.
Savings Rate: A savings rate is the annual interest rate offered by banks or financial institutions on savings accounts. It represents how much your deposited money will earn in interest over a year, typically expressed as a percentage.
If you deposit $10,000 into a savings account with a 3% annual savings rate, you would earn $300 in interest after one year, assuming no withdrawals.
Scalable Business Model: A scalable business model is a business structure designed to grow revenue significantly without a proportional increase in operating costs. This allows the business to serve more customers or expand operations efficiently.
A SaaS company has a scalable business model because it can sell subscriptions to thousands of users without a significant rise in production costs.
Self-Employed: Self-employed individuals work for themselves rather than being employed by a company. They operate their own businesses, offer services directly to clients, or engage in independent activities to earn income, often assuming full responsibility for taxes, expenses, and business decisions.
A jewelry maker selling handmade earrings through Etsy or at craft fairs is self-employed and responsible for managing their income, expenses, and taxes.
Side Hustle: A side hustle is a job, project, or business pursued outside of your primary source of income. It allows you to earn extra money, explore your passions, or work toward financial goals while maintaining flexibility.
Selling handmade crafts on Etsy, freelancing as a graphic designer, or driving for a rideshare service like Uber are common side hustles that people pursue to supplement their income.
Sinking Fund: A sinking fund is a savings strategy where you set aside small amounts of money regularly to cover future, planned expenses. It helps you avoid financial stress by spreading out the cost over time, rather than paying it all at once.
If you plan to spend $1,200 on holiday gifts, you can create a sinking fund by saving $100 per month for 12 months instead of scrambling to find the money in December.
Sinking Funds vs. Emergency Funds: An emergency fund is meant for unplanned, urgent expenses like medical bills or job loss, providing a financial safety net. In contrast, a sinking fund is for planned, future expenses, such as vacations or car maintenance, allowing you to save gradually for specific goals.
Small Business Funding: Small business funding refers to financial resources made available to entrepreneurs to start, grow, or sustain their businesses. This funding can come in the form of grants, loans, venture capital, crowdfunding, or personal investments.
A handmade crafts business applying for a local economic development grant or securing a low-interest loan through the Small Business Administration (SBA) is accessing small business funding.
Sole Proprietorship: A sole proprietorship is a business structure where an individual owns and operates the business. It is the simplest and most common type of business entity, with no legal distinction between the owner and the business, meaning the owner is personally liable for all business debts and obligations.
A freelance writer working independently without registering a formal business entity operates as a sole proprietorship by default.
Startup Costs: Startup costs are the expenses incurred when establishing a new business. These include initial investments like legal fees, equipment purchases, marketing, and other one-time expenditures needed to launch operations.
If you’re starting an online boutique, your startup costs might include $500 for a website, $2,000 for initial inventory, and $300 for business registration fees.
Tax Compliance: Tax compliance refers to the act of adhering to tax laws and regulations, including accurately reporting income, paying taxes owed, and filing required returns on time. It ensures businesses and individuals avoid penalties, audits, and legal issues.
A small business owner who files quarterly estimated taxes, maintains proper financial records, and applies appropriate deductions for expenses, such as supplies and inventory, is practicing tax compliance.
Tax-Deductible Expenses: Tax-deductible expenses are costs that businesses or individuals can subtract from their total income to reduce the amount of taxable income, thereby lowering their tax liability. These expenses must be necessary and directly related to generating income.
A freelance graphic designer can deduct expenses like software subscriptions, office supplies, and a portion of their home internet bill if used for work.
Variable Expenses: Variable expenses are costs that change in amount and frequency based on usage, consumption, or other factors. These expenses can fluctuate monthly, making them less predictable than fixed expenses.
Groceries, utility bills, dining out, and entertainment are examples of variable expenses because their amounts can vary depending on your choices and usage each month.
Wealth Building: Wealth building is the process of increasing your financial assets and net worth over time through consistent saving, investing, and managing income streams. It focuses on creating sustainable financial growth to achieve long-term security and financial independence.
A person practicing wealth building might regularly invest in a diversified portfolio, contribute to retirement accounts, and grow passive income streams, such as rental properties or dividends.
Wholesale Trade: Wholesale trade involves selling goods in bulk to other businesses, such as retailers, resellers, or other wholesalers, rather than directly to consumers. Wholesalers typically operate as intermediaries between manufacturers and retailers.
A jewelry maker who sells handmade necklaces in bulk to boutique shops or resellers operates within the wholesale trade sector and might use NAICS codes like 423940 – Jewelry, Watch, Precious Stone, and Precious Metal Merchant Wholesalers.
Zero-Based Budget: A budgeting method where every dollar is assigned a purpose, ensuring your income minus expenses equals zero. This method helps prioritize savings, investments, and essential expenses while reducing wasteful spending.

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