Plain-English definitions for the words nobody explains.

3–6 months of essential expenses in cash savings. The buffer that stops every other plan from unraveling.

Calculator: emergency fund.

The sequence for what to do with each dollar: deductibles → match → debt → fund → Roth → 15% → goals → debt → wealth.

See the order of operations guide and walkthrough.

Total earnings before taxes, FICA, and any deductions. The number on your offer letter. 401(k) deferral percentages run on this.

What lands in your bank after taxes and deductions. Useful for budgeting; misleading for retirement-savings percentages (always anchor those on gross).

Adjusted Gross Income. Gross income minus certain deductions (Traditional 401(k) contributions, HSA, etc.). Used to determine eligibility for many tax breaks.

Modified AGI. AGI with certain items added back. Used for Roth IRA income limits and ACA subsidies.

Money contributed before income tax is deducted. Lowers taxable income today; you pay tax later when you withdraw.

Money contributed after income tax. No upfront deduction; growth and qualified withdrawals are tax-free.

Investments grow without annual taxation. Tax is paid on withdrawal. Traditional 401(k)/IRA work this way.

Investments grow with no annual tax AND withdrawals are tax-free. Roth 401(k)/IRA and HSA (for medical) work this way.

The rate on your last dollar of income. Different from your "effective" (average) tax rate, which is lower.

Federal Insurance Contributions Act — payroll tax for Social Security (6.2%) and Medicare (1.45%). Comes out of every W-2 paycheck, before federal income tax.

Employer-sponsored retirement account funded with pre-tax (Traditional) or after-tax (Roth) payroll deferrals.

See the 401(k) guide.

Same idea as a 401(k), but for public schools, hospitals, and certain non-profits. Same contribution limits.

Individual Retirement Account. Opened by you, not your employer. Lower limits than a 401(k) but more investment flexibility.

See the IRA guide.

IRA funded with after-tax dollars. Growth and qualified withdrawals are tax-free. Income limits apply.

IRA funded with pre-tax dollars (if eligible). Withdrawals taxed as ordinary income in retirement.

Health Savings Account. Triple tax-advantaged: pre-tax in, tax-free growth, tax-free out for medical. Requires an HDHP.

See the HSA guide.

High-Deductible Health Plan. Required to be eligible to contribute to an HSA.

State-sponsored education savings account. Tax-free growth, tax-free withdrawals for qualified education.

See the 529 guide.

Taxable investment account with no contribution limits and full liquidity. Long-term gains taxed at lower rates.

A fund that holds every stock in an index (e.g., S&P 500), proportionally. Low fees, broad diversification, no manager picking stocks.

Exchange-Traded Fund. Like a mutual fund but trades like a stock. Most index funds today are ETFs.

A fund that auto-rebalances from stocks toward bonds as you approach a retirement year (e.g., Target Date 2055). Good default for set-and-forget investors.

Annual fee charged by a fund, as a % of assets. Anything above 0.20% is suspect; 0.05% or less is excellent.

Earnings on earnings. Each year your previous gains also generate gains. Calculator: compound growth.

Investing a fixed amount on a regular schedule, regardless of price. Default if you contribute every paycheck.

See the DCA guide.

How your portfolio is split between stocks, bonds, and other asset classes. The single biggest driver of long-term returns.

Annual Percentage Rate. The yearly interest rate on a debt. Above ~7%, prioritize payoff over investing extra.

Pay off smallest debt first. Behaviorally optimal — each finished debt builds momentum.

Pay off highest-APR debt first. Mathematically optimal — minimizes total interest.

How a loan payment splits between interest and principal. Early payments are mostly interest; late payments are mostly principal.

See the mortgage payoff calculator.

Money your employer contributes to your 401(k), often as a % of what you contribute. Always capture the full match — it's a 50–100% guaranteed return.

How long you must work before employer-contributed funds are yours to keep. Common: cliff (4 yrs all-or-nothing) or graded (20% per year).

Required Minimum Distribution. Mandatory annual withdrawal from Traditional 401(k)/IRA starting at age 73 (rising to 75). Roth doesn't have RMDs in your lifetime.

Full Retirement Age for Social Security. 66 to 67 depending on birth year. The age at which you get 100% of your earned benefit.

See the Social Security guide.

Heuristic that a 4% initial withdrawal — adjusted for inflation each year — has historically lasted 30 years. Useful starting point, not a guarantee.

The risk that a bad market in your first decade of retirement drains your portfolio faster than a bad market later would. A few bad early years are harder to recover from than a few bad late years.

Pays a death benefit if you die during a fixed term. Cheap, simple. The right kind of life insurance for almost everyone who needs life insurance.

Permanent life insurance with a cash-value component. Almost always overpriced for what it does. Skip.

See the insurance guide.

Replaces ~60% of gross income if you can't work due to illness or injury. The most overlooked insurance for working-age adults.