Key personal finance concepts everyone should know
25 cards · practical
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| Front | Back |
|---|---|
| Compound Interest | Interest earned on principal plus prior interest Earnings snowball as your balance grows over time. |
| Rule of 72 | Years to double ≈ 72 ÷ annual return At 8% return, money doubles in about 9 years. |
| Index Fund | Fund that tracks a market index passively Offers broad diversification at low cost. |
| Expense Ratio | Annual fund fee as a percentage of assets Lower is better; aim under 0.20% for core funds. |
| Dollar-Cost Averaging | Invest a fixed amount at regular intervals Automate contributions to reduce timing risk. |
| Asset Allocation | Mix of stocks, bonds, and cash in a portfolio Set by goals and time horizon; drives risk/return. |
| Rebalancing | Reset portfolio to target allocation Sell winners and buy laggards on schedule or thresholds. |
| 401(k) Employer Match | Employer contribution matching your 401(k) deferrals Contribute at least enough to get the full match. |
| Traditional IRA | Account with tax-deductible contributions, taxed withdrawals Defers taxes until retirement; income limits may apply. |
| Roth IRA | Account with after-tax contributions, tax-free withdrawals Qualified withdrawals are tax-free; rules apply. |
| IRA Contribution Deadline | By the tax filing deadline for the prior year Usually mid-April; confirm the current year’s date. |
| Emergency Fund Size | 3–6 months of essential expenses Hold more if income is variable or you have dependents. |
| Emergency Fund Location | High-yield savings or money market account Prioritize liquidity and safety over returns. |
| Credit Utilization Ratio | Credit used divided by credit limit Keep under 30% per card and overall to help scores. |
| Free Credit Reports | One free report per bureau each year Use AnnualCreditReport.com to check for errors. |
| Debt Avalanche | Pay extra toward highest interest rate first Minimizes total interest paid over time. |
| Debt Snowball | Pay extra toward smallest balance first Builds momentum with quick wins. |
| APR | Annual percentage rate excluding compounding Used for loans and cards; helps compare borrowing costs. |
| APY | Annual percentage yield including compounding Used for savings; higher APY grows money faster. |
| Term Life Insurance | Life insurance for a set period with no cash value Inexpensive way to protect dependents’ income needs. |
| Disability Insurance | Income protection if you can't work due to illness/injury Aim for own-occupation coverage and adequate benefit. |
| Health Savings Account | Pretax in, growth tax-free, tax-free medical withdrawals Requires an HDHP; can double as long-term savings. |
| Deductible | Amount you pay before insurance coverage kicks in Higher deductibles cut premiums but raise out-of-pocket risk. |
| Marginal Tax Rate | Tax rate on your next dollar of income Different from your average (effective) tax rate. |
| 50/30/20 Rule | Budget guideline: needs 50%, wants 30%, savings 20% Automate the 20% to savings right after payday. |