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Glossary

Every term, in plain language first — then the detail, for when you want it.

AI hallucination: When an AI tool states something false as if it were fact.; Invented facts, figures, quotes and sources are all common, and they sound just as confident as the true parts. Checking claims against a reliable source is the fix.; See also: Generative AI
Apprenticeship: A paid job where you learn a trade or skill at work, alongside classroom training.; Apprentices earn while they learn, and pay usually rises as their skills grow. In many trades it is the usual route to a license.
APR: The yearly cost of borrowing, including fees, not just the interest rate.; Annual percentage rate lets you compare loans fairly, because it folds fees into the headline number.
Budget: A plan for what your money will do, made before the month starts.; It starts from take-home pay and divides it between needs, wants and savings. A budget is a plan you adjust, not a test you pass or fail.; See also: Net pay, Opportunity cost, Sinking fund
Cap rate: A property's yearly profit divided by its price, a quick way to compare two buildings.; Net operating income ÷ total cost. It deliberately ignores your mortgage, so it describes the building rather than your financing.
Cash flow: The money left over each month after every cost is paid.; For a rental, net operating income minus the loan payment and any reserves set aside for big replacements. Positive cash flow means the property pays for itself with something left over; negative means you are topping it up.; See also: Net operating income (NOI), Cash-on-cash return
Cash-on-cash return: An investment's yearly cash flow divided by the cash you put into it.; For example, $1,800 a year of cash flow on $56,000 of down payment and closing costs is about 3.2%. It measures what your own money is earning, which the cap rate does not.; See also: Cash flow, Cap rate
Compound interest: Earning returns on your returns, not just on what you put in.; The reason starting early matters more than starting big.
Credit report: The record of how you have borrowed and repaid money.; It lists your accounts, balances and payment history, gathered by credit bureaus from what lenders report. Mistakes happen, so it is worth checking yours and disputing anything that is wrong.; See also: Credit score
Credit score: A number that sums up your credit report, which lenders use to judge how risky a loan to you would be.; Payment history carries the most weight in the most common scoring models. Income is not part of the score, and checking your own score does not lower it.; See also: Credit report, Credit utilization, APR
Credit utilization: How much of your available credit you are using.; Your balance divided by your credit limit: a $300 balance on a $1,000 limit is 30% utilization. Using a smaller share of your limit is generally better for a score.; See also: Credit score
Debt-to-income ratio: How much of your monthly income already goes to debt payments.; Lenders use it to decide how much more you can borrow. Lower is better; most mortgages want total debt under about 36%.
Diversification: Spreading money across many investments so that one bad result does less damage.; It limits how much any single investment can hurt you. It does not protect against the whole market falling at once.; See also: ETF, Index
Dividend: Part of a company's profit paid out to its shareholders, usually in cash.; Not every company pays one, and a company can cut or stop it. Dividend yield is the yearly dividend divided by the share price: $2 a year on a $100 share is a 2% yield.; See also: Stock, ETF
Emergency fund: Cash set aside for an unexpected expense or a drop in income.; It keeps a car repair or a gap between jobs from turning into debt, so it is kept somewhere safe and easy to reach, such as a savings account.; See also: Sinking fund, Budget
ETF: A basket of many investments you can buy as a single share.; Exchange-traded funds trade like a stock but hold many underlying assets, which spreads risk across all of them.
Expense ratio: The yearly fee a fund charges, as a percentage of the money you have invested.; A 0.5% expense ratio on $1,000 is $5 a year. The fee is taken from the fund itself, so it quietly reduces your return every year you hold it.; See also: ETF
FICA: The payroll tax that pays for Social Security and Medicare.; Most employees pay 7.65% of wages: 6.2% for Social Security and 1.45% for Medicare. Employers pay a matching 7.65%.
Generative AI: Software that produces new text, images, audio or code from a written request.; It works by predicting what is likely to come next, based on patterns in the material it learned from. That makes it fluent, not necessarily correct.; See also: Prompt, AI hallucination
Gross pay: What you earned before anything is taken out.; Hours worked times your hourly rate, plus any overtime, tips or bonus.
Index: A list that tracks a group of investments, used to measure how one slice of the market is doing.; An index is a measurement, not something you buy directly, and its level is quoted in points. A fund that tracks an index holds the investments on its list.; See also: ETF, Diversification
Interest: The price of borrowing money, or the reward for saving it.; A borrower pays interest to a lender, and a bank pays interest on savings. It is usually quoted as a yearly percentage of the balance.; See also: APR, Compound interest
Market cap: What a whole company is worth on the stock market.; Short for market capitalization: the share price times the number of shares. A company with 1 million shares at $50 each has a market cap of $50 million.; See also: Stock, P/E ratio
Net operating income (NOI): A rental property's income after its running costs, before any loan payment.; Rent actually collected, after an allowance for vacancy, minus taxes, insurance, maintenance, management and other operating costs. Divided by the property's cost, it gives the cap rate.; See also: Cap rate, Cash flow
Net pay: What actually lands in your bank account after taxes and deductions.; Also called take-home pay. It is the number to build a budget on.
Opportunity cost: What you give up when you choose one thing instead of another.; Money spent on a want today is money that cannot be saved or spent on something else. Every choice has one, even a good choice.; See also: Budget
P/E ratio: A share's price divided by the company's yearly earnings per share.; Price-to-earnings ratio. A P/E of 20 means buyers are paying $20 for each $1 of yearly profit per share. A high P/E can mean investors expect growth, or that the share is expensive; it is a reason to ask questions, not a verdict.; See also: Market cap, Stock
Prompt: The instructions or question you type into an AI tool.; A clear prompt says what you want, who it is for and what to leave out. It should never contain personal details such as passwords or account numbers.; See also: Generative AI
Sinking fund: Money set aside a little at a time for a cost you know is coming.; Divide a yearly or one-off cost by the months until it is due, and save that amount each month. Unlike an emergency fund, you already know what it is for.; See also: Emergency fund, Budget
Stock: A small piece of ownership in a company, also called a share.; Its price rises and falls with what investors expect the company to earn. Some companies also pay shareholders a dividend.; See also: Dividend, Market cap, ETF
Volatility: How much, and how quickly, a price swings up and down.; A volatile investment can rise or fall a long way in a short time. Higher volatility means a wider range of possible outcomes, especially over short periods, which is why money needed soon is usually kept out of volatile investments.; See also: Diversification, Index

Glossary · Wealth Playbook