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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.