Financial Glossary

A simple guide to financial terms and concepts. Understanding these will help you make better decisions with your money.

Personal Finance Basics

Cash Flow: The movement of money in and out of your finances over a period. Positive cash flow means you earn more than you spend. Boring Money focuses on cash flow tracking rather than account balances.
Savings Rate: The percentage of your income that you keep after all expenses. Calculated as (Income - Expenses) / Income × 100. A 20% savings rate means you save €200 for every €1,000 earned. Higher savings rates lead to faster wealth accumulation.
Net WorthPatrimoineWealth: The total value of everything you own (assets) minus everything you owe (liabilities). Your net worth is the ultimate measure of financial health and progress toward financial independence.
Budget: A spending plan that allocates your income to different categories (housing, food, entertainment, etc.). Budgets help you control spending and ensure you meet your savings goals.
Emergency FundRainy Day FundSafety Net: Money set aside for unexpected expenses or financial emergencies (job loss, medical bills, car repairs). Financial experts typically recommend 3-6 months of living expenses.
Compound InterestCompounding: Interest calculated on both the initial principal and the accumulated interest from previous periods. Often called "interest on interest", compound interest is how investments grow exponentially over time.
Inflation: The rate at which prices increase over time, reducing purchasing power. If inflation is 3%, something that costs €100 today will cost €103 next year. Investments should ideally outpace inflation.

Investing

ETFExchange-Traded Fund: Exchange-Traded Fund. A basket of securities (stocks, bonds, etc.) that trades on an exchange like a single stock. ETFs offer instant diversification and typically have lower fees than mutual funds. Popular examples include those tracking the S&P 500 or MSCI World.
StockShareEquityAction: A share of ownership in a company. When you buy a stock, you become a partial owner and can benefit from the company's growth through price appreciation and dividends.
BondFixed IncomeObligation: A loan you make to a government or corporation. In return, they pay you interest over time and return your principal at maturity. Bonds are generally less risky than stocks but offer lower returns.
Dividend: A portion of company profits distributed to shareholders. Dividends provide passive income and can be reinvested to buy more shares (DRIP). Not all companies pay dividends.
DCADollar Cost Averaging: Dollar Cost Averaging. An investment strategy where you invest a fixed amount at regular intervals (e.g., €500/month), regardless of market conditions. This reduces the impact of volatility and removes emotional decision-making.
Asset Allocation: How you divide your investments among different asset classes (stocks, bonds, real estate, cash). Your allocation should reflect your risk tolerance, time horizon, and financial goals.
Diversification: Spreading investments across different assets, sectors, and geographies to reduce risk. "Don't put all your eggs in one basket." ETFs provide instant diversification.
Rebalancing: Periodically adjusting your portfolio back to your target asset allocation. If stocks outperform, you might sell some stocks and buy bonds to maintain your desired risk level.
ISINInternational Securities Identification Number: International Securities Identification Number. A 12-character code that uniquely identifies a security worldwide. Example: US0378331005 for Apple. Useful for finding the exact fund or stock you want.
Ticker SymbolTickerSymbol: A short abbreviation (usually 1-5 letters) used to identify a publicly traded security on an exchange. Examples: AAPL (Apple), MSFT (Microsoft), VWCE (Vanguard FTSE All-World ETF).
Bull Market: A period when stock prices are rising or expected to rise. Characterized by investor optimism and economic growth. The opposite of a bear market.
Bear Market: A period when stock prices fall 20% or more from recent highs. Characterized by investor pessimism. Bear markets are normal parts of market cycles and often present buying opportunities.

Alternative Investments

Private EquityPE: Investments in private companies not traded on public exchanges. Private equity funds buy companies, improve them, and sell for profit. Usually requires high minimum investments and long lock-up periods.
Venture CapitalVC: Funding provided to early-stage startups with high growth potential. Venture capitalists invest in exchange for equity. High risk, but successful investments can return 10x or more.
REITReal Estate Investment Trust: Real Estate Investment Trust. A company that owns, operates, or finances income-producing real estate. REITs trade like stocks and must distribute 90% of taxable income as dividends, making them popular for passive income.
Hedge Fund: A pooled investment fund that uses various strategies (long/short, derivatives, leverage) to generate returns. Typically available only to accredited investors with high minimum investments.
CryptocurrencyCryptoDigital Assets: Digital or virtual currencies that use cryptography for security. Bitcoin and Ethereum are the most well-known. Highly volatile and speculative, cryptocurrencies should be a small portion of most portfolios.

Retirement & Financial Independence

FIREFinancial Independence Retire Early: Financial Independence, Retire Early. A movement focused on extreme savings (50-70% of income) and investing to achieve financial independence decades earlier than traditional retirement. Variants include LeanFIRE (minimal lifestyle) and FatFIRE (luxurious lifestyle).
Financial IndependenceFI: Having enough wealth to cover your living expenses without needing to work. Typically calculated as 25x annual expenses (based on the 4% rule). You can choose to work, but you don't have to.
4% RuleSafe Withdrawal RateSWR: A retirement guideline suggesting you can withdraw 4% of your portfolio annually with low risk of running out of money over 30 years. Based on historical market returns. If you need €40,000/year, you need €1,000,000 invested.
Coast FIRE: Having enough invested that compound growth alone will fund your retirement, even if you never invest another euro. You can "coast" by working just enough to cover current expenses.
Barista FIRE: A form of semi-retirement where you leave your career for a lower-stress, part-time job (like a barista) that covers basic expenses and possibly provides benefits, while your investments continue growing.

Account Types

Brokerage AccountTaxable AccountCTO: An investment account that allows you to buy and sell securities (stocks, ETFs, bonds). No contribution limits, but investment gains are typically taxable. Also called a taxable account.
PEAPlan d'Épargne en Actions: Plan d'Épargne en Actions. A French tax-advantaged account for European stocks and ETFs. After 5 years, gains are only subject to social contributions (17.2%), not income tax. Limited to €150,000 in contributions.
Assurance-VieAV: A French life insurance wrapper that can hold various investments (funds, ETFs, bonds). Offers tax advantages after 8 years and favorable estate planning benefits. Very popular in France.
ISAIndividual Savings Account: Individual Savings Account. A UK tax-advantaged account where investment gains and dividends are tax-free. Annual contribution limit applies (currently £20,000).
401(k): A US employer-sponsored retirement account with tax advantages. Contributions are pre-tax (reducing current income tax), and many employers match contributions. Withdrawals before 59½ incur penalties.
IRAIndividual Retirement AccountRoth IRA: Individual Retirement Account. A US tax-advantaged retirement account. Traditional IRAs offer tax-deductible contributions; Roth IRAs offer tax-free withdrawals in retirement.
3rd Pillar (3a)Pillar 3aSäule 3aThird Pillar: A Swiss voluntary private pension account with significant tax benefits. Contributions are tax-deductible (up to CHF 7,056/year for employees in 2024). Funds are locked until retirement, with few exceptions (home purchase, self-employment, leaving Switzerland).
2nd PillarLPPBVGPillar 2Pension Fund: Swiss occupational pension (LPP/BVG). Mandatory for employees earning above a threshold. Contributions are shared between employer and employee. Provides retirement, disability, and survivor benefits.
Livret ALivret Bleu: A French regulated savings account with tax-free interest. Available to all French residents with a maximum balance of €22,950. Interest rate is set by the government (currently 3%). Highly liquid and guaranteed by the state.
TFSATax-Free Savings Account: Tax-Free Savings Account. A Canadian account where investment gains, dividends, and withdrawals are completely tax-free. Annual contribution room accumulates if unused. Very flexible with no withdrawal restrictions.
RRSPRegistered Retirement Savings Plan: Registered Retirement Savings Plan. A Canadian tax-deferred retirement account. Contributions are tax-deductible, and investments grow tax-free until withdrawal. Withdrawals are taxed as income.
SIPPSelf-Invested Personal Pension: Self-Invested Personal Pension. A UK pension wrapper that gives you control over your investments. Contributions receive tax relief (20-45% depending on tax bracket). Accessible from age 55.
Savings AccountHigh-Yield Savings AccountHYSA: A basic bank account that earns interest on deposits. Highly liquid and low risk, but returns typically lag inflation. Good for emergency funds and short-term savings goals.

Financial Metrics

ROIReturn on Investment: Return on Investment. A measure of investment performance calculated as (Gain - Cost) / Cost × 100. If you invest €1,000 and it grows to €1,200, your ROI is 20%.
CAGRCompound Annual Growth Rate: Compound Annual Growth Rate. The smoothed annual growth rate of an investment over a period. More accurate than simple averages for measuring long-term performance. The S&P 500 has a historical CAGR of about 10%.
Expense RatioTERTotal Expense Ratio: The annual fee charged by funds (ETFs, mutual funds) as a percentage of assets. An expense ratio of 0.20% means you pay €2 per year for every €1,000 invested. Lower is better.
P/E RatioPrice-to-Earnings: Price-to-Earnings Ratio. A valuation metric comparing a company's stock price to its earnings per share. A P/E of 20 means investors pay €20 for every €1 of earnings. Higher P/E suggests higher growth expectations.
YieldDividend Yield: The income return on an investment, usually expressed as an annual percentage. For dividends, it's the annual dividend divided by stock price. A €100 stock paying €3 annually has a 3% yield.

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