Foundation
Net Worth
Assets minus liabilities. Your single most important financial number.
Assets = what you own. Liabilities = what you owe. Net worth can be negative — that's okay to start.
Asset
Anything you own that has monetary value: cash, investments, property, car, etc.
Liability
Any debt or financial obligation: mortgage, student loans, credit card balances, car loans.
Budget
A plan for your money — deciding in advance where each rupee/dollar goes.
A budget is not a restriction; it's permission to spend confidently.
Cash Flow
Money coming in (income) minus money going out (expenses) over a period.
Emergency Fund
3–6 months of essential expenses held in an instantly accessible account. Its only job is to absorb shocks without you taking on debt.
Savings Rate
The percentage of your take-home income you save/invest. Higher savings rate → faster wealth building. Formula: Savings ÷ Income × 100.
Inflation
The rate at which prices rise over time. Money sitting in a 0% account loses purchasing power. Target: investments that beat inflation.
Debt
Interest Rate
The cost of borrowing money (or the return on lending it), expressed as a percentage per year (APR).
APR
Annual Percentage Rate — the yearly cost of a loan including fees. Compare APRs across loans/cards.
Good Debt vs Bad Debt
Good debt has a low rate and potentially grows your net worth (mortgage, student loan). Bad debt has a high rate and funds consumption (credit card revolving balance).
Debt Snowball
Pay off smallest balance first for psychological momentum, then roll that payment into the next debt.
Debt Avalanche
Pay off highest-interest debt first. Mathematically optimal — saves the most money over time.
Investing
Compound Interest
Earning returns on your returns. The longer money is invested, the faster it grows exponentially.
"Compound interest is the eighth wonder of the world." — attributed to Einstein.
Stock (Equity)
A share of ownership in a company. Stockholders benefit when the company grows; they also bear the risk of loss.
Bond
A loan to a government or company. You receive fixed interest payments. Lower risk than stocks, lower expected return.
Index Fund
A fund that tracks a market index (e.g. Nifty 50, S&P 500) by holding all (or most) of its stocks. Low cost, diversified, beats most active funds over time.
ETF
Exchange-Traded Fund — like an index fund but traded on a stock exchange like a share. Usually very low fees.
Mutual Fund
Pooled investment managed by a professional. Can be actively managed (higher fees, usually underperforms index funds) or passively managed (index fund).
Asset Allocation
How your portfolio is divided across asset classes (stocks, bonds, cash). The single biggest driver of portfolio risk and return.
Diversification
Spreading investments so that no single failure wipes you out. "Don't put all your eggs in one basket."
Expense Ratio
Annual fee charged by a fund, as a % of assets. A 1% expense ratio on ₹10L = ₹10,000/yr taken from your returns. Index funds typically charge <0.1%.
SIP
Systematic Investment Plan — investing a fixed amount at regular intervals (monthly). Automates investing and averages your purchase price over time (rupee-cost averaging).
CAGR
Compound Annual Growth Rate — the smoothed annual growth rate of an investment. Use this to compare investments fairly.
Tax & Accounts (India)
PPF
Public Provident Fund — government-backed, tax-free returns. 15-year lock-in. One of the safest long-term savings tools available.
ELSS
Equity Linked Savings Scheme — a mutual fund with a 3-year lock-in that qualifies for tax deduction under Section 80C.
NPS
National Pension System — government pension scheme with tax benefits, low fees, and mandatory partial annuity at retirement.
Section 80C
Tax deduction of up to ₹1.5L per year for specified investments (PPF, ELSS, EPF, life insurance, etc.).
EPF
Employee Provident Fund — mandatory employer + employee contributions for salaried workers. Tax-free returns.