Finance glossary

TER (total expense ratio)

A fund's or ETF's annual running cost in percent. It directly reduces your return – the lower, the better.

Annuity (loan payment)

The constant monthly loan payment made up of interest and repayment. Early on it is mostly interest, later mostly repayment.

Nominal interest rate

The pure annual interest you pay on a loan, before fees. The effective rate also includes the costs.

Repayment (principal)

The part of the loan payment that actually reduces the debt. A higher initial repayment means debt-free sooner.

ETF

An exchange-traded index fund that automatically tracks many stocks of an index – cheap and broadly diversified.

Compound interest

Interest that itself earns interest. Over long periods it is the strongest lever for building wealth.

Inflation

The general rise in prices – your money loses purchasing power even though the amount stays the same.

Emergency fund

A reserve of 3–6 months of expenses in an instant-access account, for unexpected costs.

Savings rate

The share of your income you save. Even 10–20 % makes a big difference over the years.

Diversification

Spreading money across many investments so a single failure doesn't hurt much.

Liquidity

How quickly you can access your money. Liquid funds (e.g. instant-access savings) are available at once, property is not.

Gross / net

Gross is your income before deductions, net is what reaches your account after tax and contributions.

Return (yield)

An investment's annual gain in percent; the real return is the one after subtracting inflation.

Overdraft interest

The high interest for going into the red on your current account – often over 10 %. Expensive debt to clear fast.

Equity / down payment

Your own money you put in – e.g. when buying property. More equity lowers the loan, payment and interest cost.

Remaining balance

The loan amount still outstanding at a point in time – e.g. at the end of the fixed-rate period when you refinance.

Accumulating / distributing

Accumulating funds reinvest gains automatically (compounding); distributing funds pay them out.

Sinking fund

Setting aside small monthly amounts for a larger, foreseeable expense (e.g. holiday, new car) instead of paying it all at once.

FIRE

Financial Independence, Retire Early – being free once your invested wealth covers your spending (often the 4 % rule).

Share

A unit of ownership in a company. As a shareholder you own a slice of the business and benefit from price gains and dividends — while also carrying the risk of loss.

Bond

An interest-bearing loan to a government or company. You lend money and receive interest over the term, plus the face value back at maturity.

Dividend

The share of company profit paid out per share to shareholders. Hold 100 shares with a 2 € per-share dividend and you receive 200 €.

Instant-access savings

A savings account you can access at any time that pays ongoing interest. Good for an emergency fund because the money stays available every day.

Fixed-term deposit

You lock away an amount for a set period in exchange for a fixed interest rate. You usually cannot touch the money before the term ends.

Volatility

How much a price swings up and down. High volatility means bigger swings — more potential upside, but also more risk.

Rebalancing

Resetting your portfolio back to its planned target weights. You sell what has grown too large and top up what has shrunk too small.

Dollar-cost averaging

Investing the same amount regularly buys more units when prices are low and fewer when they are high. This averages out your purchase price over time.

Concentration risk

When too much of your money sits in a single position — one stock or sector, say. If it does badly, your whole portfolio takes a heavy hit.

APR

The yearly cost of a loan including most fees, not just the headline interest rate. The best number for comparing loan offers fairly.

Creditworthiness

How reliably lenders expect you to repay a loan. In Germany it is judged partly through the SCHUFA credit bureau; a good score means better loan terms.

Purchase costs

The extra costs of buying property on top of the price itself: transfer tax, notary and land-registry fees, and often an agent. In Germany these quickly add up to roughly 10–15 % of the price.

Leasing

Using a car or device for a fixed monthly payment instead of buying it. At the end you usually return it rather than own it.

Residual value

The estimated worth of an item at the end of a lease or its useful life. It helps determine how high your payments are.

Installment loan

A loan you pay back in fixed, equal monthly payments. You know from the start what to expect each month.

0 % financing

Buying in installments with no stated interest. The cost is often baked into the price, so you don’t see it directly.

Debt refinancing

Paying off expensive debt with a cheaper loan. The goal is to pay less interest or combine several payments into one.

Brokerage account

An account used to buy and hold securities like stocks or ETFs. Think of it as the account for your investments.

Recurring investment plan

Automatically buying a fixed amount at regular intervals, for example monthly into an ETF. It builds wealth step by step.

Order fee

The cost charged for each purchase or sale of a security. It weighs especially heavily on small amounts.

Real return

Your return after subtracting inflation. It shows how much purchasing power you actually keep.

Opportunity cost

The benefit you give up by not choosing the next-best alternative. Spending €1,000 means missing whatever that money could have earned instead.

Cash flow

The actual flow of money over a period, meaning income minus spending. Positive means something is left over.

Investment income tax

Tax on investment income such as interest, dividends and price gains. It reduces what actually ends up in your pocket.

Phishing

A scam using fake emails, texts or websites that try to trick you into entering passwords, one-time codes or card details. When in doubt, never click the link – open the site yourself.

Ponzi scheme

A scam that pays old investors only from the money of new investors, with no real earnings. Once fresh money dries up, it inevitably collapses.

Identity theft

Someone uses your personal data to sign contracts or make purchases in your name. The bill lands on you at first, until you can prove the misuse.

Withdrawal rate

The share of your wealth you take out each year – a rule of thumb is about 4 %. Chosen so the capital lasts as long as possible; it is no guarantee.

FI number

The wealth at which your returns can cover your expenses – roughly 25 times your annual spending (the 4 % rule). From there you count as financially independent.

Passive income

Income that flows largely without ongoing active work – such as interest, dividends or rent. The more of your fixed costs it covers, the freer you are.

Net worth

All your assets minus all your debts. The most honest measure of your financial standing – more telling than income alone.

Term life insurance

Pays an agreed sum if the insured person dies, with no savings component, so it is cheap. Important for families with loans or children, so dependants are protected.

Disability income insurance

Pays a regular income if you can no longer do your job for health reasons. It protects your most valuable asset: your ability to earn.

Deductible (excess)

The part of a claim you pay yourself before the insurer steps in. A higher deductible lowers your premium but costs you more when you claim.

Guarantee (surety)

You become liable for someone else's debt if they fail to pay. An often underestimated risk – worst case, the full amount falls on you.

50/30/20 rule

A rough budgeting rule of thumb: about 50 % for needs, 30 % for wants and 20 % for saving or paying off debt. A simple starting point, not a dogma.

Deductible work expenses (Germany)

Job-related costs such as the commute, work tools or training. They lower your taxable income and therefore your tax bill.

Marginal tax rate

The tax rate applied to the next euro you earn. It is higher than the average rate paid across your whole income.

Tax-free allowance

An amount that stays tax-free; only income above it is taxed. The exact figures vary by year and type of tax.

Progressive taxation

The higher your income, the higher the tax rate on the upper portions of it. People who earn more pay a larger share in tax.

Tax assessment notice

The official notice from the tax office after you file your return. It states whether you owe extra tax or get a refund.

Inheritance tax

Tax on inherited wealth. Allowances depend on how closely you were related, so close family usually pay less.

Gift tax

Tax on gifts made while you are alive. In Germany the allowances can renew roughly every ten years, depending on the relationship.

Will

A written document stating who should inherit what. Without one, intestate succession applies automatically.

Intestate succession

The order of heirs set by law when there is no will. Typically the spouse and children inherit first.

Compulsory portion

The minimum claim on an estate that close relatives are entitled to by law. They receive it even if a will disinherits them.

Statutory health insurance (Germany)

Germany's public health insurance system. The contribution is based on your income, not on your health.

Private health insurance (Germany)

Private health cover as an alternative to the statutory system. The premium depends on age, health and chosen plan rather than income.

Bitcoin

The first and best-known cryptocurrency, decentralised and without a central bank. Highly volatile and speculative – total loss is possible.

Blockchain

A distributed, tamper-resistant database in which transactions are stored in chained blocks. The technical basis of most cryptocurrencies.

Cryptocurrency

A digital, decentralised means of payment and speculation without a central bank. There is no deposit protection and prices swing sharply.

Stablecoin

A cryptocurrency meant to be pegged to a stable value such as the euro or dollar. The peg depends on its backing and can break.

Wallet

A digital wallet for holding cryptocurrencies via cryptographic keys. Lose the private key and the funds are gone for good.

ESG

Criteria for Environment, Social and Governance used in investing. The standards are not uniformly defined.

Greenwashing

When a product is presented as greener or more sustainable than it really is. Checking the label and methodology guards against being misled.

Sustainable fund

A fund or ETF that selects holdings by ESG criteria. Labels and methodology vary widely and are worth checking closely.

Gold

A precious metal often seen as protection against crises and inflation. Its price fluctuates, however, and it pays no interest or dividends.

Commodities

Tradable goods such as oil, metals or grain, usually accessed via funds or certificates. Volatile and generally sensible only as a small admixture.

Key interest rate

The rate set by the central bank at which banks can borrow money. It influences savings, loan and mortgage rates.

Leverage

Using borrowed capital to amplify gains. It amplifies losses just as much – the risk, up to total loss, is high.

Social security contributions (Germany)

Mandatory contributions to pension, health, long-term care and unemployment insurance. They are deducted from your gross pay and reduce your net income.

State pension insurance (Germany)

A mandatory pay-as-you-go scheme: today's workers' contributions fund today's pensions. Your own future claim builds up from what you pay in.

Unemployment insurance (Germany)

Mandatory insurance that pays unemployment benefit (ALG I) if you lose your job. The amount depends on your previous earnings and runs for a limited time.

Long-term care insurance (Germany)

Mandatory insurance for when you need nursing care. It covers only part of the cost, so a share you pay yourself almost always remains.

Basic tax-free allowance (Germany)

The yearly subsistence minimum up to which no income tax is due. The exact figure changes every year.

Solidarity surcharge (Germany)

A surcharge on income and investment-income tax. For most salaries it no longer applies, but it is still levied on investment income.

Church tax (Germany)

For members of tax-collecting churches it is roughly 8–9 % of income tax. It ends when you formally leave the church.

Standard benefit rate (Germany)

The flat base amount of basic income support (Bürgergeld) for everyday living. Rent and heating are covered separately on top.

Protected assets (Germany)

Savings that are not counted against you in means-tested benefits such as basic income support. You don't have to spend everything before you qualify.

Subsidy (top-up)

A state contribution that adds to what you save yourself, such as the basic and child top-ups in a Riester plan. It boosts your balance without extra payments from you.

Real income

Your income after subtracting inflation – the purchasing power that actually remains. If wages rise slower than prices, it falls even when the number goes up.

Non-wage labour costs (Germany)

The costs an employer pays on top of your gross wage, chiefly the employer's share of social security. They make you cost more than your gross salary alone suggests.

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