Financial Terms & Glossary

Net worth = Total Assets − Total Liabilities. It's the single most honest measure of financial health — and the one most people avoid calculating, which tells you something.

Negative net worth isn't a character flaw. It usually means you're 26 with student loans or just bought a house. Everyone starts somewhere, and that somewhere is often below zero.

Your net worth changes every single day as balances fluctuate. Promi recalculates it automatically from every linked account — great for obsessive refreshers, nerve-wracking during market corrections.

Assets: the cash in your checking account, the 401(k) you keep meaning to look at, your home, your car. Liabilities: your mortgage, student loans, auto loans, and that credit card balance you've been pretending doesn't exist.

Not all debt is bad — that's not just something people with mortgages tell themselves. A home loan finances an appreciating asset. Student loans finance earning power. A credit card balance financing last weekend's vibes? That's the bad kind.

Promi tracks both sides automatically from linked accounts, and fills gaps with questionnaire data for things that can't be linked — like your home value, because Zillow and your bank refuse to talk to each other.

Liquid assets: checking, savings, money market. You can access them today, zero drama.

Semi-liquid: stocks and bonds in a brokerage. Sellable in days, but the market might pick that exact day to have feelings.

Illiquid: real estate, retirement accounts (10% penalty before 59½), private investments. Valuable on paper, useless in an emergency.

The classic move: keep 3–6 months of expenses in liquid assets. That way when the car dies or the landlord raises rent, you don't have to sell stocks at the worst possible moment.

Formula: (Total Liabilities ÷ Total Assets) × 100. It answers a simple question: how much of what you "own" do you actually own?

Under 30% is solid. 30–60% is manageable but worth watching. Over 60% means more than half your financial life is financed by someone else's money — which is fine if it's a mortgage, less fine if it's credit cards.

Context is everything. A 50% ratio from a mortgage on an appreciating home is a completely different animal from 50% driven by consumer debt. The number is the same; the story isn't.

Good debt finances things that grow in value or boost your earning power: mortgages, education, business investment. The interest rate is low and the return exceeds the cost. It's leverage working for you.

Bad debt finances things that lose value while the debt grows: credit card balances, payday loans, high-rate auto financing. You're paying 24% interest on a dinner you ate three months ago. The restaurant doesn't even remember you.

The dividing line is brutal: does borrowing this make you richer over time, or poorer? If the answer isn't immediately clear, it's probably the second one.

Avalanche: pay minimums everywhere, throw every extra dollar at the highest-interest debt first. Mathematically optimal. Saves the most money. The spreadsheet's choice.

Snowball: pay minimums everywhere, throw every extra at the smallest balance first. Gives quick wins. Creates momentum. The psychologist's choice.

Both work. Avalanche saves more money. Snowball keeps more people from quitting. The best debt payoff method is whichever one you'll actually stick with at 10 PM on a Tuesday when you'd rather just pay the minimum.

APR bundles the interest rate plus any mandatory fees into one annualized number. It's the true cost of a loan or credit card — the number they'd rather you not focus on.

Credit card APRs typically range from 18–29%. Carry a $5,000 balance at 24%? That's roughly $1,200/year in interest — about $100/month that buys you absolutely nothing. Not even a thank-you card.

APR on savings is called APY (Annual Percentage Yield). High-yield savings currently offers ~4–5% APY, which means your money can work for you instead of against you, for a change.

Simple interest pays only on your original deposit. Compound interest pays on the original plus all previously earned interest. Over decades, the difference is absurd.

$10,000 at 7% for 30 years: simple interest = $31,000. Compound interest = $76,123. Same rate, same timeline — compounding more than doubles the result. Einstein (probably) called it the eighth wonder of the world.

The catch: compounding works against you too. Credit card debt at 24% APR compounds, which is why that "small" balance grows like it's training for a marathon while you make minimum payments.

Inflation means the same dollar buys less stuff every year. The Fed targets ~2% annually, though recently it's been more like "2% plus whatever mood the economy is in."

At 3% inflation, $100 today buys $74 worth of stuff in 10 years. Money sitting in a 0% checking account isn't "safe" — it's slowly evaporating. You just can't see it.

The Consumer Price Index (CPI) measures inflation officially. "Real" returns (investment gains minus inflation) are what actually build wealth. A 5% return during 5% inflation is just running in place.

Gross income is what your employer says they pay you. Net income is what you actually receive after federal tax, state tax, FICA (Social Security + Medicare), health insurance, and retirement contributions eat their share.

For most W-2 employees, net income is 60–75% of gross. That $100k salary? You'll see about $65–75k of it, depending on how much your state enjoys taxation. Welcome to adulthood.

This is the number that actually matters for budgeting. Nobody pays rent with gross income. Your spending power is net, not gross — no matter what your LinkedIn bio says.

Income: salary, freelance gigs, dividends, interest, refunds. Expenses: literally everything else — rent, groceries, subscriptions you forgot about, that streaming service you use once a year.

Income minus expenses is cash flow. Positive = saving. Negative = drawing from reserves or adding debt. Neither is permanent, but only one is sustainable.

Here's the elite move most people miss: your savings rate — the percentage of income you keep — matters more than your income. A $200k earner saving 5% builds wealth slower than a $60k earner saving 30%. The math doesn't care about your salary.

Formula: (Income − Expenses) ÷ Income × 100. That's it. The rest is willpower.

The U.S. average is around 4–5%, which is like running a marathon at a walking pace. Under 10% is survivable but tight. 10–20% is solid. Above 20% and you're in FIRE-community territory where wealth actually starts compounding noticeably.

Millionaires with 0% savings rates go broke. Middle-income earners with 25% savings rates retire early. Income gets the headlines, but savings rate writes the ending.

Everyone has a mental model of their spending. It's usually wrong. Category breakdowns replace "I probably spend $400 on food" with "lol, it's $890."

Plaid auto-categorizes transactions using merchant data. You can reclassify anything to improve accuracy — because yes, that Target run was groceries, not "shopping."

Here's the leverage: your top 2–3 categories typically account for 50%+ of all spending. Know those numbers. They're the only ones that move the needle.

The average American swipes 2–3 times a day. Under 1 is monk-mode. Over 5 and your wallet needs its own Fitbit.

Two people can spend the same $3,500/month with completely different patterns. One makes 5 small daily purchases, the other makes 2 weekly bulk buys. Same total — but the first person is far more exposed to impulse spending.

It matters because frequent small purchases bypass the brain's pain center. A $4 coffee doesn't register — but 30 of them per month is $120. Death by a thousand taps.

A budget gives every dollar a job before the month starts. The most popular framework: 50/30/20 — 50% needs (rent, food, insurance), 30% wants (the fun stuff), 20% savings and debt. Simple enough to remember, flexible enough to work.

Zero-based budgeting assigns every dollar until the balance hits $0. Envelope budgeting allocates fixed amounts to categories — when the envelope is empty, you stop. Extreme? Yes. Effective? Also yes.

The best budget is the one you actually follow. Overly rigid budgets fail because life doesn't care about your spreadsheet. Promi's GUIDE budgets adapt by learning from your actual spending — not your optimistic intentions.

Asset allocation is the single biggest driver of long-term returns — more important than which stocks you pick or whether you buy on Monday vs Friday. It's the boring decision that matters most.

Stocks: growth potential, emotional turbulence. Bonds: stability, modest returns. Cash: safety, but inflation eats it for breakfast.

The old rule of thumb: (110 − your age) in stocks. So a 30-year-old targets ~80% stocks. But honestly, your risk tolerance, income stability, and timeline matter more than any formula. Rules of thumb are guardrails, not gospel.

Diversification reduces risk without proportionally reducing returns. In investing, that qualifies as actual magic. Economists call it "the only free lunch."

It works at every level: across asset types (stocks vs bonds), within asset types (U.S. vs international), and across sectors (tech vs healthcare vs energy). Each layer is another shock absorber.

Concentration is just diversification's evil twin. Over 90% in a single stock or sector is a bet, not a portfolio. It feels great on the way up and catastrophic on the way down.

When you buy stock, you literally own a fraction of a company. That's both cool and stressful. Your fortune is now tied to someone else's management decisions and the market's mood swings.

Individual stocks are roller coasters. Index funds (like S&P 500 ETFs) are more like escalators — they spread risk across hundreds of companies. Most professional fund managers can't beat the index. If they can't, you probably can't either.

Historical U.S. equity returns: ~10% annually before inflation, ~7% after. But "average" includes years of +30% and −40%. Volatility is the price of admission — and the reason long-term investors get paid for showing up.

Buying a bond is lending money. The borrower pays you interest (the coupon) and returns your principal at maturity. It's the "I'd like to sleep at night" portion of your portfolio.

Bonds are the shock absorber when stocks crash — when equities tank, bonds usually hold steady or rise. They're boring by design, and that's exactly the point.

One non-obvious thing: bond prices move inversely to interest rates. When rates rise, existing bonds fall in value. When rates drop, existing bonds become more valuable. It's counterintuitive until it isn't.

An ETF (Exchange-Traded Fund) holds a collection of stocks, bonds, or other assets bundled into one ticker. One purchase, one slice of hundreds or thousands of companies. It's the IKEA furniture of investing — assembly not required.

Index funds track a benchmark (like the S&P 500) instead of trying to beat it. Rock-bottom fees because there's no genius fund manager to pay — just a computer following a list.

The greatest hits: VTI (total U.S. market), VXUS (international), BND (bonds), VT (literally every stock on earth). Warren Buffett bet a million dollars that index funds beat hedge funds. He won.

Companies can do two things with profits: reinvest in growth or hand some back to shareholders. Mature companies (utilities, banks) pay dividends. Growth companies (tech) reinvest everything. Neither is wrong — they just attract different investors.

Dividend yield = annual dividend ÷ share price. A $100 stock paying $3/year yields 3%. Yields above 5% might look tempting but often signal trouble — the stock price could be falling or the payout isn't sustainable. Sometimes a high yield is a cry for help.

DRIP (Dividend Reinvestment Plan) automatically uses your dividends to buy more shares. It's compounding on autopilot — your money making money that buys more things that make more money.

DCA means investing a fixed dollar amount on a regular schedule. When prices are high, you buy fewer shares. When prices crash, you buy more. No market timing, no crystal ball, no stress-induced doom-scrolling.

Technically, lump-sum investing beats DCA about two-thirds of the time — but DCA beats not investing at all 100% of the time. And that's the real competition for most people.

If you contribute to a 401(k) every paycheck, congratulations — you're already dollar-cost averaging. It's the most common investing strategy in the world, and most people don't even know they're doing it.

Buy at $50, sell at $80 — that $30 profit is a capital gain. Crucially, you only owe tax when you sell. Paper profits (unrealized gains) are tax-free. This is why people say "it's not a gain until you sell."

Short-term gains (held < 1 year): taxed as ordinary income, up to 37%. Long-term gains (held > 1 year): special rates of 0%, 15%, or 20%. The IRS literally rewards you for being patient.

Hold an investment one extra day past 12 months and your tax rate could drop by 15–20 percentage points. Calendar awareness is the easiest tax strategy that exists.

Cost basis = your purchase price, including commissions. When you sell, the IRS calculates gain/loss as: sale price minus cost basis. Simple concept, surprisingly complex in practice.

Bought the same stock at different prices over time? You get to choose which shares to sell (specific identification) or default to FIFO (first in, first out). This isn't just record-keeping — it's a tax lever.

Selling high-basis shares means less taxable gain. Selling low-basis shares first means a bigger tax hit. Same stock, same sale price, wildly different tax bills. Your choice of which lot to sell is one of the few free moves in the tax code.

Nominal return is the headline number. Real return = nominal return minus inflation. Made 10% but inflation was 3%? You got 7% richer in actual purchasing power. The other 3% was an illusion.

A 5% return during 5% inflation is breaking even. Your account balance goes up, but your money buys exactly the same stuff. You ran a lap and ended up where you started.

Historical real returns: U.S. stocks ~7%/year, bonds ~2–3%, cash ~0%. This is why long-term money should almost never sit in a savings account — you're mathematically guaranteed to fall behind.

Passive income comes from things you own, not hours you work. Dividends, interest, rental income, royalties — it's money from your past decisions paying you in the present.

Fair warning: "passive" is somewhat misleading. Rental properties need tenants and maintenance. Dividend portfolios require years of saving. The word "passive" really means "frontloaded a ton of work or capital" — the income just keeps flowing after that.

Financial independence happens when passive income covers expenses. At that point, working becomes optional. You might still work — but there's a big difference between choosing to and having to.

Cash inside a brokerage earns next to nothing while the rest of your portfolio grows at 7–10%. Every idle dollar is missing the party.

Over 15% cash in investment accounts is worth questioning — unless you're saving for a pending purchase or have a good reason to be cautious. Otherwise, it's dead weight.

At 7% returns, $10k of excess cash costs roughly $700/year in missed growth. Not catastrophic, but compound it over a decade and you've bought yourself a $10k mistake by doing absolutely nothing. Literally.

Portfolio growth comes from two engines: your existing money appreciating (market returns) and new contributions (adding fuel). Both matter, but over time, the first one does most of the heavy lifting.

Promi's growth chart shows total portfolio value over time — contributions plus returns combined. For pure investment performance, compare against a benchmark like the S&P 500.

Drawdowns happen. Red days happen. Red months happen. But historically, every U.S. market downturn has been followed by recovery. The market rewards the people who stay at the table.

A glide path gradually shifts your portfolio from aggressive (mostly stocks) to conservative (more bonds and cash) as you approach retirement. Target-date funds like "Vanguard 2050" automate this entirely — you literally do nothing.

The logic is simple: at 25, a market crash is a buying opportunity. At 60, it's a heart attack. The closer you are to needing the money, the less volatility you can stomach.

There's no single right glide path. Aggressive paths keep more stocks longer (higher returns, more drama). Conservative paths shift earlier (less growth, better sleep). Pick the one that matches your personality, not just your age.

RSUs are promises of stock that become yours after vesting, typically over 3–4 years. They're the tech industry's favorite way of saying "please don't leave."

Here's what catches people: RSUs are taxed as ordinary income when they vest — not when granted. So when $50k in RSUs vests, it's like receiving $50k in salary. Surprise tax bill, table for one.

Concentration risk is the big gotcha. If you hold a lot of company stock, your income AND your wealth both depend on the same company. That's not diversification — that's putting everything on one number. Many advisors recommend selling vested RSUs and spreading the money around.

Your cash position is the money that's actually accessible right now: checking, savings, money market. Not investments, not retirement accounts — just the cold, liquid stuff.

Net cash position subtracts credit card balances, which is the more honest number. Having $20k in savings and $5k in credit card debt means your real cash position is $15k.

A strong cash position means surprises don't become emergencies. When the car breaks down, you write a check instead of a prayer.

Burn rate is your 30-day trailing expense total. Think of it as the monthly subscription fee for your lifestyle — non-optional, automatically renewed.

Burn rate drives everything: how long your savings last (runway), how big your emergency fund needs to be, and whether that career change is financially feasible.

One-time big purchases (furniture, car repair, that regrettable hot tub) temporarily spike the number. That's noise. Your 6-month average burn rate is the real signal — the actual cost of your life as you live it.

Formula: Liquid Assets ÷ Monthly Burn Rate = Months of Runway. It answers the scariest question in personal finance: how long could you survive without a paycheck?

Under 3 months is the danger zone — one surprise could wipe you out. 3–6 months is solid. 6–12 months is comfortable. This is literally what "financial security" means.

Over 12 months starts raising a different question: is too much money sitting in low-yield accounts? If your cash could be compounding but isn't, inflation is quietly eating it.

Emergency funds exist so that life's inevitable disasters — job loss, medical bills, surprise repairs — don't cascade into debt spirals. They're boring by design and invaluable by function.

The benchmark: 3–6 months of expenses (not income). Spending $4,000/month? Aim for $12k–$24k in cash. It sounds like a lot until you need it, at which point it sounds like not nearly enough.

Keep it in a high-yield savings account — liquid enough for emergencies, but earning 4–5% APY instead of the 0.01% your big bank generously offers.

OCF measures how your net cash position changes over time from actual income and spending — transfers and one-time events removed. It's the signal underneath all the noise.

Promi tracks OCF over 30, 90, and 180 days. A 30-day dip after the holidays? Normal. All three horizons declining? That's a pattern, and it's worth an honest conversation with your spending habits.

Think of it like a company's operating cash flow: it shows whether the "business of your life" is running a surplus or a deficit. One is sustainable. The other has an expiration date.

Sankey diagrams use width-proportional flows to show money moving from sources (income) to destinations (categories). Wider stream = more money. It's impossible to lie to yourself when you're looking at a Sankey.

Unlike pie charts (which are basically useless), Sankeys reveal the journey: income splits into taxes, rent, food, fun, and savings — with the width of each river telling the relative size. Thick savings flow? Good. Thick dining-out flow? Uh oh.

They're the fastest way to spot imbalances. If the "subscriptions" stream looks almost as wide as "savings," you don't need a financial advisor — you need to cancel some apps.

Your peer cohort comes from the Federal Reserve's Survey of Consumer Finances (SCF) — real data on real American households. Not Instagram, not Reddit, not your college roommate who claims to make $400k.

Promi matches you by age, income, education, occupation, household size, and location. Because comparing your $80k salary in Omaha to someone making $200k in Manhattan isn't useful — it's just depressing.

Peer comparisons provide context, not judgment. Being "below average" in net worth but "above average" in savings rate means you're building fast from a late start. The numbers tell a story; you decide the plot.

Percentiles range from 0 to 100. The 50th is the median — smack in the middle of your peer group. Above 50 means ahead of most. Below means you have room to grow. Simple.

Promi shows percentiles for income, assets, debt, and net worth. Top quartile (75th+) means you're materially ahead. Bottom quartile is common early in careers or after big life changes — it's a snapshot, not a sentence.

Here's what matters: your percentile today tells you where you are. Your percentile trend tells you where you're going. Both are useful, but only one predicts the future.

$150k in Manhattan means a shared apartment. $150k in rural Ohio means a house with a yard. Cost-of-living adjustments normalize these differences so your benchmarks actually make sense.

Promi uses your location to adjust peer comparisons. Without it, you'd be compared to national averages — which is like using the average temperature on Earth to decide what to wear.

Setting your location in your profile matters more than you think. It's the difference between "you're behind" and "you're doing great for someone paying San Francisco rent."

Zooming out from month-to-month noise reveals the actual trajectory. Are raises keeping up with inflation? Is net worth actually building? Is lifestyle inflation quietly eating your progress? YoY data answers all of this.

Key YoY metrics: income growth (real or just inflation?), net worth progression (building or treading water?), and expense trends (is the lifestyle creeping up?). Each one tells a different chapter of the same story.

This data gets richer the longer you use Promi. After 12+ months, structural patterns emerge that monthly views miss entirely. Patience is a feature, not a bug.

You earn more, so you spend more. The apartment gets nicer. The car gets newer. The restaurants get fancier. Before you know it, you're making twice what you made five years ago and saving the exact same amount. That's lifestyle inflation.

It's not always bad — upgrading from a shared apartment to your own place genuinely improves life. The problem is when every raise gets absorbed by nicer stuff, leaving zero for wealth building.

The antidote: when income goes up, route at least half the increase to savings before your lifestyle has a chance to notice. Pay your future self first. Your present self will adapt faster than you think.

FIRE isn't about hating your job (though it doesn't hurt). It's about reaching a point where you have options. Work because you want to, not because the rent is due.

The core math: save 25× your annual expenses. Spend $40k/year? Your number is $1M. Spend $80k? You need $2M. The formula doesn't care about your income — it only cares about the gap between what you earn and what you spend.

At a 50% savings rate, you can reach FI in about 17 years. At 75%, about 7. The math is almost entirely about spending control. A high income helps, but a low burn rate is the real cheat code.

The formula most people use: Annual Expenses × 25. This comes from the 4% rule — withdraw 4% per year and the portfolio historically survives 30+ years. Simple enough to calculate on a napkin.

Your FI number is personal. It depends on what you spend, where you live, your healthcare situation, whether you have kids, and how much buffer makes you sleep well. Two people with the same income can have wildly different FI numbers.

FI isn't binary. "Partial FI" — investments covering 50–80% of expenses — still changes your life dramatically. You could take a pay cut for better work, go part-time, or survive a layoff without panic.

Based on the Trinity Study (1998), which backtested every 30-year period since 1925. A 4% initial withdrawal, adjusted for inflation, survived 95%+ of all historical scenarios. Not guaranteed, but the odds are pretty good.

It assumes a 50/50 to 75/25 stock/bond portfolio. Conservative planners use 3.5%. Aggressive ones use 4.5%. The "right" rate depends on how willing you are to tighten your belt if markets tank early.

Promi uses Monte Carlo simulations — thousands of random market scenarios — for a more nuanced take than a single withdrawal percentage. Because your retirement shouldn't depend on one number from a 1998 paper.

Lean FIRE means FI with intentionally low spending, typically under $40k/year. The FI number is smaller (under $1M), making it faster to reach — but it requires permanent frugality, not just a temporary phase.

Works beautifully for: low-cost areas, single or childfree households, and people who genuinely enjoy living simply. Works terribly for: people who call it "temporary sacrifice" and plan to upgrade later.

The trade-off is real: faster freedom, thinner margin. A medical emergency or housing surprise on a $28k/year budget hurts proportionally more than on $80k.

Fat FIRE means FI without lifestyle compromise. No coupons, no downsizing, no "we'll skip the trip this year." You maintain or exceed your current lifestyle entirely from investments.

FI numbers start at $2.5M (for $100k/year spending) and go way up from there. This typically requires high income, years of disciplined saving, or a liquidity event. It's the slow road, but a very comfortable one.

The upside: buffer for anything — healthcare surprises, generosity, travel, supporting family. Fat FIRE means never doing mental math at a restaurant. That's a specific kind of freedom.

Named after Starbucks (which offers health insurance to part-time employees), Barista FIRE means your investments handle the heavy lifting while a low-stress gig covers the gap and provides benefits.

This dramatically reduces the FI number. Portfolio covers $30k of your $50k expenses? You just need a part-time gig for $20k — and you get healthcare without COBRA prices. Pretty good deal.

Psychologically, it's often better than full retirement: you get structure, social interaction, and spending money — without career pressure, performance reviews, or Sunday-night dread.

At Coast FIRE, your existing investments will grow to your FI number by your target retirement age, even if you stop contributing entirely. The compounding machine is running; you just have to not break it.

Example: a 30-year-old with $250k at 7% real returns will have ~$1.9M by age 60 — without adding a cent. They've essentially pre-funded retirement and can stop worrying about maximizing savings.

This opens doors nothing else can: switch to lower-paying but meaningful work, take sabbaticals, go part-time. When you don't need to save more, income becomes about lifestyle, not survival.

Two portfolios can have identical average returns over 30 years but wildly different outcomes. The secret? Order matters. Bad years early (while you're withdrawing) is devastating. Bad years late is survivable.

A crash in year 1 of retirement is catastrophically different from the same crash in year 20. Early losses plus withdrawals create a death spiral the portfolio never recovers from. This is the hidden boss fight of retirement planning.

Defenses: keep 2–3 years of cash so you don't sell stocks during a crash, cut spending in bad years, hold some bonds for stability. Basically: have a Plan B for the first decade.

Instead of assuming a smooth 7% return every year (which literally never happens), Monte Carlo throws thousands of random return sequences at your plan and counts how many times you don't go broke.

The result: a probability. "Your plan works in 87% of 10,000 scenarios." Way more honest than a single projection line that pretends the market returns exactly 7% every year like clockwork.

Promi runs this on your actual portfolio and spending data, showing everything from worst-case to best-case. Because "it'll probably be fine" is not a retirement strategy.