---
title: Personal finance glossary — 90 terms in plain English | Allocate AI
description: Plain-English definitions of the words behind your pay, taxes, goals and retirement accounts: RSUs, vesting, ESPP, mega backdoor Roth, safe to spend, the 4% rule and more.
canonical: https://allocateai.io/glossary
site: Allocate AI — https://allocateai.io
---

# The words behind your money, in plain English.

90 terms — pay, taxes, goals, retirement accounts, housing — each on its own page with an example and the calculator that uses it. No jargon in the definitions.

## Pay & compensation

- [**83(b) election**](https://allocateai.io/glossary/83b-election) — A form filed within 30 days of receiving restricted stock that lets you pay tax on its value now, while it is low, instead of later as it vests.
- [**Accelerator (commission)**](https://allocateai.io/glossary/accelerator) — A higher commission rate that kicks in once you pass quota, so every dollar sold above target pays more than the dollars below it.
- [**Annual bonus**](https://allocateai.io/glossary/annual-bonus) — A once-a-year cash payment based on company and individual performance, usually expressed as a target percentage of base salary.
- [**Base salary**](https://allocateai.io/glossary/base-salary) — The fixed, guaranteed part of your pay, spread evenly across the year's paychecks before any bonus, commission, or stock is added.
- [**Clawback**](https://allocateai.io/glossary/clawback) — A contract term that requires you to repay money you already received, most often a sign-on bonus or relocation payment, if you leave too soon.
- [**Commission**](https://allocateai.io/glossary/commission) — Pay earned as a percentage of what you sell, so the amount changes with each deal and each month rather than arriving as a fixed salary.
- [**Double-trigger vesting**](https://allocateai.io/glossary/double-trigger-vesting) — A rule at many private companies where RSUs need two events to vest: your time-based schedule and a liquidity event like an IPO or acquisition.
- [**Draw (against commission)**](https://allocateai.io/glossary/draw) — An advance on future commission paid to a salesperson, often during a ramp period, that is later deducted from commissions actually earned.
- [**ESPP (employee stock purchase plan)**](https://allocateai.io/glossary/espp) — A benefit that lets you buy your company's stock through payroll deductions at a discount, often 15% below the market price.
- [**ISO (incentive stock option)**](https://allocateai.io/glossary/iso) — A type of employee stock option with special tax treatment: no regular income tax when you exercise, and possible long-term capital gains if you hold.
- [**NSO (non-qualified stock option)**](https://allocateai.io/glossary/nso) — A stock option where the gain between your strike price and the share value is taxed as ordinary income the moment you exercise.
- [**OTE (on-target earnings)**](https://allocateai.io/glossary/ote) — The total a sales role pays if you hit exactly 100% of quota: base salary plus the commission you would earn at target.
- [**Pay period (biweekly vs semimonthly)**](https://allocateai.io/glossary/pay-period) — How often you get paid; biweekly means 26 checks a year every other week, semimonthly means 24 checks on fixed dates like the 15th and 30th.
- [**Refresh grant**](https://allocateai.io/glossary/refresh-grant) — An additional stock grant given to a current employee, usually each year, so that equity pay keeps flowing after the original grant finishes vesting.
- [**RSU (restricted stock unit)**](https://allocateai.io/glossary/rsu) — A promise from your employer to give you shares of company stock on a future date, as long as you are still there when that date arrives.
- [**Sign-on bonus**](https://allocateai.io/glossary/sign-on-bonus) — A one-time cash payment for joining a company, usually paid in your first paycheck or two and often repayable if you leave within a year.
- [**Strike price (exercise price)**](https://allocateai.io/glossary/strike-price) — The fixed price at which a stock option lets you buy a share, set when the option is granted, no matter what the stock is worth later.
- [**Take-home pay (gross vs net)**](https://allocateai.io/glossary/take-home-pay) — The amount that actually reaches your bank account after taxes, insurance, and retirement contributions come out of your gross pay.
- [**Total compensation**](https://allocateai.io/glossary/total-compensation) — Everything a job pays in a year added together: base salary, bonus, stock, and sometimes benefits, as opposed to the salary figure alone.
- [**Vesting (and vesting schedules)**](https://allocateai.io/glossary/vesting) — The process by which promised stock or retirement money becomes truly yours over time, usually on a fixed calendar called a vesting schedule.
- [**Vesting cliff**](https://allocateai.io/glossary/vesting-cliff) — A waiting period, usually one year, during which none of your stock grant vests; at the end of it a large chunk vests all at once.

## Taxes

- [**Additional Medicare tax**](https://allocateai.io/glossary/additional-medicare-tax) — An extra 0.9% Medicare tax on wages above $200,000 for single filers or $250,000 for married couples, on top of the regular 1.45%.
- [**AMT (alternative minimum tax)**](https://allocateai.io/glossary/amt) — A parallel tax calculation with fewer deductions and its own rates; you pay whichever is higher, and exercising incentive stock options often triggers it.
- [**Capital gains (short-term vs long-term)**](https://allocateai.io/glossary/capital-gains) — Profit from selling an investment for more than you paid; gains on assets held over a year get lower tax rates than gains on assets sold sooner.
- [**Cost basis**](https://allocateai.io/glossary/cost-basis) — What you paid for an investment, including fees, or the value you were taxed on when you received it; the starting point for measuring gain or loss.
- [**Estimated taxes (quarterly payments)**](https://allocateai.io/glossary/estimated-taxes) — Tax payments you send directly to the IRS four times a year when withholding will not cover what you owe, common with big equity gains or side income.
- [**FICA (Social Security and Medicare tax)**](https://allocateai.io/glossary/fica) — Payroll taxes taken from every paycheck: 6.2% for Social Security up to a yearly wage cap and 1.45% for Medicare with no cap, matched by your employer.
- [**Marginal vs effective tax rate**](https://allocateai.io/glossary/marginal-vs-effective-tax-rate) — Your marginal rate is the tax on your next dollar of income; your effective rate is total tax divided by total income, and it is always lower.
- [**Social Security wage base**](https://allocateai.io/glossary/social-security-wage-base) — The maximum amount of yearly wages subject to Social Security tax, $184,500 in 2026; income above it is not taxed for Social Security.
- [**Standard deduction**](https://allocateai.io/glossary/standard-deduction) — A fixed amount every taxpayer can subtract from income before tax is calculated, $16,100 for single filers and $32,200 for married couples (2026).
- [**Supplemental wages (and supplemental withholding)**](https://allocateai.io/glossary/supplemental-wages) — Pay that is not regular salary, like bonuses, commissions, and vested stock, which the IRS lets employers withhold on at a flat 22% rate (2026).
- [**Tax bracket**](https://allocateai.io/glossary/tax-bracket) — One of the income ranges the federal government taxes at a set rate; only the income inside each range is taxed at that range's rate.
- [**Tax-loss harvesting**](https://allocateai.io/glossary/tax-loss-harvesting) — Selling investments that have dropped in value to lock in a loss that offsets taxable gains or income, then buying something similar to stay invested.
- [**W-4 (withholding form)**](https://allocateai.io/glossary/w-4) — The form you give your employer that tells them how much federal income tax to take out of each paycheck, based on your filing status and other income.
- [**Wash sale**](https://allocateai.io/glossary/wash-sale) — Selling an investment at a loss and buying the same or a nearly identical one within 30 days before or after, which disallows the loss for tax purposes.
- [**Withholding gap**](https://allocateai.io/glossary/withholding-gap) — The difference between the tax your employer took out during the year and the tax you actually owe, which becomes a bill or a refund in April.

## Budgeting & planning

- [**50/30/20 rule**](https://allocateai.io/glossary/50-30-20-rule) — A simple budget split of after-tax income: about 50% to needs, 30% to wants, and 20% to savings and debt payoff.
- [**Cash flow**](https://allocateai.io/glossary/cash-flow) — The timing of money in and money out over a period; positive cash flow means more came in than went out, regardless of what you own.
- [**Emergency fund**](https://allocateai.io/glossary/emergency-fund) — Cash set aside in a safe, easy-to-reach account to cover three to six months of essential expenses if income stops or a large surprise bill arrives.
- [**Envelope budgeting**](https://allocateai.io/glossary/envelope-budgeting) — Putting a set amount into a separate envelope, real or digital, for each spending category, and stopping when the envelope is empty.
- [**Liquid net worth**](https://allocateai.io/glossary/liquid-net-worth) — The part of your net worth you could turn into cash within days without penalty: bank accounts, taxable investments, and vested stock you can sell.
- [**Net worth**](https://allocateai.io/glossary/net-worth) — Everything you own minus everything you owe, one number that shows whether your finances are moving forward over time.
- [**Sinking fund**](https://allocateai.io/glossary/sinking-fund) — Money saved a little each month toward a known future expense, like car insurance, holidays, or a vacation, so the bill is covered when it arrives.
- [**Zero-based budget**](https://allocateai.io/glossary/zero-based-budget) — A budgeting method where every dollar of income is assigned a job, spending, saving, or debt, so income minus assignments equals zero.

## Saving & investing

- [**APY vs APR**](https://allocateai.io/glossary/apy-vs-apr) — Two ways of quoting a yearly rate: APR ignores compounding and is used for loans, while APY includes it and is used for savings.
- [**Asset allocation**](https://allocateai.io/glossary/asset-allocation) — How your investments are split between stocks, bonds, and cash; the mix drives most of your long-term return and how bumpy the ride is.
- [**Coast FIRE**](https://allocateai.io/glossary/coast-fire) — Having enough invested that, with no more contributions, it will grow into a full retirement fund by normal retirement age; you only cover today's bills.
- [**Compound interest**](https://allocateai.io/glossary/compound-interest) — Growth on top of growth: earnings are added to the balance, and then those earnings earn too, so money grows faster the longer it is left alone.
- [**Diversification**](https://allocateai.io/glossary/diversification) — Spreading money across many investments so that no single company, industry, or country can sink your whole plan.
- [**Dollar-cost averaging**](https://allocateai.io/glossary/dollar-cost-averaging) — Investing a fixed amount on a regular schedule regardless of price, which spreads out timing risk and removes the need to guess when to buy.
- [**Expense ratio**](https://allocateai.io/glossary/expense-ratio) — The yearly fee a fund charges, expressed as a percentage of your balance and taken out invisibly; 0.05% is cheap, 1% is expensive.
- [**FatFIRE**](https://allocateai.io/glossary/fatfire) — Financial independence with a large budget, typically $100,000 or more of yearly spending, which means a portfolio of several million dollars.
- [**FIRE (financial independence, retire early)**](https://allocateai.io/glossary/fire) — A plan to save a large share of income so that investments can cover living costs long before traditional retirement age.
- [**Index fund**](https://allocateai.io/glossary/index-fund) — A mutual fund or ETF that holds every stock in a market index like the S&P 500, so you own a slice of the whole market at very low cost.
- [**Inflation**](https://allocateai.io/glossary/inflation) — The general rise in prices over time, which means each dollar buys a little less every year and savings must grow just to keep their value.
- [**Real vs nominal return**](https://allocateai.io/glossary/real-vs-nominal-return) — A nominal return is the headline growth figure; a real return subtracts inflation to show how much your buying power actually grew.
- [**Rebalancing**](https://allocateai.io/glossary/rebalancing) — Periodically buying and selling to bring your portfolio back to its intended mix after market moves have pushed it off target.
- [**Safe withdrawal rate (the 4% rule)**](https://allocateai.io/glossary/safe-withdrawal-rate) — The percentage of a portfolio you can spend each year, adjusted for inflation, with a good chance it lasts 30 years; the classic estimate is 4%.
- [**Time value of money**](https://allocateai.io/glossary/time-value-of-money) — The idea that a dollar today is worth more than a dollar later, because today's dollar can be invested and grow in the meantime.

## Retirement accounts

- [**401(k)**](https://allocateai.io/glossary/401k) — An employer-sponsored retirement account you fund from your paycheck, with tax advantages and a yearly contribution limit of $24,500 (2026).
- [**415(c) limit (total 401(k) contribution limit)**](https://allocateai.io/glossary/415c-limit) — The cap on everything that can go into your 401(k) in a year from all sources, $72,000 in 2026, including your contributions and your employer's.
- [**Backdoor Roth IRA**](https://allocateai.io/glossary/backdoor-roth) — A way for people above the Roth IRA income limit to still fund one: contribute to a traditional IRA without a deduction, then convert it to Roth.
- [**Catch-up contribution**](https://allocateai.io/glossary/catch-up-contribution) — Extra retirement contributions allowed once you turn 50: $8,000 more in a 401(k) ($11,250 at ages 60 to 63) and $1,100 more in an IRA (2026).
- [**Employer match (401(k) match)**](https://allocateai.io/glossary/employer-match) — Money your employer adds to your 401(k) based on what you contribute, such as 50 cents per dollar up to 6% of pay; it is part of your compensation.
- [**FSA (flexible spending account)**](https://allocateai.io/glossary/fsa) — A pre-tax account through your employer for medical or dependent-care costs that must be used within the plan year or mostly forfeited.
- [**HSA (health savings account)**](https://allocateai.io/glossary/hsa) — A tax-free account for medical costs, available with a high-deductible health plan, with limits of $4,400 for individuals and $8,750 for families (2026).
- [**IRA (individual retirement account)**](https://allocateai.io/glossary/ira) — A retirement account you open yourself at a brokerage, separate from any employer, with a $7,500 yearly limit (2026) and traditional or Roth tax treatment.
- [**Mega backdoor Roth**](https://allocateai.io/glossary/mega-backdoor-roth) — A strategy for putting far more than the normal limit into Roth savings by making after-tax 401(k) contributions and converting them to Roth.
- [**RMD (required minimum distribution)**](https://allocateai.io/glossary/rmd) — The minimum amount you must withdraw from traditional retirement accounts each year once you reach age 73, whether you need the money or not.
- [**Roth 401(k)**](https://allocateai.io/glossary/roth-401k) — A version of the 401(k) where contributions are taxed now and every dollar, including growth, comes out tax-free in retirement.
- [**Traditional vs Roth**](https://allocateai.io/glossary/traditional-vs-roth) — The choice between paying tax on retirement savings later (traditional) or now (Roth); it usually comes down to your tax rate today versus in retirement.

## Debt & credit

- [**Credit score**](https://allocateai.io/glossary/credit-score) — A three-digit number, usually 300 to 850, that summarizes how reliably you have handled borrowed money; lenders use it to set rates and approvals.
- [**Credit utilization**](https://allocateai.io/glossary/credit-utilization) — The share of your available credit you are using, measured on your statement date; keeping it under 30% and ideally under 10% helps your credit score.
- [**Debt avalanche vs debt snowball**](https://allocateai.io/glossary/debt-avalanche-vs-snowball) — Two ways to order debt payoff: avalanche pays the highest interest rate first to save the most money; snowball pays the smallest balance first for quick wins.
- [**DTI (debt-to-income ratio)**](https://allocateai.io/glossary/dti) — Your total monthly debt payments divided by your gross monthly income; lenders use it to decide how much mortgage or loan you can carry.

## Housing

- [**Amortization**](https://allocateai.io/glossary/amortization) — The schedule that splits each fixed loan payment between interest and principal; early payments are mostly interest, later ones mostly principal.
- [**Closing costs**](https://allocateai.io/glossary/closing-costs) — The fees paid to finish a home purchase or refinance, typically 2% to 5% of the loan amount, covering the lender, title, appraisal, and prepaid items.
- [**Escrow (mortgage escrow account)**](https://allocateai.io/glossary/escrow) — An account your lender runs to collect property tax and homeowners insurance as part of your monthly payment, then pays those bills for you.
- [**HELOC (home equity line of credit)**](https://allocateai.io/glossary/heloc) — A revolving credit line secured by your home equity, with a variable rate; you borrow only what you need during a draw period and repay it afterward.
- [**PMI (private mortgage insurance)**](https://allocateai.io/glossary/pmi) — A monthly fee added to a mortgage when your down payment is under 20%, protecting the lender if you default; it can be removed once you reach 20% equity.
- [**Refinance**](https://allocateai.io/glossary/refinance) — Replacing an existing mortgage with a new one, usually to get a lower rate, change the term, or pull out cash from home equity.
- [**Rent vs buy break-even**](https://allocateai.io/glossary/rent-vs-buy-break-even) — The number of years you would need to stay in a home for buying to come out ahead of renting, once closing costs, upkeep, and investment returns are counted.

## Allocate terms

- [**Allo-Bot**](https://allocateai.io/glossary/allo-bot) — Allocate's assistant: it answers questions from your own numbers, stages changes to your plan for you to approve, and never moves money itself.
- [**Expected income event**](https://allocateai.io/glossary/expected-income-event) — In Allocate, a bonus, commission, or stock vest you tell the app about in advance, so the plan counts it as income on the date it is due to arrive.
- [**Goal fit**](https://allocateai.io/glossary/goal-fit) — In Allocate, a month-by-month check that each goal can be funded from take-home pay after bills and the goals ahead of it, with a one-tap fix if not.
- [**Lump sum matched to a goal**](https://allocateai.io/glossary/lump-sum-matched-to-goal) — In Allocate, an expected one-off payment, like a bonus or vest, assigned to fund a specific goal, so the goal counts it and stops warning.
- [**Morning brief**](https://allocateai.io/glossary/morning-brief) — In Allocate, a short written note each morning covering what moved in your money overnight and anything that needs a decision from you.
- [**My plan**](https://allocateai.io/glossary/my-plan) — In Allocate, a written plan listing your goals in order, the monthly amount each one gets, and the date each one lands.
- [**Safe to spend**](https://allocateai.io/glossary/safe-to-spend) — In Allocate, the money that is genuinely free between now and your next payday, after bills and goal contributions are already covered.
- [**Workspace**](https://allocateai.io/glossary/workspace) — In Allocate, a board where you arrange cards, notes, and live sheets built from your own numbers to explore a question your way.

---

Allocate AI is a budgeting and financial-planning app: link your accounts, say what you want in plain words, and it writes the plan and stages every change for your approval. Read more at https://allocateai.io or see all pages in https://allocateai.io/llms.txt.