Personal finance glossary

What you pay every month in an amount that barely changes, like rent or a loan payment. Since you have to pay it no matter what and the amount is rarely up for negotiation, it's the part of your budget you already know ahead of time.

Example: Rent, the monthly payment on a loan and a phone plan with a fixed price.

Source:Finanzas para Todos

What changes from one month to the next depending on how you live, like food, clothes or electricity. Many are necessary, but this is where small adjustments make saving easiest.

Example: Groceries can cost 300 one month and 360 the next, depending on what you buy.

Source:Finanzas para Todos

Small purchases you make almost every day without thinking, like a coffee or a snack, plus a subscription that charges you on its own and you don't use. One alone goes unnoticed, but together they eat into what you could save and can push you into debt you didn't need.

Example: A 5 coffee on each of the 20 workdays in a month adds up to 100; over a year, that's 1,200.

Source:Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros (Condusef)

The small expenses that add up don't even feel like spendingSmall everyday expenses that add up: how to find yours with a week of tracking and decide which stay

Setting your savings aside as soon as you get paid, before bills or shopping, instead of saving whatever is left at the end of the month. The easiest way is to pick a percentage, say 10% to 20%, and schedule the transfer for payday.

Example: With an income of 8,000, you set aside 800 (10%) on payday and live on 7,200 for the month.

Source:Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros (Condusef)

How do you start saving when there's never anything left at the end of the month?The Richest Man in Babylon: what it teaches and how to pay yourself first every payday

Your money's plan for a period, usually a month: how much comes in and what you'll use it for. It helps you keep track of spending, save ahead of time and avoid debt for things you didn't plan for.

Example: If you earn 2,000 a month, you can decide on day one: 900 for housing and food, 300 for transport, 400 to save and 400 for everything else.

Source:Finanzas para Todos

How to organize your finances from scratch: the first thing to do

A simple way to split the money you actually take home: 50% for needs like housing, food and debt payments, 30% for wants and 20% for savings and investing. It's a starting point: if it doesn't fit, start by saving less and raise it little by little.

Example: With 1,500 a month: 750 for needs, 450 for wants and 300 to save.

Source:Finanzas para Todos

You just got paid: what to do with your paycheck in the first 24 hoursThe 50/30/20 rule: how to split your income the All Your Worth way, and what to do if it doesn't add up

The money that actually reaches you after taxes and social security contributions are taken out. It's different from gross pay, which is what your contract says before those deductions, and it's the number to build your budget on.

Example: If your contract says 2,000 and 160 is deducted for contributions, your net pay is 1,840.

Source:Finanzas para Todos

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An extra payment that goes straight to reducing what you owe, not to interest. Since interest is charged on the balance, you pay less interest and finish sooner or with a lower payment. In Colombia, on most peso loans (not mortgages), the law lets you choose which of the two you want.

Example: If you owe 1,000,000 at 2% a month and pay 100,000 extra toward principal, next month's interest drops by 2,000.

Source:Departamento Administrativo de la Función Pública

Debt payoff calculator: how long until your debt is paid offWhich debt should I pay off first if I have several?

How a debt is paid off in installments: each payment is split between interest and principal, the part that actually lowers your debt. With each fixed payment, the interest share shrinks and the principal share grows, because interest is charged on a smaller and smaller balance.

Example: On the first payment of 120 on a 1,000 loan at 2% a month, 20 is interest and 100 lowers the debt.

Source:Consumer Financial Protection Bureau (CFPB)

Debt payoff calculator: how long until your debt is paid off

The figure that sums up, in Mexico, what a loan costs in a year as a percentage: on top of interest, it includes the fees and other costs of the credit, before VAT. That makes it better for comparing cards and loans than the interest rate alone.

Example: Two cards with the same interest rate can have a different CAT if one charges an annual fee and the other doesn't.

Source:Banco de México

In Argentina, the rate that shows what a loan really costs: it adds the effect of the operation's fees and charges to the interest rate. Ads must show it at least five times larger than the nominal annual rate, because it's the figure to compare.

Source:Banco Central de la República Argentina (BCRA)

The recurring fee a Colombian financial institution charges to manage your card or account. On a credit card, it's charged as long as the card is active and has credit available, even if you don't use it, so ask about it before you accept one.

Example: If the fee is 20 a month, a card sitting in a drawer costs you 240 a year.

Source:Superintendencia Financiera de Colombia

What should you know before accepting your first credit card?

In Brazil, the annual rate that brings together everything a loan costs: interest, fees, taxes, insurance and other charges tied to it. Lenders must disclose it when they offer or grant you credit, and it's the figure for comparing two offers.

Source:Banco Central do Brasil

The day of the month when your credit card's billing period ends and your statement closes. Anything you buy after that date falls into the next period.

Example: If your closing date is the 15th, a purchase on the 16th shows up on next month's statement.

Source:Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros (Condusef)

What's the difference between the statement closing date and the payment due date?Statement closing date vs. due date: what each means and what happens if you buy on the closing date

The last day you have to pay your card without falling behind. It comes a few days after the closing date; if you pay the full balance by then, many cards charge no interest on your purchases.

Source:Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros (Condusef)

What's the difference between the statement closing date and the payment due date?Do you always forget to pay on time? Try thisStatement closing date vs. due date: what each means and what happens if you buy on the closing date

The record of how you've handled credit: what debts you have or had, how much you owe and whether you paid on time. Lenders check it to decide whether to lend to you and at what rate, so every on-time payment counts.

Source:Consumer Financial Protection Bureau (CFPB)

The extra interest charged when a payment is overdue, meaning you didn't pay by the due date. It's different from the regular interest you pay for the money you borrowed.

Source:Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros (Condusef)

Do you always forget to pay on time? Try this

In Mexico, buying with a credit card and paying in monthly installments, such as over 6, 12 or 18 months, for the same price as paying up front. It costs no more if you pay on time, but each purchase takes up part of your budget for months, and if you fall behind, you end up paying interest.

Example: A 12,000 TV over 12 interest-free months is 1,000 a month for a year.

Source:Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros (Condusef)

Are interest-free instalments really free? The truth nobody tells youInterest-free instalment plans: how they work, what to check and what happens if you miss a payment

A way to pay off several debts: you list them from highest to lowest interest rate and put everything extra on the first one, since it costs you the most. When it's paid off, you move the whole payment to the next one; in the long run it usually saves you interest, though progress feels slower.

Example: If a card charges 4% a month and a loan 1.5%, the extra goes to the card first.

Source:Consumer Financial Protection Bureau (CFPB)

Debt snowball or avalanche: compare both methods with your debtsWhich debt should I pay off first if I have several?

A way to pay off several debts, made popular by Dave Ramsey: you list them from smallest to largest balance, ignoring the rate (your mortgage stays out), pay the minimum on all of them and put everything extra on the smallest. Once it's gone, what you were paying on it goes to the next one.

Example: With debts of 300, 900 and 2,000, you clear the 300 first, then add that payment to the 900.

Source:Ramsey Solutions

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The least you must pay on your card in a month so you don't fall behind. If that's all you pay, the rest keeps being charged interest: you end up paying more interest and it takes you longer to get out of debt.

Example: If you owe 1,000 at 3% a month and pay 40, only 10 lowers the debt; the other 30 is interest.

Source:Consumer Financial Protection Bureau (CFPB)

What happens if I only pay the minimum on my credit card?Credit card minimum payment: what happens to the rest and how each country regulates it

In Brazil, the credit that kicks in when you don't pay your full card bill: what's left rolls into the next bill with interest. It can only last until that next bill is due; after that, the balance can move to an installment plan on better terms for you.

Source:Banco Central do Brasil

In Peru, the rate used to compare the total cost of a loan: it includes interest, fees and charges passed on to you and, on consumer loans and home loans, insurance too. It leaves out taxes and anything you pay directly to third parties.

Example: Two loans with the same effective annual rate can have a different TCEA if one charges a monthly fee.

Source:Superintendencia de Banca, Seguros y AFP (SBS)

The highest interest a lender can charge in Colombia on a loan or a purchase paid over time. It's one and a half times the current banking interest rate certified by the Financial Superintendency, so it changes by period and by type of credit, and charging more is a crime.

Example: If the certified current banking rate were 20% effective annual, the usury rate would be 30%.

Source:Departamento Administrativo de la Función Pública

The rate you really pay or earn over a year, because it counts the interest charged on each month's interest. That makes it the one to compare the rates of two loans or two savings accounts, even when each quotes its rate a different way; for a loan's total cost, look at the CAT, TCEA, CFT or CET.

Example: 2% a month is not 24% a year: it is a 26.82% effective annual rate.

Source:Superintendencia Financiera de Colombia

Calculator to convert a monthly interest rate into an effective annual rate

The yearly rate that's quoted without counting interest charged on interest: it's the rate for each period times the periods in a year (with a monthly rate, times 12). It's a reference, but what you really pay or earn over a year is the effective annual rate, which comes out higher when interest is added every month.

Example: 2% a month is a 24% nominal annual rate (2 × 12), but a 26.82% effective annual rate.

Source:Superintendencia Financiera de Colombia

Calculator to convert a monthly interest rate into an effective annual rate

In Brazil, an extra month's pay each year for anyone working as an employee: 1/12 of the salary for each month worked, and a month with 15 days or more counts in full. It's paid in two parts: the first by November 30 and the second by December 20.

Example: If you started on May 10, you get 8/12 of your salary: with 3,000, that's 2,000.

Source:Ministério do Trabalho e Emprego

In Mexico, the year-end payment the law gives anyone who works for an employer: at least 15 days of salary, paid before December 20. If you didn't work the full year, or you quit, you get the proportional part.

Example: With a salary of 12,000 a month (400 a day), the minimum aguinaldo for a full year is 6,000.

Source:Procuraduría Federal de la Defensa del Trabajo (Profedet)

Your year-end bonus already has an owner: decide before December does

Savings your employer builds up for you in Colombia: one month of salary for each year worked, or the proportional part. They're calculated every December 31 and deposited before February 15 into the severance fund you choose.

Example: With a 3,000,000 salary all year, 3,000,000 is deposited as cesantías, plus one month of transport allowance if you get it.

Source:Departamento Administrativo de la Función Pública

In Peru's general labor regime, a benefit your employer deposits twice a year into the financial institution you choose, to protect you if you lose your job. It's deposited in the first 15 days of May and November. For a full half-year it equals half your computable pay, which includes your salary and one sixth of your gratificación.

Example: With computable pay of 3,000 and a full May to October, 1,500 is deposited in November.

Source:Ministerio de Trabajo y Promoción del Empleo (MTPE)

In Ecuador, a bonus of one unified basic wage per year, whatever you earn; with part-time hours it's proportional. It comes every month, one twelfth with your salary. If you ask in writing, it's paid all at once by March 15 on the Coast and in Galápagos, or by August 15 in the Highlands and the Amazon.

Source:Servicio Nacional de Contratación Pública (SERCOP)

In Ecuador, one twelfth of what you earn in the year, such as your salary, overtime and commissions. It's paid every month with your salary; if you ask in writing, you get it all at once by December 24.

Example: If you earn 600 a month, you get 50 extra each month, or 600 at once in December if you asked to receive it that way.

Source:Servicio Nacional de Contratación Pública (SERCOP)

In Peru's general labor regime, two mandatory payments a year, one for Fiestas Patrias (the national holidays) and one for Christmas, each worth a full month's salary if you worked the whole half-year; otherwise it's proportional. They're paid in the first half of July and December, with an extra 9% bonus if your health insurance is EsSalud (6.75% with an EPS).

Example: With computable pay of 2,000 and a full half-year, in December you get 2,000 plus a 180 bonus with EsSalud.

Source:Ministerio de Trabajo y Promoción del Empleo (MTPE)

An extra payment of 12% a year on your cesantías that your employer pays to you directly in Colombia, not to the fund. It's paid in January of the following year, or when your contract ends, unless you agree in writing to get it every month; if you worked less than a year, it's proportional.

Example: If your cesantías for a full year are 3,000,000, the interest is 360,000.

Source:Función Pública (Gestor Normativo)

A mandatory payment in Colombia worth 30 days of salary per year worked, paid in two halves: by June 30 and within the first 20 days of December. If you worked less time, you get the proportional part.

Example: With a 3,000,000 salary and the full half-year, the December prima is 1,500,000, plus half your monthly transport allowance if you get one.

Source:Departamento Administrativo de la Función Pública

Your year-end bonus already has an owner: decide before December does

In Colombia, the part of your income tax that whoever pays you deducts in advance from your salary or fees and hands over to the DIAN, the tax authority. It isn't a separate tax: it lets the tax be collected little by little, in the same year you earn the money.

Source:Departamento Administrativo de la Función Pública

In the Dominican Republic, one twelfth of the regular salary you earned in the year, without overtime or profit-sharing bonus, capped at five minimum wages. It's paid by December 20 at the latest, even if you no longer work there, and it's proportional if you didn't work the whole year.

Example: If you earned 30,000 every month from January to December, your salario de Navidad is 30,000.

Source:Ministerio de Trabajo de la República Dominicana

Argentina's aguinaldo, paid in two installments: the first on June 30 and the second on December 18. Each one is 50% of the highest monthly pay in that half-year, counting everything that's part of your pay, or the proportional part if you didn't work all of it. For domestic workers, each installment is paid on the last working day of June and of December.

Example: If your best salary from July to December was 1,200,000, the second installment is 600,000.

Source:Ministerio de Capital Humano, Secretaría de Trabajo, Empleo y Seguridad Social

You leave a sum of money with a financial institution for a fixed time and, at the end, get back what you put in plus the agreed interest. It's called a CDT in Colombia, plazo fijo in Argentina and CDB in Brazil, and it's usually covered by deposit insurance up to a limit.

Example: If you leave 1,000 for 12 months at a 10% effective annual rate, you have 1,100 at the end, before taxes.

Source:Banco Central de la República Argentina (BCRA)

Spreading your money across different investments, like several types of assets or sectors, instead of putting it all in one. That way, if one does badly, it doesn't drag down all your savings; it lowers risk, though every investment still carries some.

Source:Finanzas para Todos

Money set aside only for the unexpected, like losing your job or an urgent repair, that you can get to quickly when you need it. The usual goal is 3 to 6 months of basic expenses, but you can start small and build it up.

Example: If your basic expenses are 1,000 a month, the goal is 3,000 to 6,000.

Source:Finanzas para Todos

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The general, sustained rise in prices in a country. With inflation, the same money buys fewer things, so a salary that doesn't go up loses buying power month after month.

Example: With 5% inflation in a year, on average, what cost 100 now costs 105.

Source:Banco Central de la República Argentina (BCRA)

Same paycheck, pricier groceries: how to calculate your own inflation

When the interest you earn is added to your money and, from then on, earns interest too. Over time it makes savings grow faster and faster, and on a debt it works against you the same way.

Example: 1,000 at 5% a year earns 50 the first year and 52.50 the second, because interest is now figured on 1,050.

Source:Finanzas para Todos

Calculator to convert a monthly interest rate into an effective annual rate

How much your money really grows after taking inflation out. If your savings earn less than prices go up, you have more money, but it buys less.

Example: If your savings earn 10% in a year and inflation was 6%, your real return is 3.77% (1.10 ÷ 1.06 − 1), not 4%.

Source:Superintendencia Financiera de Colombia

Protection that gives you back your savings, up to a maximum amount, if the institution holding them fails or is wound up. It's usually automatic and costs you nothing, but it only covers certain products and member institutions, so check your country's limit.

Source:Fondo de Garantías de Instituciones Financieras (Fogafín)