Finance & Business Glossary

A

Amortisation

The schedule by which a loan's principal is paid down over time. Each repayment splits between interest and capital, with capital making up an ever-larger share as the balance shrinks. See the loan repayment calculator.

APR (Annual Percentage Rate)

The yearly cost of borrowing expressed as a percentage, including interest and standard fees. APR exists to make loan products comparable on a like-for-like basis — a low headline rate paired with high fees can have a higher APR than a higher-rate, no-fee loan.

APY (Annual Percentage Yield)

The yearly return on a savings or investment account after compounding has been factored in. APY is always equal to or higher than the simple interest rate quoted on the account.

B

Barista FIRE

A semi-retired version of FIRE: your portfolio covers most of your spending, and a part-time job covers the rest plus benefits like health insurance.

Burn Rate

How fast a business spends cash each month. Net burn = monthly costs − monthly revenue. Combined with your cash reserve it tells you your runway. See the burn rate calculator.

C

CAC (Customer Acquisition Cost)

The total marketing and sales spend required to acquire one new paying customer. Healthy businesses recover their CAC within a few months and earn back several multiples of it over the customer's lifetime.

Capital

The principal portion of a loan — the amount you originally borrowed, as opposed to the interest charged on it. On a repayment mortgage, each monthly payment chips away at the capital.

Coast FIRE

The point at which your invested portfolio is large enough that, even if you stop contributing, normal market growth will compound it to your full FIRE number by traditional retirement age. From there you can downshift to a job that just covers expenses.

Compound Interest

Interest earned on both your original deposit and on previously accumulated interest. Over decades, compounding does the heavy lifting of long-term wealth building. See the compound interest calculator.

CPI (Consumer Price Index)

The official measure of inflation in most countries — the average price change of a representative basket of goods and services over time. UK CPI is published monthly by the ONS.

Churn

The percentage of customers (or revenue) lost in a given period. A 5% monthly churn rate sounds small but means roughly half the customer base is gone in a year. Lowering churn is usually cheaper than acquiring more customers.

D

Deposit

The lump sum a buyer puts down on a property purchase. Bigger deposits mean smaller loans, lower LTVs, and usually access to better mortgage rates.

Drawdown

(1) Pension: taking flexible income from a pension pot rather than buying an annuity. (2) Investing: the peak-to-trough fall in a portfolio's value during a market downturn — important to know when planning early retirement.

E

Equity

The portion of a property's value you actually own, free of debt. If your home is worth £400,000 and the mortgage balance is £250,000, your equity is £150,000.

ETF (Exchange-Traded Fund)

A pooled investment that trades on a stock exchange like a single share. Most retail FIRE plans rely on low-cost broad-market index ETFs as the core investment vehicle.

F

Fat FIRE

A version of FIRE that targets a comfortable, abundant lifestyle in retirement — typically £100,000+ annual spending — and so requires a much larger portfolio (often £2.5M+).

FIRE (Financial Independence, Retire Early)

A movement built around saving and investing aggressively so investment returns alone cover annual spending. See the FIRE calculator and the FIRE guide.

Fixed-rate

A mortgage product on which the interest rate is locked for a defined period — typically 2, 3, 5 or 10 years in the UK; 15 or 30 years in the US — regardless of what happens to market rates.

Four Percent Rule (4% Rule)

The convention that retirees can withdraw 4% of their portfolio in year one and adjust upward each year for inflation, with a high probability the pot lasts 30+ years. The basis for the 25× FIRE number.

G

Gross Income

Your total earnings before any tax, National Insurance, or pension deductions. Lenders often quote affordability multiples against gross, not net.

Gross Margin

Revenue minus the direct cost of producing the goods or service, expressed as a percentage of revenue. A SaaS product's gross margin is typically 70-85%; a manufactured-goods business is often 30-50%.

H

HMRC

His Majesty's Revenue and Customs — the UK tax authority. Collects income tax, National Insurance, VAT, Stamp Duty, and most other UK taxes.

I

Income Tax

Tax on earnings above the personal allowance. UK rates step up through bands (20%, 40%, 45%); US uses federal brackets plus state-specific rates. See the salary calculator.

Inflation

The rate at which the general price level rises over time. £1,000 today buys less than it did a decade ago — that's inflation eroding purchasing power. See the inflation impact calculator.

Interest-only Mortgage

A mortgage on which monthly payments cover interest only; the original principal must be repaid as a lump sum at the end of the term, usually from savings, investments, or selling the property.

ISA (Individual Savings Account)

A UK tax-free savings or investment wrapper. Cash ISAs hold savings; Stocks & Shares ISAs hold investments. Annual contribution limit is £20,000.

L

LBTT (Land and Buildings Transaction Tax)

Scotland's equivalent of Stamp Duty. Different bands and rates from England's SDLT — our stamp duty calculator covers SDLT only.

Lean FIRE

A version of FIRE built around a minimalist lifestyle and a smaller portfolio — typically £20,000-£30,000 annual spending. Cheaper to reach, less margin for error.

LTV (Loan-to-Value)

The loan amount as a percentage of the property's value. A £180,000 loan on a £200,000 home is 90% LTV. UK lenders price differently at 60%, 75%, 80%, 85%, 90% and 95% LTV.

LTV (Lifetime Value)

In a business context: the total revenue (or gross profit) a customer is expected to generate over their relationship with you. Healthy LTV:CAC ratios are typically 3:1 or better.

M

Marginal Tax Rate

The tax rate that applies to the next pound you earn. In the UK, your marginal rate jumps as you cross each band threshold; understanding it matters for pension and bonus decisions.

MRR / ARR

Monthly Recurring Revenue / Annual Recurring Revenue. Predictable subscription revenue, normalised to a monthly or annual figure. The headline metric for SaaS businesses.

N

National Insurance

UK social-insurance contributions paid by employees, employers, and the self-employed. Funds state pension and parts of the NHS. Charged on top of income tax.

Net Income

Take-home pay — what's left after income tax, National Insurance, pension, and any other deductions. The figure that actually hits your bank account.

Net Margin

Bottom-line profit as a percentage of revenue, after all costs (not just direct costs). The truest measure of how much each pound of sales is worth to you.

P

PAYE (Pay As You Earn)

The UK system by which employers deduct income tax and National Insurance from salaries before paying employees, and remit those deductions to HMRC.

Personal Allowance

The amount of income you can earn each tax year before paying UK income tax — currently £12,570. The allowance tapers to zero for incomes above £100,000.

PITI

Principal, Interest, Taxes, Insurance — the full monthly cost of a US mortgage. UK mortgages typically only quote P&I, with property tax (council tax) and home insurance billed separately.

PMI (Private Mortgage Insurance)

US-specific: insurance required by lenders when borrowers put down less than 20% on a conventional loan. Usually 0.3-1.5% of the loan annually, removable once equity reaches 20%.

Principal

The original amount borrowed on a loan, before any interest is added. Each repayment on a repayment mortgage chips away at the principal.

Purchasing Power

How much you can actually buy with a given amount of money. Inflation reduces purchasing power: £100 today buys what about £75 bought a decade ago.

R

Real vs Nominal

A nominal figure is the raw number; a real figure is adjusted for inflation. A 6% nominal investment return in a 4% inflation year is only a 2% real return.

Rent vs. Buy

The decision between renting indefinitely and taking on the costs and commitments of property ownership. Driven by local prices, mortgage rates, time horizon, and what you'd otherwise do with the deposit. See the rent vs buy calculator.

Repayment Mortgage

A mortgage on which monthly payments cover both interest and capital, so the loan is fully cleared by the end of the term. The default product type in the UK.

ROAS (Return on Ad Spend)

Revenue generated per pound (or dollar) of advertising spend. ROAS of 4× means £4 of revenue for every £1 spent on ads. See the ROAS calculator.

Runway

How many months a business can operate at its current burn rate before running out of cash. Calculated as cash reserves ÷ net monthly burn. See the runway calculator.

S

Safe Withdrawal Rate (SWR)

The percentage of a portfolio that can be withdrawn each year, adjusted for inflation, with high confidence the pot survives a long retirement. The 4% rule is the classic SWR; many early retirees use 3.25-3.5%.

SDLT (Stamp Duty Land Tax)

The UK tax on property purchases in England and Northern Ireland. Charged in bands; first-time buyers and additional-property buyers face different rates. See the stamp duty calculator.

Sequence-of-Returns Risk

The risk that poor investment returns early in retirement permanently damage a portfolio's ability to last — even if average long-run returns are fine. The reason early retirees use lower withdrawal rates.

Stamp Duty Surcharge

An extra 5 percentage points of SDLT charged on second homes and buy-to-let purchases in England and Northern Ireland, on top of the standard rates.

Stress Test

Re-running affordability calculations at a higher interest rate (typically +2 percentage points) to check that the borrower could still cope if rates rose. UK lenders run their own; smart borrowers run one too.

T

Take-Home Pay

Net income after all deductions — the figure that lands in your bank account. See the salary calculator.

Term

The total length of a mortgage or loan, in years. Longer terms reduce monthly payments but increase total interest paid.

Tracker Mortgage

A UK mortgage product whose rate moves up or down in lockstep with a reference rate (usually the Bank of England base rate) plus a fixed margin.

U

Unit Economics

The profit (or loss) generated per unit sold — a single product, customer, transaction, or subscription. If unit economics don't work, scaling just multiplies the losses. See the unit economics calculator.

V

Variable-rate

A mortgage product whose interest rate can change at the lender's discretion or in response to a benchmark. Cheaper than fixed-rate when rates are stable or falling; risky when they climb.