Canadian Personal Finance Glossary

Adjusted cost base is the total cost of an investment after accounting for purchases, reinvested distributions, commissions, returns of capital, and other adjustments. In a taxable account, ACB helps determine the capital gain or loss when you sell.

Asset allocation describes how your portfolio is divided between assets such as stocks, bonds, cash, GICs, and other investments. It is one of the biggest drivers of long-term risk and return.

Amortization is the length of time it would take to fully repay a mortgage or loan if payments continue as scheduled. In Canada, many mortgages are amortized over 25 years, though shorter and longer timelines can exist depending on the borrower and product.

A bear market usually refers to a broad market decline of 20% or more from a recent high. For long-term investors, bear markets are uncomfortable but normal parts of the investing cycle.

A bond is a fixed-income investment where an investor lends money to a government, municipality, or company. In return, the borrower usually pays interest and returns the principal at maturity.

Budgeting means giving your money a job before it disappears. A budget can track fixed bills, variable spending, savings, debt repayment, and investing contributions.

A capital gain happens when you sell an asset, such as a stock, ETF, or property, for more than your adjusted cost base. In a taxable account, capital gains can create a tax bill.

Car financing is a loan used to purchase a vehicle. Your monthly payment depends on the vehicle price, down payment, interest rate, loan term, trade-in value, and taxes or fees included in the amount financed.

Compound interest is what happens when your returns begin generating their own returns. The longer your money stays invested, the more powerful compounding can become.

CPP is a monthly taxable benefit that replaces part of your employment or self-employment income in retirement. Your amount depends on your contribution history, earnings, and the age you start taking it.

A credit score is a number based on your credit history, including repayment behaviour, credit utilization, account age, credit mix, and recent applications. Lenders may use it when reviewing mortgages, car loans, credit cards, and other borrowing.

The debt avalanche method focuses extra payments on the debt with the highest interest rate while making minimum payments on the rest. Mathematically, it is often the most efficient way to reduce total interest.

Diversification means not relying on one company, sector, country, or asset type to carry your entire portfolio. Many Canadians use broad-market ETFs to get diversified exposure in a simple way.

Dollar-cost averaging means investing a set amount at regular intervals, such as every payday or every month. It can help build discipline and reduce the temptation to wait for a perfect entry point.

An emergency fund is money kept accessible for unexpected expenses such as job loss, urgent home repairs, car repairs, or medical costs not covered by insurance. It is usually held in cash or a high-interest savings account, not risky investments.

An ETF is an investment fund that trades on an exchange. ETFs can hold stocks, bonds, commodities, or a mix of assets. Many investors use ETFs for low-cost, diversified exposure.

Home equity is the value of your home minus the amount still owed on the mortgage and any other loans secured against the property.

The Home Buyers’ Plan allows eligible Canadians to withdraw money from their RRSP to help buy or build a qualifying home. The withdrawn amount must be repaid over time to avoid being included in taxable income.

A high-interest savings account is commonly used for emergency funds, short-term savings, tax money, vacation funds, and other cash that should not be exposed to market risk.

Income tax is charged on taxable income from employment, self-employment, investments, pensions, and other sources. Canada uses a progressive tax system, meaning different layers of income are taxed at different rates.

Inflation means the general cost of goods and services is rising. Over time, inflation reduces what each dollar can buy.

An interest rate is the percentage charged on borrowed money or paid on savings and fixed-income products. It affects mortgages, car loans, credit cards, lines of credit, savings accounts, GICs, and bonds.

A liability is a debt or financial obligation. Common liabilities include mortgages, credit card balances, car loans, student loans, lines of credit, and personal loans.

Liquidity describes how quickly and easily something can be converted into cash without a major loss in value. Cash is highly liquid. A home is usually much less liquid.

Your marginal tax rate is the rate that applies to the next layer of taxable income you earn. It is different from your average tax rate, which is your total tax divided by total income.

MER is the annual cost of owning a mutual fund or ETF, expressed as a percentage of assets. It is deducted from fund returns rather than billed directly to most investors.

A mortgage payment usually includes principal and interest. Depending on the setup, it may also include property taxes, insurance, or other housing-related costs.

A mortgage prepayment is money paid toward your mortgage beyond the required scheduled payment. Prepayments usually reduce principal, which can reduce total interest and shorten the payoff timeline.

Net income is the money you actually keep after income tax, CPP, EI, workplace deductions, pension contributions, and other withholdings. It is often called take-home pay.

Net worth is calculated by subtracting liabilities from assets. Assets can include cash, investments, real estate, vehicles, business interests, and other valuable property. Liabilities include debts such as mortgages, credit cards, loans, and lines of credit.

Old Age Security is a monthly taxable benefit for eligible seniors in Canada. Unlike CPP, OAS is not based directly on your personal CPP contribution history.

Opportunity cost is the value of the next-best alternative you give up when making a decision. It applies to spending, investing, debt repayment, housing, and career choices.

Principal can mean the amount borrowed on a loan or mortgage, or the original amount invested. In a mortgage payment, the principal portion reduces the loan balance.

In a progressive tax system, income is divided into brackets. Each bracket has its own rate. Only the income inside a bracket is taxed at that bracket’s rate.

Real return is the return you earn after inflation. It gives a clearer picture of whether your purchasing power is actually growing.

A registered account is an account with special tax rules. Common Canadian examples include TFSA, RRSP, FHSA, RESP, RRIF, and RDSP accounts.

RRSP stands for Registered Retirement Savings Plan. Contributions can reduce taxable income, investments grow tax-deferred, and withdrawals are generally taxed as income later.

Savings rate measures how much of your income is saved, invested, or used to build net worth. It can be calculated using gross income or net income, but you should be consistent when tracking it.

The debt snowball method focuses extra payments on the smallest debt balance first while making minimum payments on the rest. The goal is momentum and motivation.

A tax refund happens when your tax return shows that you paid more tax during the year than you ultimately owed, or when credits and deductions reduce your amount owing below what was withheld.

A taxable account, often called a non-registered account, is an investment account that does not have the same tax sheltering as a TFSA, RRSP, FHSA, or RESP. Interest, dividends, distributions, and capital gains may need to be reported for tax purposes.

TFSA stands for Tax-Free Savings Account. Despite the name, it can hold more than cash, including eligible investments such as ETFs, stocks, mutual funds, and GICs. Contributions are made with after-tax dollars, but growth and withdrawals are tax-free.

Withholding tax is tax deducted at the source before money is paid to you. Investors often encounter it on foreign dividends, and retirees may encounter withholding on certain withdrawals.

Withdrawal rate describes how much of an investment portfolio is withdrawn each year to fund retirement spending. It is often discussed as an annual percentage of the portfolio balance.