Knowledge Center

Glossary

• Amortization Amortization is the process of paying off a loan through regular instalments that cover both interest and principal, with the interest-to-principal mix shifting over the loan's life. Money Basics & Budgeting
• Breakeven Analysis Breakeven is the point at which total revenue exactly equals total costs - no profit, no loss - commonly used to work out how many units need to be sold, or how much income is needed, before something starts actually making money. Money Basics & Budgeting
• Budget Surplus/Deficit A budget surplus means income exceeded planned spending in a given month; a deficit means the reverse - tracking which one is happening, and why, is how a budget actually improves over time. Money Basics & Budgeting
• Compounding Frequency Compounding frequency is how often earned interest or returns get added back to the principal and start earning their own returns - monthly compounding grows a balance faster than annual compounding, at the same stated rate. Money Basics & Budgeting
• Contingency Fund A contingency fund is money set aside for a specific, foreseeable-but-irregular expense - distinct from an emergency fund, which covers unforeseen income loss or crises. Money Basics & Budgeting
• Cost of Living Index A cost of living index compares how expensive it is to maintain a given standard of living across different cities - useful context when comparing a job offer or relocation between, say, Mumbai and a smaller city. Money Basics & Budgeting
• Debt-to-Income Ratio Debt-to-income ratio is your total monthly debt payments (all EMIs combined) divided by your monthly income - lenders use it to judge how much more you can safely borrow, and it's worth checking yourself before applying. Money Basics & Budgeting
• Discounting Discounting is the reverse of compounding - it converts a future rupee amount into what that amount is worth in today's money, using an assumed rate of return. Money Basics & Budgeting
• Discretionary Income Discretionary income is what's left from your take-home pay after covering essential needs and obligations - the pool a budget actually has flexibility over. Money Basics & Budgeting
• Envelope System The envelope system allocates a fixed amount of cash (or a digital equivalent) to each spending category at the start of the month - once an envelope is empty, spending in that category stops until next month. Money Basics & Budgeting
• Financial Goal Setting Financial goal setting means converting a vague intention ('save for the future') into a specific target amount, a deadline, and a monthly contribution figure - the step that turns a wish into a plan. Money Basics & Budgeting
• Fixed vs. Variable Expenses Fixed expenses stay the same every month (rent, EMIs, insurance premiums); variable expenses change (groceries, fuel, entertainment) - and only variable expenses give a budget real room to adjust in a tight month. Money Basics & Budgeting
• Future Value (FV) Future Value is what an amount invested today will grow into by a future date, at an assumed rate of return - the mirror image of Present Value. Money Basics & Budgeting
• Inflation Inflation is the rate at which prices generally rise over time, which means the same amount of money buys less in the future than it does today. Money Basics & Budgeting
• IRR (Internal Rate of Return) IRR is the discount rate at which a decision's Net Present Value works out to exactly zero - in plain terms, the annualized return a set of cash flows is actually delivering. Money Basics & Budgeting
• Lifestyle Inflation Lifestyle inflation is spending rising to match income every time it increases, so savings never actually grow despite years of raises - a quiet trap even for high earners. Money Basics & Budgeting
• Liquidity Liquidity is how quickly an asset can be converted to usable cash without losing significant value - cash itself is perfectly liquid; a house is not. Money Basics & Budgeting
• Net Savings Rate Net savings rate is the percentage of your take-home income that actually gets saved or invested each month, after all expenses - the single number that best tracks whether a budget is working. Money Basics & Budgeting
• Net Worth Net worth is the total value of everything you own minus everything you owe - the single number that best summarizes your financial position at any point in time. Money Basics & Budgeting
• Nominal vs. Real Returns Nominal return is the plain percentage growth an investment shows before adjusting for inflation; real return subtracts inflation to show how much your purchasing power actually grew. Money Basics & Budgeting
• NPV (Net Present Value) NPV adds up the present value of every cash inflow and outflow of a decision, discounted back to today - a positive NPV means the decision is expected to create more value than it costs, in today's rupees. Money Basics & Budgeting
• Opportunity Cost Opportunity cost is the value of the next-best alternative you gave up by choosing one option over another - not just what you spent, but what that money or time could otherwise have earned you. Money Basics & Budgeting
• Pay Yourself First Pay yourself first means moving savings out of your account automatically, right when salary lands, before any spending happens - treating savings as the first bill paid, not whatever's left at month-end. Money Basics & Budgeting
• Payback Period Payback period is simply how long it takes for an investment's returns to add up to what you originally put in - a quick, intuitive gut-check, though it ignores what happens after that point. Money Basics & Budgeting
• Present Value (PV) Present Value is what a future sum of money is worth today, once you account for the returns that money could have earned in the meantime. Money Basics & Budgeting
• Purchasing Power Purchasing power is what a given amount of money can actually buy - it falls over time under inflation even if the number of rupees you hold stays the same or grows slowly. Money Basics & Budgeting
• Rainy Day Fund A rainy day fund is a smaller, more accessible cushion for minor, short-term setbacks - distinct from a full emergency fund, which is sized for a much larger disruption like job loss. Money Basics & Budgeting
• Rule of 72 Divide 72 by an annual growth rate to get a rough estimate of how many years it takes an investment to double - a quick mental-math shortcut for compounding, not an exact calculation. Money Basics & Budgeting
• Simple vs. Compound Interest Simple interest is calculated only on the original principal every year; compound interest is calculated on the principal plus all previously earned interest - the same rate produces a meaningfully bigger number under compounding the longer the money sits. Money Basics & Budgeting
• Sinking Fund A sinking fund is money saved gradually, in fixed monthly instalments, toward a specific known future expense - a planned alternative to either scrambling for a lump sum or reaching for a loan when the expense arrives. Money Basics & Budgeting
• Sunk Cost A sunk cost is money (or time) already spent that can't be recovered regardless of what you decide next - the 'sunk cost fallacy' is letting that already-gone amount influence a decision that should only be based on what happens from here. Money Basics & Budgeting
• Zero-Based Budgeting Zero-based budgeting means assigning every rupee of income a job - expenses, savings, or discretionary spending - until income minus allocations equals zero, so nothing sits unaccounted for. Money Basics & Budgeting