FPMS.ie Jargon Buster: Simplifying Financial Terms
Let’s be honest - finance can feel like a different language.
Between pensions, investments, and taxes, there’s enough jargon to make anyone’s head spin. At Financial Planning Matters, we believe financial planning shouldn’t feel intimidating - so here’s our straight-talking guide to the terms you’ll actually come across.
💰 INVESTMENTS & SAVINGS
🔹 Asset – A fancy word for anything you own that has value—property, cash, stocks, pensions, or even your granny’s antique tea set (if it’s worth something!).
🔹 Diversification – A way to spread your risk by not putting all your eggs in one basket. Instead of investing in just one thing, you spread your money across different types of investments.
🔹 Liquidity – How easy it is to turn an investment into cash. A house? Not very liquid. Cash in your bank? Super liquid.
🔹 Compound Interest – Interest that earns interest! It’s the secret sauce of wealth-building—your money grows not just on the amount you put in, but also on the interest it’s already made.
🔹 ETF (Exchange-Traded Fund) – A type of investment that tracks a stock market index (like the S&P 500) and lets you invest in a bunch of companies all at once, instead of just one.
🏠 MORTGAGES & HOME FINANCE
🔹 Loan-to-Value (LTV) – The percentage of your home’s value that you’re borrowing from the bank. If you buy a house for €400,000 with a €40,000 deposit, your LTV is 90%.
🔹 Fixed Rate vs. Variable Rate –
A fixed rate mortgage keeps the same interest rate for a set period, so your repayments won’t change.
A variable rate can go up or down depending on the economy (and the bank’s mood).
🔹 Mortgage Protection – A life insurance policy that pays off your mortgage if you pass away. Most banks require it before giving you a mortgage.
🔹 Equity – The portion of your home that you actually own, instead of what the bank owns. If your home is worth €400,000 and your mortgage is €250,000, you have €150,000 in equity.
📈 PENSIONS & RETIREMENT
🔹 Annuity – A type of retirement plan where you swap your pension savings for a guaranteed income for life.
🔹 PRSA (Personal Retirement Savings Account) – A flexible pension plan for individuals, especially useful if you’re self-employed or don’t have a workplace pension.
🔹 Defined Benefit vs. Defined Contribution –
Defined Benefit (DB) pensions promise a set income for life when you retire (rare these days!).
Defined Contribution (DC) pensions depend on how much you save and how your investments perform.
🔹 ARF (Approved Retirement Fund) – A post-retirement account where you can keep your pension savings invested after you retire, instead of taking it all as a lump sum.
🔹 Tax-Free Lump Sum – The portion of your pension you can take out tax-free when you retire—usually up to €200,000.
📊 TAX & INCOME
🔹 USC (Universal Social Charge) – An extra tax on your income (yes, we know, another one!). It applies once you earn over €13,000 per year.
🔹 PAYE (Pay As You Earn) – The tax system for employees, where your income tax is deducted before you even see your salary.
🔹 DIRT (Deposit Interest Retention Tax) – The tax you pay on interest earned from savings accounts.
🔹 Tax Credit – A discount on the amount of tax you owe. For example, the Personal Tax Credit reduces your income tax bill by €1,875 per year.
🔹 Capital Gains Tax (CGT) – A tax on profits when you sell an investment or property (but not your family home). The first €1,270 per year of profit is tax-free.
🛡️ INSURANCE & PROTECTION
🔹 Income Protection – An insurance policy that pays you a portion of your salary if you’re unable to work due to illness or injury.
🔹 Life Cover vs. Serious Illness Cover –
Life Cover pays out a lump sum to your family if you pass away.
Serious Illness Cover pays out if you’re diagnosed with a specified serious illness (like cancer or a heart attack).
🔹 Whole-of-Life vs. Term Life Insurance –
Term Life Insurance covers you for a set period (e.g., 20 years).
Whole-of-Life Insurance covers you forever (but costs more!).
👨👩👧👦 FAMILY & FINANCIAL PLANNING
🔹 Estate Planning – Planning what happens to your assets when you pass away—this includes wills, inheritance tax planning, and setting up trusts.
🔹 Inheritance Tax (CAT – Capital Acquisitions Tax) – The tax paid when you inherit money or property over a certain limit. In Ireland, children can inherit €335,000 tax-free from a parent, with any amount above that taxed at 33%.
🔹 Emergency Fund – Savings set aside for unexpected expenses like job loss, medical bills, or surprise repairs. Financial experts recommend having 3-6 months’ worth of living expenses readily available.
🔹 Financial Advice: Understanding the Differences:
Financial Advisor – Someone who provides general financial advice on investments, pensions, and insurance. Typically, they work for a financial institution or bank and advise you on individual financial decisions.
Financial Planner – A specialist who takes a comprehensive, long-term view of your financial life, creating detailed strategies aligned with your goals. They focus on retirement planning, wealth management, tax strategies, and overall financial wellbeing. A Certified Financial Planner (CFP®), like our founder Niall O'Connor, holds additional qualifications to provide expert-level planning.
Financial Broker – A professional who helps you find and purchase financial products (such as pensions, life insurance, or mortgages) by comparing options across multiple providers. They work independently to identify the best financial products tailored specifically to your needs.
Simply put:
A financial advisor gives you advice on specific financial decisions.
A financial planner creates a detailed financial roadmap for your future.
A financial broker finds the best financial products available for your situation.
💡 HOW TO USE THIS JARGON BUSTER
🔹 Confused by financial terms? Bookmark this page and use it as your go-to guide.
🔹 Got a question? Drop us a DM or book a call at FPMS.ie.
🔹 Want to get your finances in order? We’re here to help.
Finance doesn’t have to be complicated. Let’s simplify it together.
