Pocket reference · updated August 2026
Twelve money terms, spotted and translated
This glossary explains the 12 terms most likely to appear in a budgeting app. Each definition uses ordinary language and a practical example, without assuming you already know finance. Start with cash flow and effective annual cost; those two ideas reveal whether a budget—and the app supporting it—actually works.
APR
Annual percentage rate expresses the yearly cost of borrowing, including interest and certain fees, as a percentage. A credit card with 24% APR does not simply add 24% once; interest is usually calculated more frequently. Compare like-for-like APRs, but also check promotional periods and total repayable cost.
APY / AER
Annual percentage yield, or annual equivalent rate in the UK, shows what savings could earn over a year after compounding. It makes accounts with different interest schedules easier to compare. A variable rate can change, and a headline rate may apply only up to a balance limit.
Cash flow
Cash flow is money entering and leaving over time. A household can earn enough across a month yet struggle because rent leaves before pay arrives. Good forecasting cares about dates as well as totals. Budget apps use cash-flow views to warn about thin points between income and bills.
Compound interest
Compound interest means earning interest on earlier interest, or paying interest on earlier unpaid interest. Time magnifies both directions. It helps long-term savings but makes revolving debt expensive. The rate, compounding frequency, fees and time horizon all affect the final result.
Emergency fund
An emergency fund is accessible cash reserved for necessary surprises such as urgent travel, a broken boiler or a gap in income. It is not an investment return project. A sensible first milestone may be one essential bill, then one month of core expenses, adjusted to your stability.
Fixed expense
A fixed expense is broadly predictable in amount and timing: rent, a set loan payment or a regular subscription. “Fixed” does not mean unavoidable forever. During a review, ask whether the service is still needed and whether renewal changes the price.
Net worth
Net worth is what you own minus what you owe. Add cash, investments and relevant assets, then subtract debts. It is a rough directional measure, not a grade on your life. Asset values can be uncertain, and a rising number does not replace accessible cash flow.
Open banking
Open banking lets you authorize a regulated service to access specific account data through secure interfaces, rather than handing over bank login details. Permissions are limited and may expire. Check the provider, requested scope and removal process before connecting any budgeting app.
Sinking fund
A sinking fund is money built gradually for a known future cost: annual insurance, holiday travel or appliance replacement. Divide the expected cost by the months remaining and save that amount regularly. It turns a predictable “surprise” into an ordinary budget line.
Variable expense
A variable expense changes from period to period, such as groceries, electricity or social spending. Variation is normal. Use a multi-month average and note seasonal shifts rather than forcing every month to match. A category ceiling can still help when it reflects real life.
Zero-based budgeting
Zero-based budgeting assigns every available unit of income to spending, saving or debt until nothing remains unassigned. Zero does not mean spending everything. It means every pound or dollar has a current job. YNAB and EveryDollar are well-known examples of this planning style.
Effective annual cost
Effective annual cost is our plain phrase for what a subscription truly costs over a year after monthly fees, mandatory tiers and likely add-ons. Multiply a £9.99 monthly app by 12 before judging value. Compare that figure with a measurable benefit, not an optimistic intention.
Definitions describe general concepts, not personal financial advice. Ready to put the terms to work? Read our budget app choosing guide or compare the seven apps we tested in 2026.