Ten Basic Personal Finance FAQs
What is a credit score? What is good debt? What is an IRA? What type of debt is OK? These are some personal finance questions that come to have crossed our minds at some point in our life. Some are basic terms that remain unchanged. However, others depend on the market and its changing trends and norms.
We bring you answers to ten of the most basic personal finance questions.
Answers to Ten Personal finance Questions
Finance is a complicated landscape for most of us, especially youngsters who have just started taking care of their own finances and budgets. They have to learn new ropes on how to start good and lay a solid financial foundation for their future. So we must all familiarize ourselves with these basic FAQs of the finance industry.
WHAT IS A CREDIT SCORE?
A credit score is a rating system that creditors can use to assess any borrower’s risk while making a decision to lend them any money. The credit scores used mostly in the market by creditors is from FICO. Your credit rating is defined via various parameters such as the amount of debt you already have, whether your utility bills are paid on time, the number of credits cards you already have, and if you have any outstanding or unpaid bills etc.
The credit score affects almost all financial decisions made by creditors or lenders, and its range falls within the range of 300 to 850. Whether you want to buy a car or rent a house, opening a new line of credit and getting a loan or mortgage will require a review of your credit score by all lending companies, banks and private investors.
WHAT IS A 401K?
A 401K is a retirement plan that is offered to all employees by their employer. It allows the employees to take advantage of their paychecks and put aside an amount for their retirement. However, it is up to the employee to decide how much money he wants to put aside every month. The company will usually invest this money on your behalf into various bonds and stocks so that your saved and invested money can help create more money.
You get to choose your investments, which can be direct investment, or you may get a chance to pick a mix of different investment opportunities. However, it is dependent on how much risk you are willing to take and feel comfortable with. The investment money that is contributed or deducted for your 401K gets taken from your monthly paycheck before taxes; it means it helps reduce your taxable income.
WHAT IS AN IRA?
IRS stands for “Individual Retirement Account” or “Individual Retirement Arrangement.” It is a place to put or save your money away for retirement, which will be invested on your behalf. Your IRA can be utilized along with 401K in a combination, or it can be used as an alternative to 401K if your company does not offer the option of 401K. Somewhat similar to 401k, your money is invested across a variety of bonds and stock packages. Of course, you get to choose the bonds and stocks, but the primary purpose is to grow your money over time.
However, IRAs come with contribution limits. For example, in 2019, you could put a total of $6,000 annually into your IRA with an exception to put an additional $1,000 if you are over the age of 50.
In traditional IRAs, the money usually put into people’s traditional IRA account is tax-deferred. It means you only pay taxes on your IRA amount when you withdraw it. It is nothing like a Roth IRA, meaning no matter the amount of money you make, a Traditional IRA will allow you to make contributions to a maximum applicable limit.
WHAT DOES INVESTING MEAN?
Investing actually means pouring your money into a project or a venture – that can be a form of commodities, companies or real estate. The idea is to make more money from your existing money. The easiest way to get into investing is, to begin with, one’s retirement account. However, remember that there are various ways to invest, and contrary to the common misconception or opinion held by the masses, you do not need tons of money to start investing.
WHAT IS ‘GOOD DEBT’?
The answer to what is good debt depends on your circumstances. You can ask some personal or general questions to yourself in order to assess what kind of debt is worth it. However, it is totally up to you to determine whether any specific debt is good or bad for you.
HOW MUCH SHOULD I PUT IN AN EMERGENCY FUND?
It all depends on how much you think about the cost of your life. There is neither a hard-and-fast rule nor a specific number that can define one formula that applies to all. The best and safest way is to have at least three to six months of your total living expenses such as food, rent, monthly bills and transportation saved aside for emergencies.
This way, if you come across a situation where you have lost a job or fall on hard times for any reason, you can continue to meet your minimum financial commitments and maintain a lifestyle without stacking on any additional or substantial debt.
WHAT IS A BUDGET? DO I NEED ONE?
A budget is just a basic plan or understanding of how much you make vs. how much money you spend. And Yes – it is absolutely important to budget; however, it comments in various forms. While you can be rigid about what your expenses are and fix strict allowance, you can also be relaxed in some aspects. Either way, it helps you keep control over your money and expenditure.
HOW MUCH DO I NEED FOR RETIREMENT?
The answer to this question depends on multiple variables, such as how old you are, how much you have already saved in your retirement account (if you have saved any). What are your annual income and the level of comfort you want when you retire? However, there are tons of retirement calculation tools out there to help you determine the approximate amount you need to consider retirement.
HOW MANY CREDIT CARDS SHOULD I HAVE?
Well, it is totally up to you and what your credit scores and ratings are. It will also depend on how responsible you have been with your existing credit cards? Where having an assortment of credit cards can help you strengthen your credit scores, it can also be asking for trouble.
If you find yourself neck-deep into debt from multiple credit cards, then do not think about opening another one. However, if you are a great money organizer and knows how to handle your credit and finances and have been great with your cards so far and looking for a better deal, then go for the one with better rewards.
WHAT IS APR? HOW DO INTEREST RATES WORK?
APR stands for “Annual Percentage Rate.” It usually comes into play if you are unable to pay off your monthly credit card bills. APR is generally an interest rate a lender charges on any owed amount that you did not pay clear in full.
Personal Finance Memes That Are Seriously Funny
There is no better message than one that’s serious in nature but given in a fun way. Memes have been a part of the internet for many years now. As fresh ones keep coming, you come to a realization that there are no finite limits to the creativity of human beings. However, there is something you have to admire even more about personal finance memes. They are funny, but they still manage to convey a very serious message. If you are looking for advice on personal finance in a fun way, you should definitely consider some of these personal finance memes.
The Payday That Never Comes
As funny as it looks, this particular meme tells you a lot about the world around you. If you think you are the only one who struggles to pass the month without being empty pocketed in the later dates, you might want to look at this meme. It shows you that you are not alone in this struggle. There are millions of people living all around the world who feel the same way by the time the end of the month arrives. No matter how much you try to save money, it seems to disappear by the end of the month. And then you have to be the most frugal person on earth to make it through the last days of the month.
This particular meme also tells you a great lesson. Since you are not alone in this struggle, you do not have to feel uncomfortable when you don’t have money at the end of the month. You don’t have to borrow loans from online lenders so you can show your friends, colleagues, and loved ones that you are making it through the month with ease. It is okay to be struggling a little. That’s what makes you tough and strong enough to face the reality of the world. So, next time you see this meme and smile, be sure to tell yourself that millions of other people are smiling with you in different parts of the world.
A Life without Bills
So, there was a time in your life when you did not have to pay any bills. And of course, no time in life could be better than that. A time lived without worries is time spent well. However, it is not possible to live without worries. Even when you were a child, you were worried about that incomplete homework before going to school. Sometimes, you just did not feel like going to school and your mom wouldn’t listen. Those were worries too but nothing is more stressful than paying bills every month. Again, the meme is extremely funny because of the facial expressions of the celebrity the picture, but it does tell you a great lesson.
If you are paying your bills without any issues, you should be proud of yourself, and if possible, you should step ahead and help others who are having troubles in paying their bills. If you are struggling with your bills, you should know that you are not alone. And most importantly, the meme helps you realize the efforts that your parents have put in bringing you up and making you reach where you are today. If it were not for their hard work and effort, you wouldn’t have achieved what you have achieved in life.
Because It’s on Sale
This is perhaps the most amazing personal finance themes. There are too many people in the world who buy things they don’t need and then run short on money when it comes to buying things they need the most. You wouldn’t want to go to the doctor because the fees are too high, but you will watch all the new smartphone reviews to see if they are worth a shot. Is a smartphone really more important than your health? You don’t want to make mistakes that others have made. It is not cool to fall in the same pit that you have seen others people falling in.
You have to learn the important lessons in life and remember them forever. So, do you ever see yourself searching products in the store or online for no reason? You just see them, look at their prices, and all of a sudden you want to buy them because you like them. That’s not how things should be in your life. Set your priorities and preferences in order. If you are still trying to make both ends meet, you should only buy what you need. Do not buy things you don’t need. Do not spend your money on things that are on sale and look good for the price. Most importantly, never buy something from a loan.
Lunch Hour
This is yet another meme that teaches you an important lesson. You can say that the lesson in this meme is pretty much similar to the one in the previous one. However, it needs to be pointed out here that the problem mentioned in the picture is more common in young people than it is in old people. When you start a new job and get your first salary, you feel like spending it. Every month you get the salary in your hand, you feel rich. For some reason, as soon as people start getting compensated on their first jobs, they think they have to change their lifestyles.
They start partying more. They start eating fast food more and spend money on things that they had never thought of buying before. This particular behavior is very common in people who have just started their jobs and making money. If you see yourself in the same boat, stop right now. You cannot afford to live like this because you will end up spending all the money you make. In other words, you are burning the candle on both ends. You have to find a way to save your money. And that’s what this meme is teaching you.
When you spend your money, you should know every small calculation about it. How much do you make every hour? How much money do you make every month? How many hours do you work in a day? What could you do if you saved only one hour’s wage every day? If you think about these things, you will reach some surprising conclusions. You will find out that you can do a lot more with your money than buy delicious food from restaurants. If you are such a fan of eating great food, you should learn to cook yourself. This way, you will save money, eat delicious and safe food every day. S
Final Thoughts
Fun and entertainment have become addictions for today’s people. However, if you are mature, you should find a way to learn from funny and entertaining content as well. Humor is an art and when it is done the right way, it can do wonders. So, when you look at personal finance memes on the internet, you should make sure that you learn something from them. At the same time, you should smile at them rather than taking them seriously. You must know that they are created by people who face the same financial challenges in life as you do. So, they are not making fun of you. Instead, they are making fun of the situation and trying to keep you happy.