10 Most Commonly Asked Questions About Money

10 Most Commonly Asked Questions About Money

No course in high school teaches us about money, and unless you decide to pursue a career in Finance, no one teaches us the basics of understanding money.  As adults, asking questions about money is not socially acceptable and can even make some people very uncomfortable. So, where do we start, and how can we make informed decisions about our finances? Understanding the terms and basic concepts of lending and borrowing money is a good starting point. Here are some common questions and answers that can help you with a good foundation.

  1. What does investing mean?

Investing means contributing your money to a company, commodity, or any new undertaking to make more money. You give them your money so that they can do what they do best and make more money, and then you get a cut or share back depending on how much you contributed in the first place. There are many ways to invest, and you don’t necessarily need a lot of money to start investing.

The best time to consider investing is when you are comfortable with your finances, have no outstanding debts, and a good amount of savings. The easiest way to start investing is with your retirement account.

  1. What is a budget, and do I need one?

A budget is a map or plan to guide you with your spendings and earnings. By setting a budget, you can see how much you’re spending each month versus how much money you’re bringing in. This tracking can help you save money and pay debts as you go each month by allocating different spending categories. For example, you can have categories such as car payments, vacation savings, or student loan payments. Everyone needs a budget to stay in control of their finances.

  1. What is a credit score?

A credit score is a rating system that creditors/ banks use to engage the risks of lending money to someone. Ratings are scored by addressing how much debt you already have, how many credit cards you have, if you pay your bills on time, or how many unpaid bills you have, to name a few. Scores can range from 300 to 850 and can affect a significant portion of your money decisions. Any big purchase that you may require to borrow money for will ask for your credit score — for example, buying a new house, opening a new line of credit, buying a car, or even renting a home. Depending on your score, the creditor can decide how much to lend you. It’s important to take your credit score seriously and know where you stand.

  1. How much do I save for an emergency fund?

You should ideally have three to six months’ worth of your expenses saved. Depending on how much you spend on rent, car payments, groceries, and phone, for example, then that’s how much you should save as your safety cushion. Think about the amount of time it might take you to secure new employment if you were to lose your job.

  1. How much do I need for retirement?

The general rule is to save 20 percent of your income, but many factors can affect your retirement savings. Think about where you are in your life right now, your age, if you’ve been saving money already, how much your current income is, and how comfortably you want to live when you retire. All these questions can contribute to how much you’re putting away for your retirement.  Use online tools and calculators to help you budget.

  1. How do interest rates work, and what is an APR?

Think of interest rates as the cost of borrowing money. Every month, you get a statement for the amount you have borrowed and the interest that you owe on that amount. It’s best to pay the full statement amount in full when possible to avoid the accumulated interest the following month.

APR stands for “annual percentage rate.” APR is the interest rate you will be charged on any amount you did not pay in full from the previous balance. If you have a good credit score, the APR can be negotiated with the lender.

  1. Is it better to save money or pay off debt?

Paying off your debt first should be a priority as it will save you from paying more interest over time, and that can even be considered saving money. Paying off your debt is also a great way to increase your credit score. In some situations, paying off debt may be over a long period, and this could hinder your time to save money. Each case will be different, and you figure out what the best mixture of paying down your debt and putting some money aside too.

  1. What’s the fastest way to improving a low credit score?

First, check your credit score and deal with the issues that are listed. Then get a credit building program to help you build back up. Getting a secured line of credit or a secured credit card can help. Don’t miss any payments on these credit products, and you can quickly rebuild your credit score.

  1. Does having a credit card help my credit score?

This question can be considered a credit myth. You don’t necessarily need to get a credit card to improve your credit score. Sometimes a secured line of credit or car loan can help as long as you make your monthly payments on time and don’t miss any payments.

  1. Where can I check my credit score?

There are two ways to get your credit score in Canada that are free; Equifax and TransUnion. Once a year you can request your credit report for free from each of these bureaus by going on online here;

 

Click here for Equifax. 

Click here for TransUnion.

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