Updated November 30, 2024
I don’t know much about finances, where can I start?
Don’t worry, you’ve come to the right place! Start with your budget, and understanding your spending. Before you try to improve your finances or make extra money, you have to understand what you’re spending and where. For beginners, follow our basic plan here.
You can also learn a lot simply by doing! Starting with small investments and slowly learning is a great option. Avoid putting more money into certain places like the stock market without really knowing what you’re doing, and without feeling comfortable losing some of the money.
Do I need to invest in stocks to be financially successful?
Investing in stocks can be a helpful part of your financial portfolio. However, they take time to understand, and many different trendy stock tips are popping up every day. Before you invest in stocks, I recommend you learn the tax implications and risks of these investments. If you’d like to learn more about stocks, read our full article on stock basics here.
Many retirement portfolios involve stock investments, and many people can make a lot of money off of the stock market. The problem is that no one stock is forever stable or guaranteed to grow. This is why an option like an ETF (exchange-traded fund) is a good alternative to just investing in individual stocks.
What’s the difference between a 401(k) and a Roth IRA?
A 401(k) is an employer-based retirement savings account. Most employers offer some sort of match, meaning if you contribute 10% to your account, they will match up to 5%. This money comes out of your paycheck and is tax deductible for the next year. However, when you retire, you will treat your income from a 401(k) as a normal income, meaning you will pay taxes each time you withdraw. Roth IRA, on the other hand, is contributed post-tax from your paycheck (meaning you’ve already paid taxes on the money contributed). When you retire, you will not pay taxes when deducting these funds.
Both 401(k) and Roth IRA contributions have a limit to what you can contribute to each year. This can change from year to year (but usually increases), and maximizing savings is a great plan to save now, save on taxes, and save for your future.
You can find more information on how to prioritize between investing here.
What’s the difference between ‘good debt’ and ‘bad debt’ and why is it good or bad?
Some argue that there is no good debt or bad debt: “All debt is bad.” Some might consider good debt to be debt that produces positive outcomes, specifically debt that produces income-producing assets. However, regardless of opinions on this matter, we know that there is debt that is definitely worse than other debt.
Credit card debt is some of the worst debt you can have. You’re likely paying a premium for every product you buy because of high interest rates, and it can take months or years to pay off. Student loan debt and car payment debt can also be categorized under bad debt. Many people view cars as a symbol of wealth when really cars are one of the biggest things in life that keep us poor.
Regarding good debt, mortgages are quite often thought of as good debt. Some say “Your house is your biggest asset.” While this might be true on a balance sheet, generally homes do not produce income. Others view debt that produces passive incomes (mortgages on homes you’re renting or other investments) as good debt. Before getting involved with so-called “good debt,” we recommend that you have a strong budget, eliminate all bad debt, and have a strong plan that understands taxes and risk for your “good debt” investment.
Should I focus on paying off debt, or should I focus on saving?
This question truly depends on the type of debt you have and the interest rates. As discussed above, bad debt gives little benefit to the consumer, and you should focus on eliminating this first. First, you need to curb your spending on bad debt and then focus on paying off credit cards and car payments. The math is against you when you are paying anywhere from 10-20% in interest for this debt. Unfortunately, you cannot make that money up in the stock market.
Once you pay off bad debt, you will likely see that your budget has expanded quite a bit, and you should have a lot of room to start saving and building with compound interest.
How can I improve my credit score?
Credit scores are made up of the following: Payment history, the amount owed, length of credit history, new credit percentage, and credit mix. Payment history is always the biggest factor in credit scores, with the amount owed (or amount of debt) being second.
First, you should do is make sure that you never miss a payment. You may have to curb your spending habits to ensure that you have the money (which will also help you with your overall debt amount). Start by paying all your debt on time, and then bring down your balances (especially credit cards). Avoid opening too many accounts, as new credit accounts will bring down your score.
Fixing a poor credit score can be difficult, and may take a few years of financial rehabilitation, but once you do, you are likely going to have a much improved credit score with stronger finances overall.
Should I invest into Bitcoin or other cryptocurrencies?
Bitcoin prices exploded in 2024. Many other cryptocurrencies are failing to keep up or just failing overall. Since Bitcoin and cryptocurrency are still overall new (only about 15 years old), it is inherently more risky.
You should only invest in Bitcoin if you feel comfortable losing some money. Right now, Bitcoin is trending upwards, which is a good thing. But if the price falls, are you okay with losing half of that investment? If the answer is no, then do not invest. If you feel comfortable investing money that you do not need now, but you’re willing to let take the risk to let it grow, then making the investment might be a good option for you.