Frequently Asked Questions About Money
The following questions and answers help explain money and related topics. Let me know in the comments any additional questions about money you would like answered.
1. What Is a Credit Score?
A credit score is a numeric rating that creditors use to evaluate a borrower's risk when making lending decisions. Fair Issac Corporation (FICO) created the most commonly used credit score, which is based on the following:
Your amount of debt
Whether you pay your bills on time
How many credit cards you have
Whether you have unpaid bills
Your credit score, which can range from 300 to 850, impacts financial decisions such as the following:
Buying a car
Renting or purchasing a home
Receiving loans
Opening lines of credit
You should regularly check your credit score and credit report to ensure accuracy. Report any credit cards or loans you do not recognize, which could be signs of fraud.
2. What Is a 401(k) Plan?
A 401(k) is an employer-sponsored retirement plan that lets you invest a percentage of each paycheck for retirement:
The money is typically invested in stocks and bonds for growth and stability.
You choose the investments based on your timeline, risk tolerance, and other relevant factors.
The pre-tax deposits reduce your taxable income.
Many employers match employee contributions up to a certain amount or percentage.
3. What Is an IRA?
An Individual Retirement Account (IRA) lets anyone with earned income or their spouse invest money for retirement:
You can invest in an IRA whether or not you have a 401(k) account.
The money is typically invested in stocks or bonds for growth and stability.
You choose the investments based on your timeline, risk tolerance, and other relevant factors.
The contribution limits in 2026 are $7,500 for people under age 50 and $8,600 for those age 50 or older.
The two main types of IRAs include:
Traditional
The money invested is tax-deferred.
You pay taxes on withdrawals.
There are no income limits for contributions.
Roth
Single filers:
Can make the full contribution if their modified adjusted gross income (MAGI) is under $153,000.
Can make a partial contribution if their income is between $153,000 and $168,000.
Cannot contribute if their income is $168,000 or more.
Married taxpayers filing jointly:
Can make the full contribution if their MAGI is under $242,000.
Can make a partial contribution if their income is between $242,000 and $252,000.
Cannot contribute if their income is $252,000 or more.
4. What Does Investing Mean?
Investing involves putting money into assets such as stocks, bonds, or real estate to build your wealth over time. Your money can earn more through investments, helping outpace inflation so you can retire in the future.
5. What Is Good Debt?
Good debt is money you borrow to build long-term value, increase your net worth, or help you earn more money. Examples include mortgages, student loans, and business loans.
6. How Much Should I Put in an Emergency Fund?
You should have three to six months’ worth of living expenses in your emergency fund to cover surprise events, such as car or home repairs, medical bills, or job loss, without adding to your debt load.
7. What Is a Budget?
A budget shows where your monthly income should be going to help control spending. For instance, if you follow the 50-3-20 Rule:
50% of your income should go to needs, such as your mortgage or rent, food, and utilities.
30% should go to wants, such as dining out, shopping, and vacations.
20% should go to debt repayment and investments.
8. How Much Do I Need for Retirement?
The amount you should save for retirement depends on variables such as the following:
Current age
Amount saved for retirement
Annual income
Desired lifestyle in retirement
9. What Is APR?
Annual percentage rate (APR) is the interest rate you will be charged on any amount you did not pay in full from your last statement balance. You should be able to negotiate your APR on credit cards you have held for a long time and have paid on time.
*This information is for educational purposes only.
Which personal finance topic would you like to learn about next? Let me know in the comments!
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