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I think everyone at one time or another has questions about money and financial topics.
Maybe that’s why you’re here on Frugal for Less?
I went online and Googled what people were asking about money and I found the top 9 questions listed.
Let me go through them and give my answers.
1. How can I get rich online?
First off, there’s no true way to get “rich” online, or at least not quickly. Those “get rich quick schemes” are only going to get you in trouble.
However, there are plenty of ways to make money online, either by telecommuting, an online business, freelancing or by doing a variety of tasks.
Here are a few of my favorite ways:
Read up on many more ways to make money online.
2. How to invest in Stocks?
Investing in stocks is a good way to grow your finances, but how do you get started?
Let’s look at the steps to begin investing in stocks:
- Select your Investing Style. Do you want to be hands-on and do all the work yourself, or are you unsure how to evaluate and pick stocks?
- Open an account. You’ll need an investment account to start. If you’re the hands-on type you’ll need a brokerage account, for those needing help, an app like Stash, WealthSimple, or WiseBanyan.
- Know the difference between stocks and stock mutual funds. Stocks are individual stocks in a particular company where you can buy a single share or several. Stock mutual funds (or exchange-traded funds) on the other hand are where you buy small pieces of many different stocks in a single purchase. Index funds and ETFs are another type of stock mutual funds.
- Set a budget. Decide how much you will invest every month. The amount can depend on how expensive the shares are. If you have a small budget then EFTs would be a smart way to go. The other question is how long will you be investing? If you’re investing for retirement then you can start small and build up, but if you have a short-term goal, then more is better.
- Start investing. Now you have a plan and a budget and an idea of what stocks you’d like, start buying them. Start off small as a learning process and when you build in confidence, add more to your portfolio.
Investing doesn’t have to be a scary endeavor, but you do need to learn how to do it properly to avoid losing your money.
3. How much House can I Afford?
This is a great question to ask when planning on getting your own place. A house is a huge investment, it’s a decision that should not be rushed into or based solely on emotion.
Many financial experts agree on the “36% rule”, which means that only 36% of your gross income should be spent on debt and this includes a mortgage. So, based on this, we need to:
- Look at your budget. Examine your income and debts and determine what can be paid off, trimmed or dropped to make more room for a mortgage payment.
- Calculate the cost. Now determine your 36% rate. If you make $3,000 a month then you shouldn’t exceed $1,080 in debt payments a month.
- Use a Mortgage Calculator. Use this handy online calculator to determine how much house you can afford.
Mortgage lenders look at a variety of factors before determining if you qualify for a mortgage – your credit score, your finances, your employment record, and such.
Let’s run some hypothetical numbers:
John earns $5,000 a month and has $750 monthly debt payments. Using the 36% rule, he should not exceed $1,050 in mortgage and house fees ($1,800 – $750 debts). He has saved up $10,000 for a down payment. The mortgage calculator determined he can afford a $168,000 home with a payment of $1,039 a month.
Tom & Mary have total earnings of $3,380 and have $1,000 in debt payments monthly. They saved up $5,000 for a down payment. The mortgage calculator determined they can afford a $36,900 home with a payment of $213 a month.
A big difference between the two isn’t there? My suggestion for Tom & Mary is to use some of that $5,000 they saved up to pay off their debts and gain a larger percentage. Let’s say they paid off $2,000 of debt and now their monthly debt is now $350 a month. They now can afford an $85,700 home with a payment of $545 a month. That is if they’re lucky to find a lender to accept such a small down payment.
To improve your odds of getting a house you want as well as getting approved is to:
- Reduce your debts
- Increase your savings for a down payment
- Improve your credit score as much as you can
- Choose a house for your needs, not your wants.
4. What is a Credit Score?
A credit score shows you how likely you are to repay your creditors. Banks and lenders look at this number before approving you for a credit card or a loan. Some jobs also require a good credit report before getting hired there, especially those jobs that require handling money.
Here’s how your credit score is determined:
- Your payment history
- How long you’ve had credit
- The types of credit you have (student loan, credit cards, mortgage)
- Your credit limits and how close you are to them
- How much total debt you have
- How many people have requested your report
The credit report scale:
- Excellent – Between 750 – 850
- Good – 700 – 749
- Fair – 650 – 699
- Poor – 550 – 649
- Very Poor – Between 350 – 549
The majority of people have Poor credit, 32% of people, while 28% of people have Excellent credit. The easiest way to improve your score is:
- Consistently Pay on time
- Pay off debts
- Raise Credit limits or have low balances
- Don’t open new accounts or have more than 2 credit inquiries a year
Research how you can improve your credit score for better chances at getting a loan you want.
5. What is “Good Debt?
You probably know that debt is bad to have, but did you know there is such thing as “good debt”?
Good debt is basically any investment that will grow in value or generate long-term income. Here’s some examples of good debt:
- Student Loans – First, a college education increases your value as an employee and raises your potential future income. Secondly, student loans have relatively low interest compared to other debts.
- Mortgage – Again, the interest rate is lower than many other debts, it’s tax-deductible and you get your investment back when you sell.
- Auto loan – Especially when you depend on it for work or your business.
Bad debt is anything you purchase that quickly lose their value or do not generate long-term income, as well as those debts with high interest rates. Bad debts should be avoided, or paid off quickly as possible.
Do be careful though, getting too many good debts, or falling behind on them converts them into bad debts. Find out the difference between the two types of debts and use them to your advantage..
6. How many Credit Cards should I Have?
With the average credit card debt being about $5,700 per person, my quick answer would be too many.
People love having credit cards – a card for airline miles, a card for cash-back rewards, or even a card to earn free stays at your favorite hotel. They have charge cards for all the gas stations, department stores, and grocery stores they use.
The optimum number of credit cards you should have is two, each from a different company (Visa, Mastercard, and so on), and each offering a different reward.
I’m not saying credit cards are a bad thing, as long as we pay off the balance in full every month, but people do tend to treat them like an unlimited money supply, hence the high credit card debt.
If you can use credit cards wisely then go ahead and have more than two. My advice is to have at least one that has a zero balance to use in emergencies where you cannot access your emergency fund right away.
7. How do I get my Student Loans forgiven?
It’s no surprise this question came up in Google, the average student from the Class of 2016 has $37,172 in student loan debt.
So, let’s get started:
Check with your employer – Many humanitarian and public-sector jobs are eligible for loan forgiveness. Such as working as a:
- Public defender
- Public school teacher in a low-income area
- Military member
- Government employee
- Talk to your lender – Many lenders are well versed in different federal and state programs and will be able to refer you to them.
- Apply for the income-based repayment plan – This program adjusts students monthly repayment plan to be less than 15% of their discretionary income. Some make so little money that it’s possible you qualify to pay nothing back.
- Check on StudentLoans.gov – They list several different programs you may qualify for.
Let’s say you don’t qualify for any loan forgiveness plans, there are still many ways you can repay it without straining your budget. Let’s try some numbers:
- If you’re still in college now, start making payments now. Why wait until you absolutely have to? Put whatever you can into it, even if it’s just $40 every 2 weeks.
- Make payments on the Principal. Pay down the principal faster will lower the total interest you pay.
- Know which loans you should make prepayments on. Federal loans allow you to make prepayments, while private loans may charge fees for paying early.
- Reduce your college fees while at school. Live at home, drop the meal plan, and other cost reductions to cut how much you’ll owe later.
- Refinance. There are banks and lenders who can refinance your federal and private student loans and you may get a lower interest rate as well.
It may look hopeless when you look at your large student debt amount, but there are many ways to pay it off or get it forgiven.
8. Should I Pay off my Debts, or Save Instead?
Deciding whether to pay debts or save money first is a tough decision, but the answer really depends on your financial situation. I’ve listed some guidelines to help you decide:
Pay off debt first:
- Your debts have high-interest rates and the payoff date is a long way off.
- Paying off your debts’ interest will save you more money than the interest rate in a savings account.
- If you don’t have an emergency fund yet.
- Debts have very low-interest rates.
- Your employer has a retirement matching program. Take as much advantage of this as you can.
But why not work on a compromise?
- Pay off the highest interest bill and save for an emergency fund at the same time.
- Consolidate your debts into a smaller monthly payment, put the difference into savings.
Dave Ramsey’s book Total Money Makeover is a great read on how to balance the two.
9. What is Bitcoin?
Bitcoin is a cryptocurrency system that is used to make payments around the world. It has grown exceedingly popular since its development around 2008.
Bitcoin uses a technology called the “blockchain” that functions as a public ledger, helping people spend and receive bitcoin without a centralized oversight system.
As with all currency, bitcoin’s value comes only and directly from people willing to accept them as payment.
Financial experts have varying opinions on bitcoin. Some call it “one of the most important inventions in history”, while others call it a “fraud”. One of the problems of bitcoin is that it can be difficult to access as it’s mostly online with very few bitcoin ATMs available.
The news has been announcing bitcoin’s “death” pretty regularly throughout 2018, but an actual death of a bitcoin exchange owner in February 2019 left its users locked out of their accounts and unable to access $145 million dollars in bitcoin.
It’s best to read up on it, ask a bitcoin expert and if you’re still curious, buy a little bit to start and keep watch.
These were great questions that were being researched on Google. My advice when reading the articles is to check their resources and their background information. It’s better to accept advice from a well-known financial guru or well-established website than some random unknown blogger, right?
If you’re just starting out on your own, I recommend reading Money Honey: A Simple 7-Step Guide for Getting Your Financial $hit Together, it’s easy to understand and full of humor and sass.