10 Money Questions You’re Too Embarrassed to Ask

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Basic financial literacy remains rather elusive in our culture. Between social taboos about discussing money and the lack of formal education about finance, most of us just make do with what our parents taught us — and for many people, that’s not enough.

Here are 10 basic personal finance questions you’ve been too embarrassed to ask anyone, but that remain immortalized in your browser history.

What’s a Credit Score?

A credit score is a numeric rating determined by three credit bureaus: Equifax, Experian, and TransUnion. The most commonly used credit score is from FICO (Fair Isaac Corporation). This rating, which can vary by bureau, is defined by how much debt you have, whether you pay your bills on time, how many credit cards you have, and any unpaid bills, among other factors.

Your credit score (which can range from 300 to 850) affects most financial decisions: Buying a car, buying or renting a home, getting loans, and opening new lines of credit require credit score reviews by the people or companies who can grant you any of those grown-up things. (For example, if you have a poor credit score, a landlord may be less inclined to rent to you.)

Treat your credit score like a newborn that needs constant attention and care, and shield it from the ugly world of negligent debts. You can check your credit score in addition to your credit report, which you should do at least once a year to make sure it’s accurate and reflects credit cards or debts you actually have (and that no one else is using your name — and your credit — to buy random cars). You can check your score for free online whenever you want.

Bottom line: Your credit score impacts basically your entire adult financial life — so it’s important to know what it is.

What Is a 401(k)?

A 401(k) is a company-backed retirement account that takes a percentage of your paycheck (you decide how much) and puts it aside for your retirement. This money usually gets invested on your behalf in a variety of stocks and bonds so that your money can create more money. You choose your investments, either directly or by picking a mix that reflects how much risk you’re comfortable with. The money that goes into your 401(k) is taken from your paycheck before taxes, reducing your taxable income.

Why not just sock away all your money into a personal savings account, you ask? Because if that money is just sitting in an account for 20-plus years without being invested, your earnings actually lose value over time. The reason? Inflation (mostly).

The hypothetical $20,000 you put away in 2015 will not be worth $20,000 in 2045 if it’s been in a traditional savings account, thanks to inflation and account maintenance fees. Having a 401(k) ensures that the value of your money grows by keeping it in the market, which generally outpaces inflation in the long term.

Companies vary with their 401(k) packages, but many of them offer “matching,” meaning that they will match your contribution up to a certain percent. It’s simply free money (!) for your account.

Bottom line: If your company has a 401(k), you should probably take it. Ask HR to put you in touch with the retirement accounts advisor to discuss what type of investment package is best for you.

What Is an IRA?

IRA is an acronym for Individual Retirement Account — a place to put money away for retirement that will be then invested for you. IRAs can be used in combination with a 401(k) or as an alternative to one if your company doesn’t offer a 401(k). Much like a 401(k), the money is invested across various stock/bond packages that you choose, so that it can grow over time. IRAs do have contribution limits, though: The most you can put into an IRA is $5,500 a year (e.g., $458 a month), or $6,500 if you’re 50 or older.

There are two main types of IRAs:

• Traditional IRAs: The money you put into a traditional IRA is tax deferred, meaning you pay the taxes on it when you withdraw it. Unlike a Roth IRA, it doesn’t matter how much money you make — you can always make contributions (up to the maximum allowed).

• Roth IRAs: You can contribute to a Roth IRA only if you earn less than $131,000 a year if you’re single, head of household, or married and filing separately. For married couples filing taxes together, you must jointly earn less than $193,000 a year. Contributions aren’t tax deductible, but any money you withdraw is always tax free.

See this handy chart for more details on the differences between the two.

Bottom line: If you don’t have a 401(k), then yes, you absolutely need an IRA if you want to save for retirement.

What Does Investing Mean?

Investing means sinking your money into a venture — in the form of companies, commodities, or even real estate — so that your money can make more money. The easiest way to begin investing is with your retirement account, but there are many ways to invest. Contrary to popular opinion, you don’t need a ton of money to do it.

Bottom line: Invest when you are in a good place with your personal savings, have paid off your debts, and understand what you’re investing in.

What Is ‘Good Debt’?

The answer to this question varies depending on your circumstances. While there are some general, personal questions to ask yourself when assessing which debts are worth it, only you can really determine whether your debt is good or bad.

Bottom line: Hopefully your student loan debt propels you into a career that will mean more money for you in the future. But running up $30,000 in personal credit card debt to live beyond your means definitely won’t.

How Much Should I Put in an Emergency Fund?

It depends on how much your life costs — there is no hard-and-fast number that applies to everyone. Your safest bet is to have three to six months’ worth of your total living expenses (rent, food, transportation, monthly bills) tucked away for emergencies. That way, if you suddenly lose your job or fall upon hard times, you can maintain your lifestyle without racking up major debt.

Bottom line: Everyone needs an emergency fund. And yes, you should have this cushion established before you fund a vacation or anything else fun.

What Is a Budget? Do I Need One?

A budget is a basic understanding of how much money you're spending versus how much money you're making.

And yes, you should budget, but keep in mind that budgets come in all forms. While you can absolutely track your spending and allot rigid allowances for each expense, you can also go more lax: For instance, just automating a certain amount of your earnings into your savings account is technically a budget. Or there is the golden 50/20/30 rule. Or having multiple checking and savings accounts based on your spending habits and goals.

Bottom line: Budgeting tends to help people feel more in control of their money. The question you need to ask yourself is this: How much control do I need?

How Much Do I Need for Retirement?

It depends on a lot of variables: How old you are now, how much (if any) you’ve been saving in a retirement account, how much you make per year, and how comfortable you want to be when you retire. There are a ton of retirement calculators out there that can given you a better idea of your personal situation.

Bottom line: As a general rule, always save 20 percent of your income. Keep going after raises and promotions whenever you can. It definitely adds up.

How Many Credit Cards Should I Have?

That’s up to you. What’s your current credit score? And how responsible have you been with the credit cards you already have? Having an assortment of cards could strengthen your credit score, but having too many could be asking for trouble. If you’re up to your ears in debt across three or four credit cards, then do not open another one. If you’ve done well with the cards you have and are looking for one with better rewards, then trade up. Just don’t close credit cards that you’ve had the longest, particularly if your history with that card is positive — your credit score will take a hit if you do.

Bottom line: Have as many credit cards as you can take very, very good care of.

What Is APR? How Do Interest Rates Work?

APR is an acronym for Annual Percentage Rate. It primarily matters if you plan on not paying off your credit card bill every month. APR is the interest you will be charged on any amount you did not pay in full from your last statement balance. If you’re debating between credit cards and plan to carry a balance, comparing APRs is a good way to see which card might be better for you.

Pro tip: You can negotiate your APR, especially with credit cards you’ve had for a long time and that you’ve paid on time.

Bottom line: Don’t carry balances on credit cards unless you absolutely have to. Then you get to use your credit cards for free and APR is irrelevant!

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