
There’s no such thing as dumb questions and I believe that to be true. It happens all the time with the rest of the Average Cash Team. We pride ourselves on knowing quite a bit about the world of finances, but we aren’t perfect.
That’s why we ask questions, even if we think it may sound silly. The world of finance is wide and deep, with more to know than we’ll ever get to, but we’re on that quest along with you. In the meantime, we’re providing the knowledge we already know.
You probably have plenty of questions, concerns, or problems which is what lead you here, and today I’m going to be briefly answering common finance questions. As I said, there are too many to cover, so I’m focusing on 15 things you may want to know but were afraid to ask.
Let’s see which common questions about financial topics you should know, but might not have inquired about!
Commonly Asked Questions About Financial Topics
1. What’s the Difference Between a Debit Card and a Credit Card?
This is much more common of a question than you might think so don’t feel bad for asking it. The difference between a debit card and a credit card is that a debit card is often issued by your bank and contains the information for your checking (spending) and savings account.
A credit card can also be issued by your bank or a credit card company that has a spending account backed by credit, meaning you’re using their money to spend and must pay it back.
You may also hear the term Visa debit card, which just refers to the financial company Visa that issues the debit card for your bank, but it works the same as any debit card.
You'll find a quick guide on how to apply for a credit card to help make sense of getting a card.
2. Is it Okay to Pay the Minimum Payment on a Credit Card?
On the topic of credit cards, you may have heard the term “minimum payment.” This refers to the lowest flat dollar amount you need to pay on your monthly credit card bill. This value is usually $10 for most major credit cards or 3% of the total balance.
The question you want to know is is it okay to simply pay the minimum payment, as opposed to 25%, 50%, the full thing, or any other amount? Yes and no.
Yes because it might allow you to allocate money elsewhere, for groceries or other expenses, and no because you’re putting off payments and that can rack up interest on your cards down the line.
Monitor how much credit balance you’re carrying and pay on a basis that allows you breathing room with your budget but makes it easy enough to pay off the balance in a relatively short time.
3. How Do Mortgages Work?

Owning a home is a major dream for many and one of the best tools to acquire a said home is to get a mortgage.
It’s a way of avoiding paying the full price of the house (or property) because paying cash for the home straight-up is incredibly difficult and carries its own problems...but what is a mortgage?
A mortgage can also be called a home loan. The bank or lender loans you a certain amount of money to cover the costs of the home and interest.
This means you do own the home, but the bank is using it as security and can repossess it if you fail to pay the mortgage.
Reducing the mortgage amount can be achieved by putting down a larger down payment on the property, ie. a $40 000 down payment on a $300 000 home would mean less to pay on a monthly basis.
4. How Do Loans Work?
Moving from mortgage to loans at-large is a good segway as loans work in similar, yet unique ways to a mortgage loan. As mentioned, a mortgage is a type of loan so we have that one briefly covered.
Loans work in the same way wherein the bank or a lender issues a loan that grants a certain amount of money set to an interest rate that must be paid by a certain period over a certain length of time.
These loans are used to help cover the cost of purchases that you can’t pay cash/outright for, like a house.
Another common type of loan are student loans, which are used to help cover the cost of tuition, supplies/books, or accommodations and may be issued by banks, lenders, or the government.
Auto loans work in a similar way to a mortgage, where you can finance a car by putting down a down payment to reduce the amount you pay monthly.
There are plenty of types of loans: student, debt repayment, mortgage, auto, personal, payday, credit loans, etc.
Some loans are inherently bad, known as predatory loans, which are harder to pay off due to high interest rates, so not all loans are helpful.
5. What Does a Good Budget Look Like?
Being financially literate is a skill that we stress here at Average Cash and one of the core tenants of being financially responsible is understanding how to budget, beyond this, you may wonder what a good budget looks like?
It’s a great question and every budget looks different. There’s a general rule of thumb that your budget should follow the 50/30/20 rule:
Not every budget needs to follow this rule, but it’s a good base plan to build on.
Some people also follow the notion of keeping your accommodation expenditures under 25-30% of your monthly income, but it depends on how much you make, how much your rent/mortgage costs, etc. just like your grocery bill, credit card, etc.
A good budget can be flexible but still provide structure, like the 50/30/20 rule.
6. How is a Credit Score Calculated?

Heading back to questions about credit, the term credit score comes up a lot.
A credit score is a tool used to determine how likely you are to pay your bills on time.
It's calculated based on your payment history, how much debt you do or don’t carry, length of credit history, and the information from your credit history.
It’s represented by a three-digit number anywhere from 300-850 (can be higher or lower, in extreme instances) and represents your credit risk, whether good or bad.
The higher the number, the better your credit is as determined by those credit history and report factors.
Companies and services exist for the sole purpose of credit checking.
7. What Amount Do I Need to Start Investing?
Another great question that more people need to know the answer to is what amount of money do they need to start investing? In most cases, as little as $1 all the way to whatever you want.
Many investing accounts, either through your bank or a separate service/company, have begun offering free or lower-fee accounts in an attempt to allow more people to invest their money.
Some trading accounts require a minimum of $1000, but for most basic investing accounts which allow for purchasing stocks, ETFs, etc. you might only need $1 to $10 to open one.
Each share may cost more, but you can even buy fractional shares, which are just portions of the total thing that can be accumulated over time.
Ex. Pepsi shares cost $100, and you put in $10, you now own 0.10 shares and you can keep buying fractions. Of course, you can always buy full shares too, but to start investing, you don’t need thousands of dollars.
There is also options trading, but this is riskier so do your research and learn the basics first.
8. What’s the Difference Between Investing and Saving?
Another good segway is to understand the difference between investing and saving. All investing is saving, but not all saving is investing.
What do I mean by that? Well, putting your money into an investment account is a type of saving because you are intending to stash that money away, but savings accounts are not investment accounts because you don’t use them to buy stocks, bonds, or mutual funds.
Investing is putting your money into assets that can either appreciate or depreciate depending on the stock market whereas a fixed rate savings account (usually through your bank) gives you an interest rate on holding your money in it, so it appreciates, but not as much as an investment account.
Alternatively, safer investing accounts exist in the form of Traditional or Roth IRAs which allow for tax-free or planned retirement investing.
9. What’s Capital Gains Tax?

Say you’ve put $1000 into your investment account and bought stocks with it.
You end the year up 10% on your investments and plan to take all of that money out, except now it’s $1100.
When you take that money out, you’re realizing capital gains, with your assets being the capital. That money you’ve earned is taxed and it’s called a capital gains tax.
Capital gains tax is either short-term or long-term. Short term is taxed on anything you’ve held for less than a year and is based on your income as if you earned those gains on your investments in the same year you would file your income tax.
Long-term capital gains tax is any investment earnings you’ve made and taken out of the account over a year. It’s also taxed based on your income but has different rates.
10. What’s a 401(k)?
One of the most common terms or names you’ll hear pop up in regards to finances is a 401(k). So how does a 401(k) work and what is it?
A 401(k) is a type of retirement plan that is employer-sponsored, meaning your employer provides, and they can match any contributions you make along with the money that is automatically contributed from your paycheck.
There are different types of 401(k) plans, like a Roth 401(k), and they differ in ways that contributions are or aren’t taxed or can or cannot be tax-deductible.
A traditional 401(k) plan offered by an employer has the advantage of being able to deduct contributions from your taxable income.
11. How Much Money Do You Need to Retire?
This goal, much like your budget, depends a lot on lifestyle and there’s no concrete rule or number.
Knowing how much you need to retire varies from person to person, but there are some numbers to keep in mind.
However, the estimate is that you’d need roughly 70 to 90% of your pre-retirement income to live comfortably in retirement. From there, you can expect to calculate anywhere from 3-5% withdrawal from your savings as your annual fixed retirement income.
Naturally, you should expect to save as much as possible and spend as little as possible in return to maintain that 3-5% rate to avoid disruptions to your savings, and it depends on your lifestyle as well.
12. What Can I Claim on Taxes?
One of the best ways to help yourself financially is to reduce the total amount of tax obligations to retain as much income as possible. So, how can you achieve this? Tax deductions.
There are plenty of things that you can claim on your taxes, such as:
Not everything is tax-deductible, but there are plenty of options and there’s more information available here to learn how some of these can help you keep more of your income.
13. Should I Do My Own Taxes?

When it comes to taxes (and tax deductibles) sometimes it feels like you want to save money by doing it yourself.
This is a natural conclusion as any little bit of money can help, but should you do your own taxes?
Yes and no. Yes, because everyone should learn how to do taxes as the government has designed the system to allow people to do so, but no if you’re unaware of what is and isn’t okay, which can lead to trouble.
Thankfully, there are plenty of tax filing services and software which are cheaper than accountants, and becoming better at helping you eventually learn on your own and slowly ditch the expenses.
Two popular tax filing software programs are E-File and TurboTax, but you can find many out there to help you learn or use as your primary tool for tax filing
Overall though, it’s good to learn how to do your own taxes to become financially independent and it’s a very common question.
14. How Does a Bad Credit Score Affect Me?
Jumping back to credit score questions, how does a bad credit score affect me?
Take for example that I was looking to finance a new vehicle but I have a credit score of 550, which is considered poor.
In many cases, I’d still be able to finance the vehicle, but the penalty would be more credit check scrutiny, higher interest rates, more money down required, etc.
This would happen if I were applying for loans, mortgages, purchasing a house, and so on and so forth.
So in short, a bad credit score makes the process more difficult as your application may take longer which can result in losing out on a car or house you wanted to buy or even exclude you entirely.
In short, having a bad credit score makes it much harder to open accounts, acquire assets, or apply for financial instruments (loans).
You can use credit checking services from Experian or Credit Karma (among many others) to help view your score and give yourself a better idea of what needs to be fixed.
15. How Do I Improve My Credit Score?
Lastly, how do you improve your credit score? Since we’ve had so much talk about credit scores, it’s only fitting to leave you on a high note and discuss how a credit score can be repaired, because they can be.
Fixing your credit score often requires you to pay off any outstanding debt on your credit cards, interest accumulated from loans (along with the loan itself), making consistent payments, reducing carried credit balance, building a better and longer credit history, and limiting opening new accounts.
These are just a few of the ways you can help improve your credit score, but they represent some of the major obstacles that prevent you from having a good score which allows you more financial freedom.
Bottom Line
We’ve talked about a lot of frequently asked financial questions today, 15 to be exact, but they all represent a common need or explanation.
Financial literacy is crucial, hence why my team and I do what we do with this site but it’s not always readily available. Luckily for us, the internet is one of the most powerful resources available to us, so providing this list makes it possible to give you my knowledge and insight to make you financially free.
Although we have covered a bit here, there is much more to learn about these common finance questions. They may lead to more questions, but they also lead to more answers so hopefully, you can use this as a good starting point on your journey of financial literacy.