7 Personal Finance Questions Answered

When it comes to financial literacy, we aren’t all on the same page. With money being such a taboo topic and personal finance not being taught in our schools, it is no wonder the average person has no idea how to set themselves up for financial success. Today’s article is a step back to a more general introduction to 7 common personal finance questions asked by those new to the world of personal finance!

So without further ado…

1. What is a Budget?

A budget is essentially a plan for what you will do with your money. If you want to get ahead financially, you need to think and run your own personal finances just like a business. Would a successful business be able to run long-term, grow and continue to stay profitable if they didn’t track their income and plan out their expenses? Of course not, so why would you not do the same?

By planning what your money will do, it allows you to always make sure you have enough money for your needs. It also helps to keep you out of debt and will make it easier to get out of debt if you are already in it.

Many people associate budgeting with complex and detailed spreadsheets and extreme frugality. Whilst this can be the route some people take, budgeting exists across a broad spectrum ranging from the detailed spreadsheet scenario to more relaxed budgeting styles such as the 50/30/20 rule – Where you allocate 50% of your income to your necessities such as food, housing & transport, 30% to repaying debts and investing, and 20% for fun or miscellaneous expenses – and you can automate this so when you get paid, the money goes where it needs to.

2. Should I Use a Credit or Debit Card?

The only real way to answer this is it depends. Your current location, circumstances, goals & personal discipline will all play a factor in what you should consider using. I’ll break down some positives and negatives around credit and debit cards below, and then let you know what I do personally (of course, you should do what is right for you, and not just copy others)

Credit Card


  • Builds credit history – depending on your location, this can mean more than it does elsewhere
  • Can provide additional safety in the form of fraud protection or insurance
  • Can allow you to earn reward points to put towards travel or other rewards
  • Can help with more advanced financial scenarios such as if you have a mortgage with an offset account, it may be better to use your credit card to give your cash extra time in the account to reduce the interest on your mortgage before you pay off the card in full before the end of the interest free period


  • Can have yearly fees that may outweigh the rewards
  • May reduce your borrowing capacity for things like a mortgage, as credit card limits are often viewed as “loans” even if your balance is $0
  • If you aren’t disciplined enough to only spend what you would normally spend and pay the card off in full each month to avoid paying interest, a credit card can become your worst enemy
  • For some people, not seeing the money coming out of their bank account straight away psychologically leads to to them spending more

Debit Card:


  • Easy to get and use with less application requirements, fees or additional tasks to complete like paying off a balance every month
  • Shows your money being spent straight away which helps keep you disciplined
  • Won’t impact your borrowing capacity for a mortgage
  • In some cases, won’t incur as many transaction fees as credit cards


  • Minimal to no fraud protection or insurance
  • Doesn’t build any credit history
  • Might not be squeezing the most use out of your money

Personally, I use both a debit and credit card. Credit scores and travel rewards aren’t as well incentivesed as they are in other countries like the United States, so for me the benefits are the protection, ability to earn a little extra interest on my money before paying off the balance in full, and the practice in making regular payments to prepare myself for a mortgage. Of course, I have never paid a cent in interest on my credit card in the many years I’ve had it!

3. When Should I Start Saving for Retirement?

Now! Or, if you have a time machine, 10 years ago! Saving for retirement is critical to give your money the most time to grow and compound before you need it. By starting early, you reduce the stress of having to play catch up in your later years and allow your money and time to do most of the heavy lifting.

Of course, saving for retirement doesn’t just mean stashing some money every month under your mattress. You should actually be regularly investing your money for the long-term to reap the benefits of compound interest which will see your small contributions now turn into a big lump sum by the time you’re much older.

4. What is Investing?

To follow-on from our last point about saving for retirement, you may be asking – what even is investing?

Investing is the process of putting your money to work for you. By using some of your capital to buy good quality real estate to rent out, or buying shares in strong and reliable businesses on the stock market, for example, you can begin generating both an appreciation on the asset you hold a stake in as well as receive some income from it – not to mention some tax benefits in some cases too. There is so many great ways to invest – all carrying their own risks & rewards – so it is important to choose investments that align with your age, retirement horizon, risk tolerance & financial literacy to ensure you are comfortable in sticking with your choices for the long term.

Green investment arrow

5. What is the Difference between Good Debt and Bad Debt?

I first heard about the difference between good debt and bad debt by reading Rich Dad, Poor Dad by Robert Kiyosaki. A good starting point is to understand that good debt is debt that makes you more money than it costs you, and bad debt is debt that only costs you money, either directly or through the cost of missing out on other opportunities.

An example of good debt would be a mortgage on a good quality investment property. Of course you may be paying the bank interest, at say 3.5% p.a., but the property itself might be returning you an average of 5% return a year in rent and another 5% in capital appreciation. That means that this debt is working for you and not against you.

An example of bad debt would be a credit card with an unpaid balance accruing a high interest rate. Most credit cards charge anywhere from 15% p.a. to as high as 30% p.a. which can quickly begin wasting large amounts of your money in interest repayments for things you’ve already bought and used and are not making any return on. In this case, the debt is crippling you financially and needs to go!

6. How Much Do I Need to Retire?

This one will be different for every person, because there are so many factors at play. Your location, current age, life expectancy & lifestyle will all be a factor and there are lots of fun calculators on the internet that can try and guess for you. A popular methodology to follow is the 4% rule also known as the safe withdrawal rule (SWR).

This means you should work backwards by identifying how much income you will need in retirement to maintain your desired lifestyle, then work out how much capital you’ll need invested so that withdrawing around 4% of that investment (either in the form of selling some shares or just not re-investing some returns for example) will cover your expenses.

So if you think you need $40,000 a year to retire on, you’ll need $1,000,000 invested. Of course, this is just one popular method and it is not a one size fits all approach. Depending on your risk tolerance you may want to be more conservative with your withdrawal rate, and this method can be hindered significantly if there are major financial crises soon after you retire, so tread wisely. I would use this as one of the tools in your retirement planning arsenal, and continue to do plenty of research and certainly seek your own personal professional advice.

7. What is an Emergency Fund?

The term emergency fund, sometimes referred to as a safety net is an amount of money you keep in a highly liquid place – meaning it can quickly and easily be accessed and used – to cover major emergencies in order to stop you having to go into debt, or borrow from friends or family to stay afloat.

The idea behind emergency funds are that you should keep between 3 and 6 months of expenses saved up at all times – separate from your investments, daily money or other savings – in order to give you peace of mind if you lose your job and take some time to find another one, or have an expensive medical emergency or fall on hard times in another sense. By doing this, it allows you to invest with confidence knowing you shouldn’t need to pull your money out at a potentially sub-opportune time to cover bills and you don’t need to stress too much if bad things do happen, which we all know they will sometimes in our lives.

I hope you’ve found this personal finance cheat-sheet helpful! There is a lot more nuances that can be discussed in each of these areas so stick around for future content that will get more into the details.

DISCLAIMER: The above is personal opinion and is not, nor should it be considered financial advice. You, and only you are responsible for the financial decisions you make.

Alex O'Donnell

I'm a 20-something IT professional by day with a strong passion for finance, investing, cars, motorbikes and music. Living in Sydney, Australia.

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