A Money Expert Answered 7 Of Your Burning Questions About Investing, Taxes, And More

You don't have to be rich to be an investor — you just have to invest.

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Saving, investing, buying a home...understanding money management can help you do so many things in life. But for a lot of us, figuring out where to start can be pretty dang confusing.

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So I asked members of the BuzzFeed Community to share some of their biggest questions about money, and then talked to Priya Malani, founder and CEO of the financial services firm Stash Wealth, to get her expert answers.

Here are seven big money questions people had on their mind, plus what you need to know:

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"Savings versus paying off student loans versus investing? Emergency budget versus student loans?"

—arashpreetg

Malani says that a great way to start prioritizing is to think about your situation in the long run. "A dollar sitting in a savings account may make you feel better when you look at your account balance, but it could be causing you to lose more in the long run because you’re choosing not to pay down debt with a higher interest rate (like a revolving credit card balance)."

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"You’ll end up paying more for that revolving credit card because choosing not to spend your $1 today means you could be paying $1.25 later," added Malani.

But that doesn't mean you can't save any money until you've paid off your debt. It's still a good idea to set aside a little cash every month for emergencies, but tackling high-interest debt more aggressively now can help you save more in the long run.

BTW, if you're looking for ways to tackle your debts, check out these tips on cutting down your credit card balance or paying off a student loan.

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"How do 401(k)s work? What the heck is a Roth IRA, and why do I need one?"

—markiehale0426

401(k)s and IRAs are both types of investment accounts that people use to save money for retirement.

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The 401(k) is an employer-sponsored account that some businesses offer as a benefit for their employees. It's funded with before-tax dollars that come out of your paycheck, and you don't pay taxes on this money until you start making withdrawals in retirement. Plus, some employers sweeten the deal by offering to match your contributions if you put a certain amount in your account. "That’s free money. Take it," Malani urges.

But if your employer doesn't offer a retirement account (or if you want to invest even more for your future), you've got another option: IRAs or individual retirement accounts. These allow you to invest for retirement without an employer, and you can choose to open either a traditional or Roth IRA. Malani explains, "A Roth IRA is an investment account you open yourself where you can save for retirement. The main difference between the 401(k) and Roth IRA is how each is taxed." In a nutshell, a Roth IRA is funded with after-tax dollars; so when you make withdrawals in retirement, you won't have to pay taxes on the money (because you already did before you put it into the account).

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"The most confusing part of managing money to me, or at least personal finance in general, is the idea of the credit score. Far too many things are dependent on this number that basically gauges how good you are at owing people money."

—josephaloysiusc

Credit scoring can be a bit tricky to wrap your head around; but Malani explained that once you know how credit works, it might be helpful to think about it more like a game.

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"Yes, to get a good credit score you first have to 'owe' people money," Malani said. "But we would argue the score itself is based on how good you are at working the system more than following through on paying back debt. You learn how to work the system (keeping credit cards open to establish long-standing history, keeping a low utilization ratio, never missing a payment), and your track record of times you’ve followed through on a commitment is proven financially. This way your word is backed up by a clear history of follow-through."

Here's what that looks like in practice: When you apply for a new line of credit (like a loan or credit card), the lender or creditor will pull your credit score to see if you're eligible to borrow from them and figure out what interest rates to charge. Your credit scores are calculated based on information on your credit report, including your payment history, credit utilization rate, credit mix, length of credit history, and the amount of new credit you've taken on or applied for recently.

Your credit scores aren't set in stone and your credit report will typically only include information from the last 7 to 10 years, which means that there are ways you can raise your credit scores. Keeping your credit card balances low (ideally at 30% of your available credit or less) and making on-time payments can go a long way toward boosting your scores.

By the way, you might not have realized that you actually have multiple credit scores depending on which scoring model is used. In the US, the FICO score is the credit score that most big lenders check when they're evaluating your credit. It can be a good idea to keep an eye on your FICO score: Experian lets you check up on yours for free or you can request your score from your bank.

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"I get mortgages perfectly fine but still can’t wrap my mind around HELOCs and home equity lines. Like, why would I want to go more into debt after I already got the mortgage? If I need home renovations, I’ll either save for them myself or won’t buy a house that needs so many renovations that I have to borrow. Still puzzles me why they are a legit banking product and what value they have to a customer."

—aniek2

Also known as home equity lines of credit, "HELOCs provide access to the money you’ve put into your home, plus appreciation," Malani says. To put it another way, taking out a HELOC allows you to borrow up to the current value of your home, which could be more than you've actually paid for it.

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"Over time, your home may appreciate in value and the only way to get access to that value is by selling, but you may not want to. HELOCs were created to allow homeowners access to the value of their home by borrowing against it," explained Malani. And for some homeowners, a HELOC can be a great way to increase the value of their homes by putting the money toward renovations or repairs. Other homeowners take advantage of HELOCs to help their kids pay for college.

However, she cautions that a HELOC might not be right for everyone. "If you have the savings to pay for renovations or college without borrowing, then, of course, that’s the best way to go. However, not everyone has that flexibility."

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"I want to invest, but I just get overwhelmed by all the information out there. It’s so overwhelming that after six months of research I still haven’t bought a single stock. So where does one start if they only have $1,200 to play with? I read articles where people say you should be buying nine grand in one particular stock at a time. So is it even worth investing as little as $1,200?"

—briantaar

First things first, Malani says, "There’s a huge difference between investing and gambling. Picking single stocks like Tesla or Amazon because they’re talked about in the news puts all of your eggs in one basket and is a gamble." Instead, she recommends a slow and steady approach to growing your funds. "Investing involves a lot of patience and a long time to see progress."

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When it comes to how much money you should invest, Malani says, "The amount of money you start with has nothing to do with your probability of success. However, the sooner you start, the more time your money has to grow." Personally, I started investing a few years ago with my literal spare change using the Acorns app, and it's really added up over time. There's truly no amount of money too small to start investing with.

But it is important to know that no investment is a sure thing, and all investments carry some level of risk. Before you put your money into the market, it's a good idea to learn as much as you can about investing (perhaps with these handy books, podcasts, and courses) so you can make informed decisions about how much risk you're comfortable with.

And remember, no financial advice is one size fits all — especially when it comes to investing. People who are spending $9K on a single stock likely have different goals and resources than the average person starting out in the market. So take personal accounts you read online with a grain of salt, and seek out investing advice that actually works in your life.

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"How to stop impulsive shopping?!"

—laurenb41ed33482

According to Malani, as long as your bases are covered, spending can actually be okay. "You shouldn’t feel guilty about spending money on the things you value as long as your long-term values aren’t sacrificed in the process. If you automate savings, investing, and debt pay-down, who cares if you blow the rest on impulse shopping?"

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But if you're often going over budget on things you don't need, then it's a good idea to get a handle on your spending. Malani shared, "What we’ve seen work for our clients in the past is to write down what they want to do with their money (set goals). When you impulsively spend $100 during an online sale, knowing that $100 is going to a few shirts and not to your vacation in Miami may deter you from spending."

I've cut down on my own impulse spending online by forcing myself to wait a day or two before making a purchase and not saving my card information anywhere. Alternatively, it might help to find ways to cut down on day-to-day expenses so you have more room in your budget.

And if you tend to dip into your savings, Malani offered up another hack that makes it harder to overspend: "Separate your checking and savings accounts so that the ease of transfer is removed. When you’re out of money for the month, you’re out. Period. Your savings accounts aren't affected."

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"I know it’s an obvious question, but how do taxes work??? I’m still a teen but I honestly want to know so I’m ready for when I do have taxes."

—silvahaileythi

For starters, Malani says it's important to remember what taxes are all about. "Taxes pay for the things you don’t have to think about. Benefits that the government provides, from building public parks to roads to public schools and transportation."

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"In order to create or maintain these things, a portion of your income is taken out of your paycheck. Typically, the more money you make, the larger the percentage of your income is taken."

But the taxes that come out of your paycheck are only an estimate. When you file your tax return, you could get money back or end up owing more based on how much you actually made in the year. In the United States, you'll file a tax return every year by April 15 for any taxable income in the year before (so now that it's 2021, we're filing for 2020).

Let's say you get a part-time job over the summer. Come January, your employer will send you a tax form called a W-2 that shows your earnings and taxes paid for the prior year. Filing your taxes with just a W-2 is super simple and can be done for free online at sites like H&R Block or TaxSlayer. Or, if you want, you can file old school by printing a Form 1040, filling it out, and mailing it to the IRS.

As you go through life, you might run into more complicated tax situations. If you're ever feeling super confused about your taxes then it can be totally worth it to go see a pro. But when you're starting out, you'll most likely be filing a quick and easy return.

Do you have another big money question that we didn't get to here? Tell us what's on your mind in the comments below!