When it comes on to money, not everybody is on the same page in terms of what they know definitively about it. This is because finances are still seen as complicated and the purview of those employed in the field. But there are basic personal money-related questions the average person should know the answers to in order to take charge of their journey to building wealth.

Here are five:

Is there such a thing as good debt?

Debts can be both good and bad. Good debt is money owed on things that can in the long run help build wealth, like a student loan or a mortgage. Good debt, in theory, allows you to earn a return on your investment. Bad debt, on the other hand, is money owed on consumer debt, like credit cards and similar items that lose value quickly and don’t generate long-term income.

Should I focus on saving or paying down my debts?

There is no hard-and-fast rule. It all depends on how much debt you’re in. Conventional wisdom would suggest that paying down debt should be a priority, for your own peace of mind, especially if your debt carries a stress-inducing high interest rate. On the other hand, let’s say your emergency savings are completely depleted. The sooner you begin to save, the more time your money will begin to compound and grow for you so that down the road, if an emergency crops up, you will avoid accumulating more debt by having to take out a loan. There is a third option, which is to strike a balance. That is to say, split your disposable income between saving and debt repayment. If your debt has a low interest rate and isn’t too big a financial burden, put more of your money towards saving. If your debt is high, let’s say it’s credit card interest that doesn’t seem to be going down because you’re only paying the minimum payment each month, put more money towards repaying debt. You don’t want to be debt-free but cash-poor. Neither do you want to have a mountain of money saved while being dragged into debt hell.

How much should I have in my emergency fund?

Again, there’s no one-size-fits-all answer. Personal finance is just that: personal. However, that said, an emergency fund is a cushion you have in case the unexpected crops up, like losing your job. Let me stress, this is a dedicated fund for emergencies and is therefore not meant for you to raid if you decide you want to finance a vacation or you simply must buy a new pair of shoes or even redo your kitchen. A good start for an emergency fund is three (if possible, six) months’ living expenses tucked away in an interest-bearing account. Not just bills. Include rent, groceries, transportation, medication, and such. Any expense that, should the unexpected come up, you’d have at least three months’ wiggle room to get back on your feet.

Why do I need a budget?

Budgeting is necessary once you start to earn money because it helps you keep track of what you make as against what you spend. People who say they keep track of their income in their heads tend to end up each month a little confused as to how, exactly, their money disappeared before all their needs were met. Budgeting keeps you in control of your money and able to account for it, instead of each month scratching your head and asking, ‘where did it all go?’ Some people keep a rigid check on their finances, accounting for every dollar; others meanwhile take a less rigid approach, subscribing generally to the 50/30/20 rule that posits 50 per cent of after-tax income goes to needs, 30 per cent goes to wants, and 20 per cent to savings. (Some people do a 50/20/30 version, opting to allocate less to wants and more to savings, depending on their financial goals.)

What is diversification?

In days gone by, people were content to store their hard-earned money under the mattress. But this of course didn’t earn them any interest. Then people started putting money in the bank for financial security. But in this present day and age, it is not enough to have a low-interest-bearing savings account in the bank. The watchword today is diversification. In finance, diversification seeks to assign capital to various kinds of investments in a way that decreases your risk exposure. So, rather than having all your money tied up in, say, stocks, which you risk losing if the stock market crashes, you would spread your investment around by applying basic and effective risk-management techniques that will protect it from the cyclical nature of any normal economy, such as inflation, stock market crashes, and recession.

Next week, we’ll tackle more frequently asked questions about digital money, credit rates, saving on a tight budget, and more.