Hey Thrivers! Ahh the dreaded topic of personal finance! I don’t know about you guys but I was not the best at keeping track of my personal finance in my early 20s. I avoided having to deal with anything related to personal finance because I didn’t want to face the reality. But one thing that I learned at the most unexpected time in my life is that managing your personal finance and financial literacy are the best decisions you will make in your 20s. I wanted to share some of the lessons I have learned along the way.
- Credit Cards and how to use them – Credit cards can be your best friend or your worst enemy depending on your relationship with them. They are a great way to get your credit score up but are not supposed to be your safety blanket. I remember when I was an unemployed grad student living on my own I had pretty much maxed out my credit cards even used them to go on vacation. It was a fast way to circle down the drain of debt and it took me a while to recover from it. 30% of your credit score is based on how much of your credit you are using. When you max out your cards that negatively affects your credit score. Not to mention you will pay for interest the longer you have maxed out your card. The best way to use your credit score is to put your fixed monthly expenses like your car insurance, phone bill, utilities, etc. on the credit cards and then pay off your credit card using your income. Stay on top of your expenses to make sure your credit card is being paid off consistently and on time. Missed payments also affect your credit score and there is no better feeling than not being tied down to a card and being in control of your money.
- Debt a.k.a student loans – Oh man! If someone had let me know about student loans and how much they can come to haunt you I would have made different choices in the past. I chose to go to a reputable University for my graduate education and had to take on a student loan to do so. Luckily my loan was a government loan so the interest rate is lower than most other private loans. However, that’s not to say that the interest racks up pretty fast!! If you’re super confused about how to apply and what plan to choose I highly recommend watching youtube videos or reading up on what the different loan options mean for you. After I graduated I was not making big bucks so I had opted out of a fixed rate plan and went to an income based plan which was a lot more helpful for me to help pay down my loans. Always stay on top of paying off your loans even if it’s an extra $5 that month, pay it off. Another thing to note that will help you is if your loan is divided into different groups, the fastest way to pay off the loan is to find the group with the highest interest payment. To determine this you would simply multiply the balance of the loan by the interest rate. For example, out of my 4 groups, Group A has the highest interest payment of $75 a month. So if I only have $75 to pay then I would pay off that loan because I would be have less interest on that group if I pay it off first.
- Investing in your education – This goes back to personal finance and financial literacy. My parents did not learn or educate themselves on personal finance a lot and I saw them make several money mistakes growing up. I also fell into this trap early on but learned that I was not thriving or happy being in that situation. So I began investing in myself and educating myself on financial literacy and how to get out of debt. It takes a lot of discipline and rewiring your brain to break bad habits but it is not impossible to do so. If there’s a will there’s a way! I started off with free content that was educational. Any free webinars, instagram posts, youtube videos, etc that would teach me one new thing I didn’t know and started applying it. One course that I highly recommend that I have invested in is the Slay the Stock Market course which not only talks about cutting down debt but also to grow your wealth through investing. It is super beginner friendly and informative.
- Investing to earn passive income – One thing you should start doing in your 20s is thinking about your future. It always sounds weird to think about retirement and living comfortably at 65. I’m sure not everyone wants to work tirelessly until they’re 65 and then live their life. I don’t agree with that lifestyle either but it is so important to be able to secure your future as well even if you plan to retire early! One important lesson I have learned is that you don’t need a lot of money to invest but you need time so the earlier you start, the better it is for you. I have chosen to diversify and invest in single stocks, index funds, and crypto. But it’s important to read and do as much research as you can before you decide what you want to put your money in.
- Save money whenever you can – One of the best decisions I have made is making different savings goals/buckets. I have short term goals like birthdays/weddings and more long term goals like saving for a new car (because I don’t want to finance the payments and pay interest on it). I use different apps for different things. I use the Digit App to create buckets for all of my short term goals. You can create a rainy day fund so if you ever happen to run short on money you can grab money from there and always replenish it after. The app offers you to withdraw instantly with a $0.99 charge per withdrawal. I also like to use the Ally Bank app to save for my longer term purchases like saving up for a car because I can still earn a little more in interest than my normal bank. I find it better to keep my long term savings on this app because I know I want to just keep putting money into the goal and kind of just forgetting about it while it earns a little more in interest than if I had a savings account at my bank. I also use a separate app called Qapital which is now being used for my official rainy day fund. My goal with this account is to have a minimum of a 6 month rainy day fund. You can choose how to save. For example, you can do $5 a week or set it to increase the dollar amount each week. But there’s many options. I also like this because I don’t pull money out of this, I just let it automatically take a certain amount from my account that I know I will have in my bank each month to put towards it.
- Budget properly – I absolutely hated budgeting before because it would just overwhelm me every time but now that I have a better perspective on personal finance, I enjoy doing it because I have better control over my money. One of the things that I like to do is to go through my bank account and see all my expenses for the month. I jot down the amount, what the expense is and usually if it is on autopay what day of the month it gets taken out. I like to use one paycheck per month to put towards my expenses for the month. So I know that my paycheck at the end of the month will go towards my expenses for the next month and I need to make sure I don’t touch that paycheck or have enough to cover my expenses for the month. Another thing you can do ahead of time from the extra money you have after expenses is decide how much will go towards different savings goals. I like to spread out my money towards both short term and long term goals. You can also use apps like Mint to help you keep track of your spending. Make sure to always leave room for “buffer” money which is like an extra $100-$200 in case you have last minute plans to go out that month or an event that comes up.
I truly learned about personal finance when I was laid off of work in the midst of a pandemic. It was the most vulnerable moment in my life that taught me the most about money and was a big blessing looking back. Never be afraid to take control of your finances because it will be one of the biggest weights lifted off your shoulders. Hope these tips helped!
Take Care Thrivers…