Finances can be overwhelming when you start talking about budgets and credit scores. Here are four basic financial skills everyone in their 20s should know.
- Build Credit Early and Track It: Your credit score lets lenders know how reliable of a money borrower you are, and the earlier you start building your credit, the better off you'll be in the future. Your credit score really plays a role when you start making large purchases like cars and houses. If you have strong credit, you'll qualify for lower interest rates and other benefits. Most banks offer a college student card, which will start you out with a relatively small credit limit of $500 to $1,500. Use it for gas and everyday purchases to start building up your credit. Make sure to not exceed your credit limit, and always pay off your card each month to avoid late fees! Also keep up with your credit score in case anything changes. I use Credit Karma because it's free and it gives me a full credit report. I also check my credit score through my bank (Wells Fargo). Credit Karma also alerts me if anyone tries to open a card under my name. My mom opened a credit card under my name when I was in high school and let me use it for purchases here and there and paid off the balance for me. Because she was proactive when I was 16, I had strong credit going into college, which helped when I started applying for apartments and other credit cards.
- Budget Yourself: Budgeting is very important when it comes to managing your finances. There are a ton of free apps (Mint) that can help you do this, or you can create your own budget using Microsoft Excel. I create my own budget where I track my spending on everything. I keep track of all my receipts and create my own categories to see what I'm buying each month. Setting yourself limits each month for categories from groceries and gas to necessities and extras will help you see what you're bringing in and what you have left to spend on things outside of bills. Keep in mind that you don't want to spend more than you're bringing it, even if you have a credit card and think, "Hey, I can just charge it and pay it off later." I've gotten myself into some credit debt because I would not stick to previous budgets and figured, I could pay it off later. Don't be like the old me. Now, I have a better system, and I'm more conscientious of my spending habits.
- Assess Your Current Finances and Plan Ahead: Take a step back and really examine where your money is going every week, month and year. Are you subscribed to magazines that you don't read that often? That's an easy $20 or more you could be saving every year. Are you spending money every week on your Starbucks orders? Cut back and start making your coffee at home. Once you start mapping out your spending, you'll find surprising places where you can easily start saving. As much as I love subscription boxes, I canceled my subscription to Play! by Sephora because that was $120/year that I could save. I also try to limit my spending on dinners out, even though that's difficult sometimes because I love food, but meal planning and cooking at home really saves you money in the long run.
- Find Ways to Save: With so many apps and companies out there dedicated to helping you save money, there are no excuses as to why you're spending full dollar for everything you buy. From clipping coupons in the Sunday paper to printing them for free online, there are many ways to save on things like groceries and going out. I love seeing my savings pile up over the years, and with some planning before a shopping trip, you too can save money. Check out my Save Away Series for some tips on how to save money easily with mobile apps and coupons!
I hope these tips help you out as you begin or continue your financial journey. Let me know what other financial questions you have!