Important Money Lessons I Learned In My 20s.
Financial education is super important, especially for those who don’t come from wealthy backgrounds and don’t have anyone to show them the ropes. Here are some important lessons I’ve learned in my early 20s:
Credit Score: Check It, Track It, Understand It, Build It
Your credit score is super important, it impacts many aspects of your financial life, such as borrowing money for a car, renting, homebuying, insurance, etc. A high credit score can help you access lower interest rates and other financial products, while a lower score may limit your options and cost you more.
Here are some key rules for managing Credit Cards.
Pay on time: Late payments damage your credit score. If you’re not able to pay off a credit card in full and on time, it may be better not to use it
Keep utilization low: Don’t use more than 30% of your credit limit. If you do, pay it off right away. Stick to paying in full, on time, and avoid getting hooked on minimum payments or temporary “teaser” interest rates.
Avoid dependency: Relying on credit cards too much can create debt that’s hard to manage. Do not use credit cards to finance a lifestyle you can’t afford or to make ends meet
Interest costs: Remember, you pay interest on borrowed funds. The longer you take to pay it back, the more you pay in interest. Lenders profit when consumers carry a balance.
Pay in full: Avoid getting hooked on minimum payments or temporary “teaser” interest rates.
*My first credit card was the Apple Credit Card. I think I got approved for like $1,000, and I was literally so scared to go over 30%. But honestly, that fear helped me build my credit score, so good! My second credit card was the JetBlue card, which inspired this blog post. I was so stoked because I finally got a free round-trip flight from FL to MA. Anyway, I use that credit card to pay most of my bills and outings to earn points (points = free flights), but I always make sure to pay it in full and on-time! Do not just pay the minimum that credit card companies suggest. At the end of the day, the longer you’re in debt, the better for them, as that’s how they make a profit. Yes, get a credit card, but don’t don’t get in debt.
Track Your Credit Score
Under the Fair Credit Reporting Act, you get one free credit report each year from the three main credit bureaus—Experian, Equifax, and TransUnion. You can access these reports for free at annualcreditreport.com, which is authorized by federal law.
For more on building credit, check out this video: Building Your Credit Score.
Understand Your Interest Rate
Credit card and other types of interest rates vary based on factors like your credit score, income, assets, debt load, inquiries, and payment history.
Building Wealth in the United States
There are multiple ways people build wealth in the U.S.:
Invest in the Stock Market
401(k) or IRA: Contribute to retirement accounts like a 401(k) or an IRA. These accounts offer tax advantages and are often matched by employers, helping your money grow over time.
I personally have both. I was procrastinating on opening a Roth IRA, but it only took a few minutes on the Fidelity website. Sometimes, we just overthink things or make them seem more complicated than they really are.
Brokerage Accounts: For regular non-retirement investing, open a brokerage account through platforms like Fidelity, Vanguard, or Robinhood. I recommend starting with diversified options like ETFs or index funds, which spread your investments across many companies and reduce risk.
Investing sounds scary, but it’s really not—you can literally start with $5. Some stocks are as low as $50 to $100 per share. Even a few dollars per week can add up over time, especially if you’re investing in a diversified portfolio or an ETF.
Real Estate
Homeownership: Buying property can build wealth through appreciation, rental income, or equity building. Programs like FHA loans and first-time homebuyer programs make homeownership accessible.
Home Buying Classes
Back in September 2021, I took a homebuyer’s class through Allston Brighton CDC. Just a year later, I was buying my own house with the help of the MassDREAMS Grant program, with only $10,000 out of pocket. For me, taking a course before making any big financial decision is really important to ensure that I know what I’m getting myself into. Since I don’t have anyone guiding me through these steps, I want to be sure I’m making informed decisions.
Rental Properties: Owning rental properties can generate “passive income” and a steady cash flow, especially if demand for housing in the area is high.
Invest in Yourself and Your Skills
Education and Skill Development: Education is something that people can’t take from you. Knowledge is Power. You can look into learning high-income skills like tech, management, or specialized trades which can significantly increase your income. Consider certifications, degrees, or skills that align with lucrative industries.
Side Hustles: Leverage hobbies or skills (like freelance writing, consulting, or e-commerce) to create an additional income stream.
Save Your Money
Open a High-Yield Savings Account (HYSA): HYSAs offer higher interest rates than traditional savings, helping your savings grow faster.
Have an Emergency Fund: Maintaining an emergency fund of 3-6 months of living expenses can keep you financially stable, preventing you from going into debt when unexpected circumstances arise.
Develop Good Financial Habits
Budgeting and Saving: Living below your means, budgeting, and regularly saving allows you to accumulate wealth consistently.
Avoid High-Interest Debt: Pay off high-interest debt like credit cards, which can hinder wealth-building by draining resources with interest payments.
Please stop believing these online get-rich-quick schemes - building wealth takes time. By educating yourself, making smart financial decisions, investing, and staying consistent, you can and will build wealth over time.
Additional Personal Finance Resources
Webinars
Money Talk Tuesdays: Free webinars backed by the state of Massachusetts. Learn more here.
Books
Podcasts
Articles / Resources
Home Buying Classes
Take control of your financial literacy, educate yourself, and make choices that will set you up for a secure future.
