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Finances in Your 20s from a GenXer in our 50s

Awhile back, I was asked by a thoughtful and curious guy in his 20s: “What do you wish someone had told you at 24 about finances?”

Our informal conversation was an illuminating moment of financial literacy for us both as we bonded over the mindset challenges we experienced growing up in our families’ working-class circumstances. Chief among our many tall walls to climb has been the limitation on our thinking about where money comes from and what to do with it once we got our hands on a bit of it. With that in mind, I offer a few lived realities from my financial life-lessons.

Understand Your Risk Profile

Before you start any kind of financial planning, it’s important to know what matters to you and how much you’re willing to risk to get it. There are lots of websites that help you assess your risk profile. Here’s one that’s pretty straightforward and can help get you started.

Unfamiliar with financial language in the assessment? That’s OK! Put the internet to use and start learning the language of finance. Also, talk about the prospect of making and losing money with people who know you well enough to help you think about your risk profile. All clarity is good clarity.

As you take in my perspective here, keep in mind that my answers to the question “What do you wish someone had told you at 24 about finances?” come from a risk-tolerant perspective, meaning I’m willing to take some chances at losing money or taking a hit to my credit if it means that, in the long run, I have the opportunity to overcome those setbacks and achieve financial gain.

Define “Financial Health” and Get to Work on It

I didn’t learn the phrase “financial health” until I was in my 40s, when a friend pointed out what poor financial health I was in. It was revelatory, like having someone point out that I’m eating too many carbs or not exercising enough.

Until then, I’d thought, either you have money or you don’t. Now I get that financial health isn’t simply an either/or condition but rather a spectrum of financial practices focused on money for now + money for later.

Just as I keep track of my physical health by degrees of strength, balance and weight, I now have defined stages of financial health so I can know where I am and where I need to get to next. Here’s how I’ve come to think about this in the past 5 or so years:

For most of my adult life, I lived in financial solvency. I wish someone had helped me lay out a simple plan when I was 24, so I could start saving and moving toward better stages of financial health much earlier in my life.

Maybe these stages of financial health as I’ve defined them work for you. Maybe they don’t. The suggestion here is not about a fixed set of universal definitions. It’s about taking time to survey your circumstances and goals, then define your goalposts for financial health so you can know where you stand, set where you’re going, and track how you’re progressing.

Because I had no concept of financial health, my biggest mistakes were not saving and not investing when I was younger. The remaining advice I offer here is about avoiding my mistakes.

Pay Yourself First

This is one of the hardest things to do when you’ve got too much month at the end of your money and your ends are barely (or not) meeting. But just as drinking water is critical to optimal physical health, paying yourself first is critical to optimizing your financial health. So figure out what you can pay yourself given where you are, and start doing it. Now.

Literally, like right now.

If you can only pay yourself $10/month, then just start there, and if you haven’t paid yourself that $10 (or whatever) this month, stop reading this and go pay yourself. Then keep going. All income from any source — paychecks, unemployment checks, social security checks, disability checks, bonus checks, birthday checks, tooth fairy deposits — the first thing you do is put aside some amount for your future self.

And put it someplace where you can’t see it. That’s how you’ll keep it growing.

To this end, online banks like Simple and Chime are ideal for saving. Just don’t put the app on your phone’s home screen, and mothball the debit card they’ll send you someplace safe but also highly inaccessible (I keep mine in an actual safe under lock and key) so that essentially, you’re not thinking about the account unless you’re adding money to it.

If you do make purchases with a bank card, many online (and traditional) banks also have a round-up feature for every purchase you make, which adds little bits to a savings account for you. Features like Simple Round-Ups can be a really helpful way to trick yourself into saving.

A common piece of financial advice I’ve heard (and didn’t heed until recently) is: “The best time to plant a tree is 20 years ago. The 2nd best time is now.” With that in mind, plant your tree . . . start paying your future self now.

Create a Credit Strategy

Some people are really nervous about having a low credit score, and I get that. A credit score can impact so many areas of your life e.g. whether you get approved for an apartment or what shows up for you on a background check during a job interview.

But a few important things to keep in mind about credit can shift whether you’re in charge of your credit, or whether your credit is in charge of you:

#1 / Credit scores are dynamic, not static. They change weekly and monthly. So whatever you might do to lower your credit one month, you can make up for it with an improvement in your score the following month.

#2 / Credit can be bought as well as earned. Some credit cards let you sign on for a $99 annual fee, which I’ve framed as an investment in my credit score.

#3 / The point of getting credit is to NOT use it. When I was in my 20s, I had one credit card, and I thought I should be proud of myself for that. Then I learned about credit utilization and how it has a significant effect on your credit score. And that changed the credit game for me.

Lending companies don’t care if you have multiple lines of credit, they only care if you’re using multiple lines of credit — that’s when you’re risky.

Knowing what I know now, I apply for a new credit card once or twice a year to add to my available credit. I’ve paid for a couple of credit cards. Other cards came more easily once my available credit went up and my credit utilization went down. All but two of my credit cards are locked away. I use each card once or twice a year for small purchases just to keep them active. The point of this has been to ensure I have good credit when I need it. And it’s worked!

Two other bonuses from credit cards: collecting points and checking your credit score.

Every credit card has some incentive plan to get you to use it, whether it’s cash back rewards or travel rewards. While the points aren’t worth much on the face of it, they do add up over the course of a year. Typically there are a few months in the year where I can pay a credit card bill or cover a hotel room using money gained from points. So it can be useful.

Also, most credit cards have a feature that allows you to check one of your credit scores i.e. Transunion or FICO. In September 2016, I started tracking my credit score every month via this feature. I’ve been able to see how much I’m affecting my score each month and have been able to adjust (e.g. pay a little more on my credit card bills to get my utilization down) when my credit score started dipping below where I wanted to be.

Since it’s hard to manage what you can’t see, I strongly recommend getting a credit card that also allows you to check your credit score, and start watching that score on the regular.

Invest . . . because Work Doesn’t Buy Financial Freedom

Comic about money lessons from an older generation

As a working-class person who comes from working-class people, this has been the hardest concept for me to wrap my head around. Wow, how I wish I’d figured this out when I was 24.

Instead, it took me until I was 50 to understand that the most valuable asset is not labor, it’s time. If you have time, then you can let your money work for you. THAT is one way money begets money.

One of the key ways to put your money to work is to invest in stocks, which can be hard if you’ve never done that kind of thing before. There’s a bunch of routes to go, and you’ll have to figure out what’s best for you.

But first things first, pull some of that working money aside, and put it in an investment account. Even if you have to skip one bill for one month, I say do it (my Wife says absolutely do not do it, but she’s also risk-averse). The reason I say do it is because, remember, credit scores change month-to-month. You can make up for not paying a bill to invest, but you can’t get back the time you didn’t have your money in an investment account.

In terms of where and how to invest, if you’re a beginning investor, this may change over time as you gain more experience. But for now, here are a few ways to get started:

1/ Let someone else manage your investment and pay them a fee

There are a ton of investment funds out there that put your money in a bunch of stocks and manage investments for you. A few worth looking at include:

  • Thrivent Mutual Funds because you can start investing with as little as $50 and it has a history of financial responsibility
  • Chase You Invest portfolio because they have you do a goals and risk assessment first to determine how to invest your money
  • Fidelity Investments because it has low- to $0-fees depending on how long you keep your money on their platform, and they offer free educational resources to learn more about investing

2/ Do your own trading with guidance

If you want to dip your toe into trading stocks, there are platforms that will let you trade directly by following the trades of other investors. It’s called “social trading” or “copy trading” and it can be an interesting way to see if trading directly is right for you.

Here’s a Top 10 Social Trading Sites articles, with eToro being the one I’ve heard the most about. Most of these sites will let you create a practice account with fake money so you can get the hang of this. Also, please note that some of these sites focus on specific kinds of training e.g. crypto currency or foreign exchange, but some of them have general stock trading available as well.

3/ Do your own trading and buy stock from companies you like

Think you can’t afford to buy stock? Think again! Some trading platforms will now allow you to buy part of a stock, which is called a fractional share.

So, say you can’t afford to buy Amazon at $3000+ per share (what paycheck-to-paycheck living person can afford this?!). You can instead opt to invest a bit of money e.g. $50 to buy part of a share and still benefit from a stock like Amazon that’s performing well but is out of reach for many working people.

Fidelity Investments is worth exploring because they currently don’t charge fees for buying U.S.-based fractional shares and their platform is easy to use.

Wondering what to buy? If there are companies out there that you’re connected to because you’re a huge customer of theirs and/or you really believe in them, that’s a good place to start. As a wise (and financially savvy) friend of mine once told me, buy what you know. And if you’re just starting to invest, definitely do not buy what you do not know.

4/ For the more conservative investor

If you’re risk-averse and stocks make you nervous, another investing route you could take is peer-to-peer lending, where you contribute money for people to take out loans, and you get paid back with interest as people repay their loans. Lending money to strangers might sound crazy risky, but the approach is far from random. Borrowers go through credit check processes just as they would with a bank, and you can choose what kinds of borrowers you want to trust with your money e.g. yes I’ll lend to borrowers buying a car, but no I won’t lend to borrowers financing a vacation.

This is a slow investment strategy, with most loans available for ~3yrs. But it can nonetheless be a good way to start investing small, especially once you get a couple hundred bucks in savings, and you want to grow it faster than the <1% a bank offers on savings accounts. One of the more popular platforms is Lending Club, and it’s pretty easy to get started.

A note to remember if you do go the peer-to-peer lending route, once you invest in loans, you can only take out money on loan repayments. So, yes your money will be earning interest, but you won’t be able to get it back all at once.

However you go about investing, start investing. Don’t let your monthly bills or money fears hold you back. Plant your tree today!

Also, if you’ve read this far, congratulations on your commitment to your financial well-being! You’ve got the will. Now make the way.

☼ ☼ ☼

(Tammy is NOT a financial professional or expert. She’s not even as financially successful as she wants to be by her own financial health measures, yet. If you’ve got insight to share, she’s open to it. Feel free to contribute via comments.)




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Tammy Sanders

Tammy Sanders

Encouraging my inside thoughts to go outside and play.

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