This is the second of five posts (in our Financial Must series) where we’re aiming to provide you with a tremendous foundation to achieve your financial goals. We will be posting 2 musts every Friday until the list is complete. If you are enjoying the posts, please take a minute to subscribe to MikedUp Blog. Just enter your email address (in the box on the right) and you will get every post as soon as it’s published.
We have the previous two Musts listed below to remind you what we’ve covered. If you’d like to read about those in detail, check out the previous post here. Thanks for reading!
1) Find a way to earn an income and do it at an early age.
2) Set goals for yourself financially, and make sure at least one is attainable in the short term.
3) Open a checking account. On your quest for adulthood this is a box you’ll have to check. Rather than hiding your money under a mattress, in the freezer, or behind the drywall, a bank checking account is a safe alternative. Money in the bank is federally guaranteed to be there for when you need to withdraw it, and if something terrible happens to your home or you are robbed, this money is not up for the taking.
Additionally, because you now earn some type of income, this can be a great place to set up your direct deposit. ‘Why do I need to set up this direct deposit?’ Good question, I’m glad you asked. Rather than waiting for your employer to write you a check and either give it to you at work or send it through the mail, your income is automatically deposited on payday morning. No more getting your check and trying to rush to the bank after work, waiting in line, and taking time out of your day. Nope. Just wake up Friday morning and it’s there.
Another benefit to holding a checking account with most banks is the online access they provide. You’ll have the ability to create a user account that allows you to modify settings, track your balance, make payments, and a whole host of other options. Save checks, stamps, and time while still handling all of your banking needs. Now its just done with a few clicks. There was a time when paying bills took a while and trust me, you don’t want to visit that place. Spending hours paying people, no thanks. This ability to visualize how much money you have and where you’ve spent it in the past will pay dividends when we get to a few of the steps below.
4) Get a credit card with a low limit. Forewarning: this one is controversial. There is a group of highly successful people in the financial industry that would have you either never take out a credit card or destroy the ones you have and never think of them again. They argue that there is too much downside, you take on debt that you don’t need, and you basically can’t trust yourself with managing one. I’ve read their books and actually agree with most of what they say. Some of them have even helped me get to where I am today. But when it comes to credit cards, I disagree.
I argue that credit cards can be a tremendous tool in the hands of a responsible person – if you’re checking out this blog or other sites like Capitalist Review (and you’re reading this post) I believe that responsible person is you. First of all, there will come a time in most peoples’ lives when you’d like to buy a car, house, or other expensive object that you don’t have the cash to pay for up front. When that happens you’ll have to apply for a loan, and they don’t just hand those out nowadays. They’re going to have to vet your ability to make good on the payments in order for them to feel confident in lending you some cash. One of the first and most important things a lender will check is your credit history. This is the point where not having any credit can be a huge drawback. Because you’ve taken out a credit card and been responsible with it, that’s not you.
Other benefits to having a credit score or credit card include: rewards points, lower interest rates for loans (you can save tens of thousands of dollars with just 1% lower interest rate over the course of a $150,000 – $200,000 mortgage), lower security deposits when renting an apartment or home, lower auto or homeowners insurance rates, and security of transactions (credit card companies can intervene on your behalf in the case of fraudulent charges or purchases made with stolen cards). If those aren’t incentive enough, your ability to earn an income can be drastically affected by your credit score. One tactic many employers use is a credit check. They want to see how you handle your own finances before they put you in charge of some aspect of theirs. Poor credit could prove the difference between landing and not landing that dream job.
Another thing to keep in mind is that zero credit does not equal good credit. In fact, no credit shows no history of you making payments on time, paying down loans, or being responsible with your debt. This is a detriment rather than a benefit when it comes to applying for a loan. No credit score does not allow a loan provider to evaluate you.
Thank you for reading! If you’d like to read about our other financial musts, check out Must Post 1, Must Post 3, Must Post 4, or Must Post 5. If you’ve enjoyed this post please subscribe to the blog so that every new post comes straight to your inbox. You can also check out the YouTube channel (MikedUp Blog) or follow Mike on Twitter (@RealMikedUp). Have a question or comment? Let us know by commenting on the post or emailing Mike at [email protected]. We’re glad you’re here. Thanks again and talk soon!