I’m a 20-year-old Vermonter and college student interning for the summer. I have good grades, multiple jobs, and often consider myself the “voice of reason” to those around me. I’m a Millennial to a T, have a variety of skills, and I am very knowledgeable on a number of topics. However, upon beginning my summer internship, I realized financial literacy is not one of those topics. I thought, “I know how to deposit money into my bank account; what else do I need to know?”
Apparently a lot. I sort through piles of articles that say I should do “this” and “that” with my finances and I often don’t know which tips and tricks are true and which are just space fillers. That being said, since the start of the summer, I’ve picked up a few scraps of financial knowledge. These tips are in just about every article I’ve sifted through this summer and I’ve inserted them into my own life. The other day I read a business magazine and I didn’t have to Google what anything meant. I wouldn’t say it was an exciting read but I pushed my newly financially literate self through it. So here it is: a list of what I think is most important for fellow Millennials know about financial literacy.
I’ve worked countless part time jobs. Everything ranging from dishwasher to ice cream scooper–I’ve done it. I started working at a young age because it was something to do and because I liked making my own money. Having a job and earning money allowed me to be (somewhat) independent of my parents and that felt great.
As tempting as it is to spend my entire paycheck in one day, putting some aside to save has become one of my greatest habits. Obviously you’ve heard this advice before but it really can’t be stressed enough. Saving allows you to spend your money on bigger and better things later. Putting a fraction of my paycheck into my savings account allowed me to save up for bigger things I definitely couldn’t afford with just one paycheck.
I chose to use some of my savings to travel and visit friends I don’t get to see very often. I bought my own flights, and made all the arrangements myself. I was no longer a kid following my parents around on some vacation. Even in my rush to catch my connecting flight, I felt great.
Now when I say ‘save’, that doesn’t mean you need stop treating yourself. Saving doesn’t need to cost you an arm or a leg. I didn’t pause my entire life to save up for my trip. It simply means sacrificing maybe one night out month. It’s a gradual process. Little by little building up your savings, you get to set and surpass goals. As much as I like celebrating payday, saving some of that check gives me a celebration to look forward to with cooler party favors. This time I saved up for a trip, next time? A jet ski!
Understand Your Loans.
The average Class of 2016 graduate has $37,172 in student loan debt. That’s a hefty penny that will take years to pay off. A lot of graduates don’t realize how much they’re going to have to pay every month to stay on top of their payments. That’s what gets them into trouble.
After reading all of the ‘get out of debt in a week!’ articles, I was prompted to figure out what my own situation was. To avoid the shock of debt payments, it was important for me to understand what I was borrowing and how I was expected to pay it back. You were probably hoping to avoid thinking about student loans but let’s be realistic: you should do it now so you have time to freak out a little and then get back to business.
First of all, know that there are two types of student loans and discover which ones you have. There are subsidized loans, which do not accrue interest until after you’ve graduated. Subsidized loans also give you a six month grace period after you graduate before you are expected to start paying off your debt. These loans are great because they give you a second to breathe before becoming a monthly anxiety.
Unsubsidized loans do accrue interest while you’re in school, meaning that interest is added onto your initial amount. This is sort of a bummer but unsubsidized loans allow you to take out much more than a subsidized loan which is helpful when you need that extra thousand or two.
Understanding which of these loans you have, or which combination of the two, is important. You’ll want your unsubsidized loan to have a lower interest rate so you can avoid a costly addition to your initial loan amount. It’s also important to understand how much you must pay each month and for how long. Your $20,000 loan could end up costing you $27,000 if your interest is high and you can’t pay it off in the expected time frame.
Debt is still terrifying. But knowing what kind of debt I’m in and how I’m getting out of it makes me feel way more prepared than sitting idly. All in all, knowing your loan situation is a great motivator to stop procrastinating and get your financial mess in check. I’m getting there.
Start Building Credit Now.
Start building your credit right now. Literally right now. First of all, your credit score is three digit number that indicates how much credit you should be trusted with based off your credit report. You may know this already but I didn’t. This score represents how responsible you are with credit: Whether you pay it back, how quickly you pay it off, how risky your habits are, etc. When you go to take out loans, apply for credit cards, or try to get a mortgage later on, your credit score will help determine how much you can borrow.
Last year my school had an event that told us what our credit scores were. I steered so far away from this event because I knew my credit was probably pretty laughable. Once I started my internship this summer, I was reminded me about my iffy credit score. In the past few weeks, I finally got around to calling my bank and applying for a credit card. It’s important to start building credit now because you’ll want a better score later. The earlier you start, the better. There are a couple of ways you can build credit:
Take out a small loan.
Get a credit card if you don’t already have one.
Pay your loans back quickly.
Simply showing that you can borrow and return money shows that you aren’t reckless with your spending. Improving your credit score may be a nuisance but bad credit will follow you around.
Invest a Little Bit.
The thought of investing used to strike fear into my soul but now I understand the benefits. To sum it up: Investing in stocks is essentially buying a small piece of a company. You own that. When the company does well, you get a piece of the profit. When the company doesn’t do well, your stock is worth less than it was. You can buy and sell your stocks strategically to make more money over time. On the other hand, when you invest by purchasing bonds, you are essentially loaning a company money you will get back with an interest rate. Interest rates change, but you’ll get your investment back plus some extra. Personally, I think I’m more of a bond kinda guy but that’s just my preference.
Just like saving, investing doesn’t have to be a grand gesture. Investing as little as $5 into a company can yield some pleasant results. In fact, it’s probably best to start investing with small amounts until you feel comfortable and familiar in what you’re doing. Luckily, there are tons of apps that can help you both choose your investments, and manage them. Living in this modern society sure has made things easier for us. Apps like Acorns and Stash Invest allow you to invest and track your progress straight from your smart phone. With the right investments and a little luck, investing can deliver some fine results.
Budgeting is Possible.
Everyone knows what budgeting is: Setting aside X amount of money to be used for Y. After paying for your essentials (rent, utilities, and groceries) list everything else and designate how much you want to spend on each thing. Don’t forget to budget some of your paycheck into your savings as well! Being realistic with your budget is key. If you spend $300 eating out every month, throw that in there! Everyone is different, therefore budgets should be different too.
I didn’t realize this until I started interning this summer. I couldn’t fathom just how possible budgeting can be and how bad at algebra I am. It all comes down to making a plan and sticking to it. When I moved into my own place last year, I started mapping out my budget. I set ridiculously high standards for my spending and fell flat month after month. I acclimated to the gut clenching feeling of seeing my groceries soar past my allotted $50 every week. I had a budget but that budget did nothing for me.
Since beginning my summer internship, I’ve spent some quality time with my budget and we’re good friends now. I understand my spending habits and incorporate them accordingly.
There are tons of other pieces of knowledge that you can find in articles online. These tips may not make you rich but they will make you smarter, more responsible, and more literate in the financial sense of the word. Implementing these practices into your spending and saving habits can only do good. Learning about financial literacy has made me more responsible with my money (it’s also a good ice breaker at parties).