By Lucy Mueller
When I graduated college and started my first job, I was both comically broke and financially illiterate.
In the spirit of transparency, here are a few of the more embarrassing things I did in my early 20s because I was terrible with my money:
- One time I stole a toilet plunger from a Taco Bell because I didn’t have enough cash to buy one.
- The McDonald’s down the street had to put up a sign on its door expressly forbidding people from bringing in old cups to fill up at the soda fountain. I am positive this was a direct response to my daily habit of doing this. The sign might as well have said “Cups are for single-use only, ma’am.”
- For lack of a plate, I regularly ate food off a frisbee. Sometimes that food was beans, which are cheap and filling, and this lead to my invention of a meal staple, Frisbeans (patent pending).
My problem was that I had never learned the basic tenets of personal finance, and was rather adrift without them.
My job paid $1,200 a month, $875 of which went to rent and another $100 or so went to clearing out my checking account’s overdrafts. Because I had no credit card (not for lack of trying), I treated my bank’s highly punitive overdraft system like a line of credit. (One with a 17,000% APR.) I had no emergency savings, no retirement accounts — no budget, even. The idea of building credit seemed very far off in the future.
I’m not alone in my ineptitude; if you want exposure to personal finance from an early age, growing up in the U.S. is not your best chance at success. Only 17 states require students to take at least one personal finance course in high school, according to a 2016 survey by the Council for Economic Education. The effects are long-reaching: A 2013 study found that only a third of adults over 50 could get a passing grade in basic financial literacy.
10 Personal Finance Tips For Broke Millennials
The good news is you can actually learn the staples of personal finance fairly easily. I picked up on them by reporting about and editing articles on finance for several years, but there are more painless routes.
I asked a number of experts on graduate and post-grad money management the same question: What are some easy ways to stay on top of your money as a broke 20-something, especially if personal finance has never been your strong suit? Read on for their suggestions.
1. Check In On Your Finances Regularly, Even If It Makes You Queasy
This above all else: Don’t treat your bank account like a spider you trap under a jar and leave marooned in the middle of the kitchen floor for three days until your roommate disposes of it. Ignoring your finances will only compound any money problems you have (and it won’t do your anxiety any favors either).
“The first step in getting things back on track is actually looking at your income and expenses, even if you might not like what you see,” said Casey Bond, managing editor of Student Loan Hero. “With so many budgeting apps out there today, it’s incredibly easy to get a snapshot of where your money is going. Once you’ve tracked your spending for a few weeks, you can begin identifying patterns and finding ways to make improvements.That could be cutting expenses, earning more income, or a combination of the two. How to fix the problem is up to you — the hardest part is admitting there is one.”
2. Get a Fee-Free Checking Account
Here’s something I wish I could tell my younger self: You don’t have to spend hundreds of dollars a year on bank fees.
The average checking account comes with 22 of them, according to WalletHub. There are your standards: overdraft charges (the U.S. median is $34 a pop), monthly service charges and ATM fees. And then there are the more devious expenses that tend to hit account holders with less money, like minimum balance fees, where the bank assesses a charge if your account drops below a certain threshold (say $1,000).
It doesn’t have to be like this. Bankrate estimates that nearly four in 10 banks offer free checking accounts (meaning no service charge and no balance requirements). Even better, more and more online-only banks offer checking accounts with no overdraft charges or ATM fees. If you overdraw your account frequently, as I used to, this adds up to hundreds a year — $260, on average, according to the Consumer Financial Protection Bureau.
You don’t owe your checking account any sentimentality, especially if you keep getting dinged for not keeping much money in it. Find a bank that won’t penalize you constantly, switch now and don’t look back.
3. You Can Build Credit Without A Credit Card
You can live without a credit card. People do it all the time. I did it till I was 25. It’ll be slightly harder to rent a car or stay in a hotel, but these aren’t insurmountable obstacles. Of course, credit cards can be a great tool for earning cash or building credit, but more often they’re used for the express purpose of spending money that doesn’t exist.
Do not get a credit card if this is your goal. There are several methods for building credit without a credit card.
“You build credit lots of different ways,” Chantel Bonneau, a wealth management advisor at Northwestern Mutual, told me. “When I was in college, I volunteered to have utilities in my name. One, because I am very responsible, I made sure I would pay them. And two, I wanted to begin building my credit score — my reputation to credit agencies, as someone that pays a regular bill. That can be one simple thing you can do to start having a track record.”
You can also use credit builder loans, student loans, personal or peer-to-peer loans, or vehicle loans to demonstrate a history of repayment. Some (though not many) landlords will even report regular rent checks to the credit bureaus.
4. You Can Get A Credit Card With No Credit
So, let’s say you are financially responsible enough at this point to apply for a credit card. (Congratulations! You are a better person than I.) You might now run into the Catch 22 of not having enough credit to get a credit card so that you can build credit.
If you don’t have much of a credit history, you have what bureaus call a “thin file,” which means they don’t have sufficient information on you to evaluate whether you’d be trustworthy enough to make payments on time. You’re basically Jason Bourne to them. (Congratulations again.)
Don’t go off and apply for a preferred card with a lot of cash-back options and signing bonuses, because you likely won’t be accepted and the application will count as a hard pull on your credit. Instead, there are a couple of options available to you:
- You can apply for a secured card, which is specifically tailored to people with low or no credit. You’ll need to put down a deposit of money up front — collateral in case you default — and that deposit will be your credit limit. The good news is that after a year of on-time payments, most secured cards will automatically become unsecured and you can get your deposit back.
- You can get a co-signer for your preferred credit card. (Do your parents love you? Let’s hope so!) This is a good way for you to build credit without putting down a lot of money upfront. The downside is that your co-signer has really nothing to gain from this, and is taking a significant risk by linking their good credit score with your lousy one. Find someone for whom altruism is a driving force and be vigilant about your payments — you don’t want to tank someone else’s credit along with your own.
5. You Should Have Several Credit Card Non-Negotiables
If your credit is good enough, opt for a card that has the following:
- No annual fee: You shouldn’t be charged for the privilege of spending your own money.
- Points or cash-back: This will depend on your own spending profile, so find a card that rewards you with something you will use. E.g. If you’re a frequent flyer, look for a card that offers airline miles.
- Signing bonus: Some cards will offer several hundred in cash up front for signing up (or a percentage of the amount you spend in the first several months).
Additionally, if you know you’re prone to overspending, cut yourself off at the pass. Call the credit card company and ask for a low monthly limit. The service representative might be nonplussed, but he’ll oblige.
6. Search For Painless Cuts To Your Budget
What’s the single most parroted piece of personal finance advice ever? Say it with me: “Cut out coffee.” The internet is teeming with articles offering this up as a “hack,” and promising that you’ll save thousands by eliminating your Starbucks habit.
“The coffee thing, like, oh my God,” said Matt J. Goren, an adjunct professor of personal finance at the University of Georgia. “If I didn’t drink coffee for a year, I’d save like $300. Give me a break.”
Goren advises instead that you find painless but more impactful cuts in your budget; the secret is excising something that won’t disrupt your lifestyle drastically.
“If you go through something that is kind of painful in the short term, you eventually habituate and you come right back up to being just as happy as you were,” he told me. “The big one for a lot of people is cable TV. I advise basically every single person: Just cancel your cable bill. Just get rid of it.”
Stick with the streaming platforms — you’ll be saving more than $100 a month on average ($20 of which is just the sports). Think of all the coffee you could buy.
7. Automatically Contribute To A Retirement Fund
The earlier you start saving for retirement, the better — beginning at 25 rather than 35 can mean$100,000 more in your account when you’re 65.
If you’re financially strapped, don’t overthink it. Open a Roth IRA and set up a small monthly direct deposit, which you can increase as you start earning more money. If your work offers 401(k) matching, take advantage of the free money. (But make sure you’ve read the find print on the vesting schedules.)
8. Don’t Assume Your Parents Are Right
They raised you, one of them may have birthed you and presumably since then they’ve given you bountiful advice — some wanted, some not.
Here’s the thing, though: Even if your parents are incredibly money-savvy and have built a great nest egg of their own, financial plans are not one-size-fits-all. Additionally, although the fundamentals are the same, circumstances have changed drastically since the 1970s — what worked for them might not work for you.
“The place that we see this most often is whenever I work with a young client and I look at their retirement account, and it’s allocated like a sixty-five year old’s,” Bonneau told me. “So, it’s good to take information … but evaluate what you are trying to accomplish first and foremost, and make sure that everything you are doing aligns with that. It’s okay to seek other opinions.”
9. You Need To Know About Quarterly Taxes
If you drive for Lyft or Uber, sell anything on Etsy, or do freelance work, you are technically self-employed — which means you will not be receiving a W-2 form with taxes already taken out of your wages. Instead, you are expected (and required) to file quarterly taxes on everything you earn over $1,000. Failure to do this will result in a year-end penalty — and, likely, a prohibitively hefty tax bill.
“There are some things you can write off, depending on your situation and what you are doing, like as business expenses,” Bonneau said. “But generally assume that you owe taxes and you need to work with a tax professional. Or do your due diligence and really spend time, so that you are sending that in. It’s not something that you can just wait and figure out later.”
And if you do put it off?
“Then take 30 to 40%, put it in a savings account, so you can pay your taxes at the end of the year, plus the penalties for ignoring it,” Bonneau told me.
10. Financial Advisors Aren’t Just For Rich People
Personal finance isn’t intuitive, and it’s OK to need more help than the internet or this article can offer. And you can seek that help even if you’re not raking in the money.
“I think a big misconception is that people believe that they don’t deserve professional financial advice or a financial planner until they have significant resources,” Bonneau said. “Seek out someone who is willing to spend the time, and teach you the fundamentals. Because any financial planner should be thrilled to work with someone that wants to get it right from the get-go.”