Finance Getting Your Finances in Order in Your 20's

Getting Your Finances in Order in Your 20’s: Emergency Fund & High Yield Savings Account

A very important step towards financial independence is an emergency fund. It can be hard to take this step when you’re living paycheck to paycheck, but it’s such a relief to have that safety net. Eventually, you’re living paycheck to paycheck with a couple thousand of backup dollars which is a very different experience. There are no hard and fast rules to get there, but here are some guidelines.

First, lets start by talking about priorities. You will never achieve financial freedom without first evaluating your priorities. We’ve talked before about using Credit Cards to your advantage, paying off Student Loans and other debts, and about Planning for Retirement. All of these things are important and could rank higher in your priorities than an emergency fund. I would recommend prioritizing keeping your credit card debt at zero and paying off your loans aggressively. However, planning for retirement and emergencies are both forms of planning for the future and you may find a balance between them as priorities. Of course, required bills like rent, utilities, food, etc. have to be top priority, but you must be careful to differentiate between needs and wants. It is hard when you’re just starting out to live below your means and resist temptation. It is important though so you can build up funds for a rainy day.

Second, you need to commit to treating your Emergency Fund like an Emergency Fund. Basically, once you put money in, you are not allowed to take any money out for any reason. Now, I’m clearly exaggerating slightly, but I choose to think of my Emergency Fund as untouchable money. That way I truly only use it for emergencies. I haven’t needed to touch it even when I had periods between jobs. I would find other ways to afford my bills first. If it comes down to not paying a bill or incurring debt, then its time to tap into your emergency fund as needed. Adjust this mentality to what works for you.

Ok now that you have evaluated your priorities, let’s get to it. It may be difficult to know where to start. Let’s break it down into goals.

Goal #1: Aim to have $1,000 in your account.

              It may not seem like much, but it is an achievable goal. You will also be relieved to have it if you ever need it. If you do have to use it for an emergency, make sure to prioritize restarting your goal. While you have achieved goal number 1, don’t stop contributing to your account. Then you’ll be on your way towards achieving goal number 2.

Goal #2: Aim to have the amount equal to 6 months of expenses.

              This is an ultimate goal so if you need to make another smaller goal between the 1st and 2nd goal, then go right ahead. These are guidelines so adjust them to what works for you, but don’t give up. To achieve this goal, you need to sit down and evaluate your finances again. Hopefully, you have a budget in place that you’ve been using for a while. That information will make this step much easier. Be honest with yourself and don’t try to undercut your number. If you ever need to rely on this money, you will be glad you funded it properly.

First, take your housing cost, high average of your utilities, your cellphone and Wi-Fi bills, enough for refills on fuel, groceries, and required monthly payment for your loans plus the amount you have chosen to avalanche your bill like we discussed in our Student Loan Repayment article. Once you have added all these up and double checked that you haven’t forgotten a monthly expense, you will multiply it by 6 so that you then have the amount of 6 months expenses and your goal amount. I would recommend rounding up to the next round number. That way you have a little wiggle room and its easier to remember. Again, if you ever use any of the money from your Emergency Fund for an emergency, then you should restart when you can until you hit your goal again.

Once you have hit your goal, forget about it like I said before. Using your Emergency Fund should be strictly an absolute last resort. You can have another saving fund for things like new phones, cars, and other wants. After you hit your emergency fund goal, you can give more focus to other goals like retirement and paying down debt.

Benefits of a High Yield Savings Account

Something I wish I had known about years ago is a High Yield Savings account. Until last year, I had just been using the Savings Account and Money Market Account that came with my Checking Account. This was fine because it helped me sort my funds into an “untouchable account”. The Savings Account was fine for this purpose, but it only gained $0.01 in interest which doesn’t even keep up with inflation. Last year I discovered High Yield Savings that have interest returns close to 5%! This is a game changer. Once you begin your Emergency Fund, it will grow in small ways on its own. Imagine that! It is like a little reward and helping hand for taking the right step.

I personally use the CIT Bank, but there are lots of options. I saw that Credit Karma from Intuit has one, and there are plenty of others. Just make sure that you are clear on the minimum required deposit and if there are any fees for having the account or for inactivity. You should be aware that some accounts will offer $0 fees only for the first year so make sure that you only get one that stays free indefinitely. Depending on where you are in your journey you may also need to choose one with a lower deposit requirement. Make sure that the deposit minimum to receive the desired interest rate is also within your means. You’ll also want to make sure that the bank is FDIC insured and trustworthy. Do your research!

To give you an idea of what this could do for you, I’ll give you my personal example. As I mentioned before, my old account only gained about $0.01-0.03 per month so the only growth it saw was what I deposited into it. Once I discovered the HYS account, I already had my 6 months of expenses ready to deposit. For me, that was $12,000. With that money deposited in a HYS, I started earning around $34 per month! Then that $34 was added to the amount gaining interest so now I was earning $50 because of the compound interest. A year later, I have $800 more dollars than I deposited and I’m earning around $52 in interest payments each month. I didn’t even make any additional contributions and I have seen that much growth! It really is amazing, and I recommend starting one as soon as you can. I wish I had started one 10 years ago. Imagine where I’d be now.

A few additional thoughts to help you get started:
  • Set up a split direct deposit to automatically deposit a set amount into your emergency fund instead of having it all go to your checking account from your paycheck. That way you never get the opportunity to spend it in the first place.
  • Make as many smaller goals as you need. If positive checkpoints encourages you, then feel free to add more goals between $1,000 and 6 months. You could do $1,000, $5,000, $10,000, and 6 months or whatever you need. As long as you’re making progress, that’s the real goal.
  • Feel free to go beyond 6 months savings if you feel you need to. Most of the advice I’ve heard is after you have 6 months saved, you should focus those funds and attention to paying off debt or funding your retirement account. With that in mind, I wouldn’t recommend worrying about more than 1 year’s worth of expenses before switching your focus. Personally, I refocused after funding 6 months expenses.
  • 6 months of expenses will change with time. Reevaluate yearly or whenever you have a major life change to make sure you still have enough to cover your current value of 6 months expenses. Moving cities, buying a house, adding a member to your family – all of these things will change how much you need saved to be able to cover 6 months expenses. Inflation will also change your total. Has your cell phone or rent increased from last year? Reevaluate regularly to avoid being underfunded.

I wish you the best of luck as you embark on the next step to financial freedom. I’m not a financial professional, but this is what has worked for me. Always make sure to consult a professional before making any major financial decisions. Remember, there are no rules, just guidelines!


My Favourite Apps for Christmas and Beyond

Here’s a roundup of a couple of my favourite apps. These are a few I use especially around the holidays.

1. Santa’s Bag

Free | In-App Purchases

This is the only app on my list that is actually branded towards Christmas, but it’s a great resource for any gift giving event. Santa’s Bag is an app that helps you organize all of the details around gift giving. They’ve thought of all the details and options – you can even change the decorative Santa’s skin tone in settings if you want.

On the summary page, you can set a budget for your holiday and the menu keeps track of your progress by gifts purchased, gifts to buy, and the total over/under budget you are. It also has a time clock counting down to Christmas.

You can also view your plans organized by recipients. You can log everyone you want to get gifts for and view them as a list. After you select a recipient, you can see more detail for that specific recipient. You can list gift ideas, links, merchants used, preferences, and even set a budget for each specific gift recipient.

Another menu lets you look at all your gifts sorted however you like. I personally like to use the status option which sorts the gifts by whether they are an idea, purchased, shipped, delivered, wrapped, and gifted. They even have an option for handmade gifts and stocking stuffers!

I love this app because it helps me remember the gifts I want to get or have purchased and keep track of where I’m at with each of them, so I don’t forget anything. The best part about this app is, it’s free! There is an in app purchase available to remove advertisement banners if those bother you.

2. AnyList AnyList App Icon

Free | In-App Purchases – Subscription

Now that you know how to organize all the gifts you’re going to get, you going to need ideas on what everyone wants. The perfect app for that is AnyList. Now hear me out because you may know AnyList as a grocery app. That is exactly what it is, but due to its shared feature, it makes it the perfect app for wish list sharing. My family uses AnyList for a shared grocery list. It’s great because it updates the list in real time on everyone’s phone so we can all add and whoever is at the grocery can quickly see what is needed.

Another great use we’ve found is that everyone can make their own wishlist and share it so we can see ideas of what everyone would like for birthdays and Christmas all in one place. The app has built in categories that you can use to organize the items or you can make your own. You can also add notes and links to help would-be gift givers understand better than just the tagline might allow. We use this to link to Amazon wishlists or certain specific products or add sizing information.

The only thing is you have to make sure everyone understands that the only person who can make changes to a wishlist is the owner. Since everyone sees the changes, if you cross something off the list then it gets crossed everyone’s list and it ruins the surprise.

The base app is free which allows you to do everything I mentioned before plus add recipes and meal plan, but you can also opt to subscribe to AnyList complete which adds the ability to put pictures on items, sort by aisle in the grocery store, use AnyList on a desktop computer, import recipes, add item pricing, turn on a passcode lock, receive priority support among other features. There are options for an individual subscription or a household subscription that lets you add others’ emails to your subscription. We’ve been happy just using the free version, but some of those features in the upgrade do sound awesome. I think you’ll be happy with the app either way you choose.  

3. PackTheBagPack the Bag App Icon

Free | Pro Version Available

Pack the Bag is another app I use year round to plan my travels both big and small. I’ve tried so many packing apps and this one is the one I come back to time after time. The app comes preloaded with lots of items you can choose to add to your packing list, but you can edit or add new ones to be more specific to your packing needs.

The items are primarily sorted by category. You can edit categories or add new ones if you like. You go down the list and choose which items you want to add to your packing list. If you fill out the dates of your travel, there’s even a shortcut that will automatically add 1 item for each day of travel. That’s great for things like underwear and socks that you use everyday. The best part about the categories is you can minimize them to allow for quicker navigation and reduce visual clutter when you’re using the app. Sometimes the same item is listed in more than one category, but the app will tell you if you’ve selected the same thing twice in different categories. I really like the suggestions already built in. They even had things I sometimes forget to include in my list when I do it from scratch. You can also add pictures and weight to each item. The app will actually total the weigh of your items as you pack them. Anything you add will stay in the list of options for any future lists you might create so taking the time to detail the items is nice for later trips to benefit from.

While you’re packing, you can turn on a filter that only shows unpacked items. Again, reducing visual clutter so you can see quickly what is still left to find. You can also turn it off to see everything or see just packed items.

The app is free and so useful as is, but as most free apps are there is an option to upgrade to Pack the Bag Pro. It is sold as a separate app which costs $3 in the app store.

4. SplitwiseSplitwise App Icon

Free | In-app Purchase – Subscription

If you are doing any traveling or perhaps going in on a group gift, this app could help you a lot. This app takes any purchases and splits them as you want. You can do one time purchases and assign who is involved, or you can make a group and add multiple purchases from multiple people in the group.

As I mentioned before, you can have the app split it equally, but you can also choose other ways to split the payments as well making it really flexible. You can also choose whether you want traditional paybacks or you can choose to simplify payments. When you select this option, the app does the math to have everyone just do 1 payment instead of several redundant ones. So for example if Susan pays for something for herself, Bob, and Jeff and it cost $90; then Jeff pays $120 for the group. Instead of Jeff paying Susan $30, then Susan paying Jeff $40; the app would just tell Susan to pay Jeff $10. That’s a simple example, the app will take even more complicated scenarios and just tell everyone what they owe and to who – it’s awesome!

Something I don’t love about this app, it requires you to put in the participants email instead of allowing just names. It confuses people sometimes and not everyone wants to download the app. Now they don’t have to, but it does still email them. I do wish there was a way to track on your own without adding emails especially when I’m just trying to track for myself or I know that others don’t want the app. It’s a really good app other than that. Plus, if everyone downloads the app, then anyone can add their own expenses in real time.

Splitwise also integrates with PayPal and Venmo so the participants can link straight from the app to make a payment. Then the app updates automatically that a payment was made and updates the status to settled. You can also mark payments manually if you choose to settle up in a different way than the integrated options.

I use this app with my friends and family frequently for group trips, splitting food costs, or going in on annual costs.

The app is free, but does have a Pro option done as a subscription for $3/month or $30/year. Pro allows you to scan receipts, go ad-free, currency conversion, itemize expenses, plus other features.

5. RecipeBoxRecipe Box App Icon

Free | Optional Free Account

I definitely use this app more than just around Christmas, but I tend to be home, ready, and able to make all of my favourite foods in December.

I used to use a different recipe app before they went subscription only. That sparked me to find a great option in RecipeBox. The coolest feature is that it has a Focus Mode that will keep your phone from going to sleep for an hour while you remain in the app. This is great especially when your hands are covered in whatever you are baking and you want to review the instructions or measurements. It takes the most annoying part of digital recipe books and solves it!

You can categorize your recipes by categories, but also mark some as favourites to get back to quickly. You can add notes and urls in addition to the traditional things you expect to find in a recipe.

The app also has a Discover function where you can scroll through recipes or search for inspiration. There’s also a Shopping List and Meal Plan function in this app too so you have options.

I know I already said what the coolest feature is, so I’ll just call this the other coolest feature. You can import recipes directly from websites using your computer. and maybe the other other best part…the app is Free! No in-app purchases or subscriptions, you just have to make a free account if you want to use it across multiple devices or use the import feature.

6. The VaultThe Vault App Icon

Free | In-app Purchases

Finally, I had to add this app because it is just one of the all time best apps, and it always blows peoples’ minds when I introduce it to them. The Vault is an encrypted, secure app that allows you to store valuable information such as passwords or important information. It also allows you to include pictures. It is pretty free form, but it also allows you to search through the app for test to find what you’re looking for quickly.

I store all of my passwords in The Vault. I am able to sort it into categories. For example, I have a category for my blog where I keep the important information for the accounts used to run More Like Guidelines, and less secure information like the specific color codes used for my logo. I also have a category for my wallet. I put pictures of each of my cards in there along with the credentials to login to their apps. That way, if I ever lose my wallet then I have a list of all the cards I need to pause, and I have the phone numbers I’ll need to call. I also have the numbers typed out which helps for online shopping when I don’t want to go get my wallet and it lets me copy and paste.

Now I’ve mentioned a lot of really sensitive information being typed into the app, but of course they have a great solution for that as well. The app has built in features so that when you type something next to something like password, it will block it out with green dots so if someone is looking over your shoulder it isn’t immediately visible. You can slide your finger over it to reveal what is hidden. Same thing with credit card numbers and other data.

One other little pro tip I would give for this app. If you have an account that is associated with your address or phone number, type that into that account’s page. That way if one of those things ever changes, you can just type your address into the search and it will show all of the accounts that need to be updated to the new information.

The app is free, but does have several in-app purchases for some of their more advanced features.

These are some of my favourite apps that I like to use. I hope you find them helpful or maybe they’ll inspire you to go find a new favourite app of your own because, after-all, these are More Like Guidelines anyway.

Finance Getting Your Finances in Order in Your 20's

Getting Your Finances in Order in Your 20s: Planning for Retirement

You may be thinking “I’m in my twenties, I don’t need to worry about retirement yet”. You may think that retirement is more of a thing you do in your thirties, but actually getting started as early as possible can have a huge payout later on.

Did you know that to retire, someone our age needs to have more than $1 million saved up? It’s ok. You can panic for 30 seconds.

Ok panic is over. Now I’m going to help you get there.

Why You Should Start Early

The first and most important, yet intimating part is you must start saving. Even if you are only setting money aside for now that’s a start. Yay! That was pretty easy. But that is only a temporary solution. You want to get your money into an investment ASAP.

Even beginning investing 1 year earlier can change the final payout by a surprising amount. It’s hard to imagine yourself, but luckily I have a cool little tool that can show you the difference investing early can make. Check it out here to help gain the motivation to start. I received this tool from Robert Moritz, a certified financial planner, and I’m sharing it with you with his permission. He actually helped me set up my Roth IRA so I would definitely recommend looking him up if you’re in one of the states he services (IN, OH, AL, CA, FL, GA, IO, KY, PA, SC, WV).

Look at the difference investing at 20 vs. 21 makes.

According to this simulation, investing $1,000 every year starting at age 20, this person had $1,056,189 in accumulated value by only 48.

See what happens when they wait just 1 year.

On the other hand though, when they waited to start investing until 21, they only had $959,172 in accumulated value by 48. That is almost $100,000 in lost savings.

Now you see why it’s so important to start investing as soon as you can and as much as you can.

Feel free to play with your own numbers and ages.

Types of Retirement Funds

Two common choices for investing include 401 K and IRAs.

A 401k is usually done through your place of employment as a benefit of working for them. Companies will often offer a “401k match”. Which simply means that whatever you contribute to your 401k retirement fund, the company will also put in a certain amount. You should make it a priority to meet the maximum amount the company will match because that’s just free money. However, don’t limit yourself just to the maximum match amount. If you can, always put in as much as your budget allows.

The simplest way to describe an IRA is it’s a retirement fund for people who don’t have a 401k offered through their work. This will often happen if you work for a small organization, you’re a freelancer, or if you only work part-time. A certified financial planner can help you decide if a regular IRA or a Roth IRA is better. Basically the difference is when the government taxes the money. For myself, I went with a Roth IRA based on my advisors advice. However when I changed jobs, my advisor thought moving my 401k from the old job into a traditional IRA would be most beneficial.

Each of these accounts has a legal maximum you are allowed to contribute each year. This is just another reason you should begin investing early. You won’t be able to make up for it later as easily due to the yearly contribution limits. As of 2021 tax year, the IRA contribution limit is $6,000 for a single person ($12,000 for a couple).

Something very important to remember about retirement funds: you can not take any money out of this account after you put it in until you qualify for retirement. If you take it out early, you will incur some major penalties that will make it not even worth taking the money out. So while you should always put in as much as you can, don’t put in any money that you will need back before you’re 60. This is not the place to save for a car or a house. Keep a savings account you can access for those and for emergency funds.

Remember, a little is better than nothing. Nothing with compounded interest is still nothing. Speak to your financial advisor to find a plan that works for you and your goals.

These are more like guidelines anyway.

*I am not a financial expert nor should this advice be considered legal advice. You should always listen to a certified financial planner before me.

Finance Getting Your Finances in Order in Your 20's

Getting Your Finances In Order in Your 20’s: Maximizing Your Credit Score

Everyone talks about credit score, but who cares? Honestly, you should. A good or bad credit score can be the difference between getting your dream apartment or not, or getting a good rate on student and car loans. Fortunately, it is extremely easy to make your credit outstanding.

Before I go into how to boost your credit score, please make sure you understand how credit cards work, and consider whether you are ready to take on the responsibility of a credit card. I go into the ups and downs of credit cards here.

There are 6 different factors to determining your credit score. They are weighted differently so some of them are more important than others.


This factor is the one you can control the least, so don’t worry too much about it. The average age of your credit is determined by averaging all of your qualifying accounts: loans & credit cards. The best thing to do is keep a good credit card open for as long as you can. It is also why you don’t want to open and close accounts too frequently. Your oldest card could be 10 years old, but if you open a new account you could greatly lower your average age. I’m not saying don’t open new accounts, but don’t do it with any great frequency. You don’t want to have to manage that many accounts anyway.

Credit Usage

This is an important factor, not just to get your score higher, but to keep your finances healthy. When you are granted credit in the form of a credit card, you are given a maximum of available credit also referred to as a credit limit. When your credit score is low, your maximum available credit will be low. As your credit gets better, it will increase. So let’s say your first credit card gives you $5,000 total credit. You cannot spend more than your credit limit at any one time. All of your available credit limits are added together to get a total available credit. So if you have 2 credit accounts with $5,000 each, you have $10,000 of available credit.

Now don’t get too excited. You don’t suddenly have $10,000, this is the trap they try to get you with. This factor is determined by available credit and the credit you’ve used. Credit you’ve used is as simple as any purchases on the card that you have not paid off, in other words, the balance of the card. The percent of used credit should be as low as possible to have a this factor be considered excellent.

Using our example above, if you have $200 worth of purchases on your balance yet to be paid off, and a credit limit of $10,000; your usage would be 2%. Once you pay off your $200 balance, your usage would be 0% – the absolute best score for this factor.

The best way to use a credit card is to use it as a debit card.

What do I mean by this? What I DON’T mean is that you should use it to take money out of the bank, ATM, or cash back at the cash register. That is essentially taking out a small cash loan at a ridiculous interest rate. DO NOT DO THAT!

What you should do is only make purchases that you currently have funds for in the bank (just like how you can’t use a debit card unless those funds exist already). Once your purchase hits your credit card account, pay that off right away! This practice is single-handedly the fastest way to boost your credit score. By doing this, you will almost always have a 0% credit usage, plus it will also guarantee on-time payments.

On-Time Payments

This is probably the most important factor along with credit usage. Late payments are a huge red flag for potential lenders or landlords. If you don’t follow any of my other advice, follow this.

Always make your payments on-time.

If you follow my advice about paying all of your purchases in full, immediately, then you won’t have to worry about late payments. You will automatically have all of your payments taken care of way before they are due, and it won’t cost you extra like waiting and only paying your required amount. Letting the rest of the amount obtain interest is a great way to pay way more than the original cost of the item. Personally, I don’t like to pay more than I have to.

Now of course, you can’t pay off a student or auto loan in full right away or you wouldn’t have them to begin with. Make sure that you always pay your minimum due on-time or early to avoid any bad marks on your credit history. If you are able to make larger payments than your minimum, definitely consider it. It can save you tons in the long run. I go into more detail in my post about student loans.

Credit Inquiries

This is a tricky factor. For some reason, an institute checking your credit, hurts your credit. I can’t give a good explanation for this beside that’s just how it is. This means that anytime you apply for a new loan, credit card, refinance, or apartment that checks your credit, you will get a ding to your credit score. This again means that you should not be applying for a whole bunch of new accounts too quickly. This is another low impact factor, but that doesn’t mean you want to ignore it completely.

What counts as an inquiry? There are 2 types of inquiries: Hard and Soft. A soft inquiry means that an institution is going to look at an unofficial credit score to get an idea of where you stand. Same way you may use* or your credit card’s website to see your own credit score. Institutions typically do a soft inquiry to provide an estimate or determine quick eligibility before a formal application. Soft inquiries don’t affect your credit score.

Hard inquiries are the ones that will ding your score. These are official inquiries into your credit score, and results may differ than soft inquiries slightly. These are used to open new accounts or accept an apartment application. As you become less reliant on loans and credit, and own your own property, the less inquiries will show on your account. A hard inquiry can stay on your credit report for 24 months, but only affect your score for 12 months. Spacing out large financial decisions and new accounts can help lower the impact of credit inquiries on your overall credit.

Derogatory Marks

Derogatory Marks have a high impact on your score. Luckily, you can avoid them by being smart about your borrowing and only making purchases you can afford.

Derogatory Marks indicate irresponsible behavior regarding credit. Some things that could result in a derogatory marks are: accounts in collection, liens, and bankruptcies. Following the advice above will go a long way into avoiding a situation where any of these would be necessary.

Derogatory Marks stay on your credit report for at least 7 years. These are huge red flags to potential lenders and could make your life difficult in the future.

Ultimately, when the time comes to opening a credit card or obtaining a loan, please only take out what you need and keep your spending below what you have. This lifestyle may require some sacrifices in convenience or pleasure, but in the long run you will be able to enjoy more financial freedom and more luxuries in the future. I have followed these guides since opening my first baby credit card, and I am so pleased with my credit score.

Remember, these are more like guidelines anyway.

I am not a certified financial planner. Please consult with a professional before making any financial decisions. These opinions are my own based on my own experience.

*I am not affiliated or otherwise compensated by or Intuit.

Finance Getting Your Finances in Order in Your 20's

Getting Your Finances in Order in Your 20’s: Credit Cards

 Credit Cards are so ubiquitous that you may not even think about how they work or that you don’t have to have credit card debt. Many people talk about credit card debt as if it is to be expected, but it is completely possible to get all the benefits of using a credit card without the extra fees or debt.

First of all, what’s the deal with credit cards? Do you really need one?

Short answer: Yes, Sort-of

Do you need to pay more than the cost of an item just to own it? Absolutely, of course not. I’m not suggesting you do that. In fact, I highly suggest not putting yourself in that situation.

However, the benefits from purchasing with a credit card, when done wisely and fully informed, can actually help you save money.


Credit cards prey on the desire to get what you want right now. Credit cards allow people to purchase things they otherwise wouldn’t be able to afford. They do this by charging interest on the borrowed money used to purchase the items. Interest rates for credit cards, especially for users with low credit scores or no credit history can be astronomical. They make money by making you pay them extra money when you don’t have to. Of course, they make this sound really attractive because you can purchase that expensive item and only pay a small amount every month instead of having to wait until you have the money to pay all at once. All you have to do is the math to see why you wouldn’t want to take this deal.

Let’s say you want to buy a new home theater system for $1,000. You decide to use a credit card with 15% APR and make the minimum monthly payment. Assuming this is the only item on your credit card balance and your minimum payment is $25/mth, it will take 4 years to pay off. It will end up costing you $1,395. Instead you could save $25/mth and it will take you 3 years to save up. That is a year less time to pay for, and $395 you saved. I’m not saying you shouldn’t buy yourself nice things, but that you should wait until you can properly afford them. 

I’m also not saying you shouldn’t use a credit card to pay for things, in fact, I think you should. You should use a credit card to make purchases you can afford without falling into debt. When used correctly, credit cards can be a great financial tool. They are the easiest way to boost your credit score, and some will give you rewards to use them.

Best Way to Use Credit Cards

I always say, use a credit card like you would a debit card. Now let me clarify, never use a credit card as a way to get cash from an ATM or cash register. There are really big penalties for that, use a real debit card for that. What I mean is, don’t put anything on your credit card that you don’t already have in the bank. Same as how a debit card would get declined if the funds don’t exist in your account prior to swiping, don’t swipe a credit card if the funds don’t already exist. And no, I don’t mean funds that will be in the account. I mean it’s already there right now.

Available funds is money that:

  1. Exists
  2. Is not already assigned to something else, like a previous purchase, bills, or retirement.
  3. Is not part of the last $1,000 you have. (Leave that for emergencies.)

After making a purchase on your credit card, pay it off immediately after it posts to your account. This will avoid any interest fees I talked about earlier, and it will guarantee your payments are always on time. That is why you have to have the funds available before the purchase.

Why Use a Credit Card

It makes sense if right now you are wondering, if I’m supposed to pretend my credit card is a debit card, why should I not just use my debit card??

Good question. Now if you don’t trust yourself to actually use the credit card in the way I’ve described, then you probably should just keep using your debit card for now. This is really just a self evaluation. If you know yourself well enough to acknowledge the credit availability will present too difficult a temptation, then congratulations on making a very adult decision to wait on a credit card.

When you are ready to use a credit card, then let me explain why a credit card is better than sticking with the debit card. I have 2 reasons.

Credit cards are the quickest way to build your credit. Good credit opens up more financial options like auto loans, better apartments, and home loans. I talk about ways to maximize your credit in my related post here. The earlier you can begin building good credit, the more it will pay off for you. Debit cards don’t contribute.

The second reason, many credit cards pay you to use them. You’ve probably heard people talk about miles earned or such-and-such cash back, but it doesn’t mean much until you begin using credit cards yourself. Many cards offer incentives to use their card in rewards earned by making purchases with their card, and following those with on time payments.

Some cards rewards are calculated in airline miles. These are usually cards from or associated with airlines. Qualifying purchases earn so many miles per dollar purchased. You can then use these miles before they expire to exchange them for airline tickets. 

Another way card companies reward users is through reward points. Depending on the card, points can be converted into gift cards or even cash. Capital One and the Amazon Prime Chase card both allow you to convert your points into money on your amazon account, kind of like a gift card although it is categorized differently on the site. They also let you pay off your balance using your points, so essentially like getting your groceries and gas purchases for free. I mention these cards only because I have used them and know how they work. Clearly, I prefer this option over miles because I don’t buy airline tickets very often, and if I need to I could always use the cash to pay off the airline purchase.

So how do you get the points? You will often see or hear them say “qualifying purchases.” These are purchases that you don’t return, and fall into a specific category. The categories vary by card. Some cards have rotating categories that change how many points you earn a month, others have set categories. Common categories include: restaurants, gas, and pharmacies. It’s a good idea to know what earns you what on each of your cards so you can optimize your benefits. 

Some cards will also have some extra benefits like travel or luggage insurance, extended warranties, and other benefits to using their card. These are always good to be aware of so you can take advantage of these free benefits.

One last reason to have a credit card, is in case of extreme emergency. Now I highly recommend saving up an emergency fund for this exact reason so that if an emergency does arise you won’t have to go into debt to cover it. However, my dad insisted that I get my first credit card when I was going to Moscow by myself. In case I needed to book an emergency flight home or other such emergency that I didn’t have the cash for, I would at least be able to purchase one on my credit card to fix the immediate problem.  Again, going into debt should be the last resort to any emergency, but it is a good last resort to have available. Luckily, I’ve never needed to use my credit card in this way.

Things to Look for in a Card

Interest Rates

First of all, you should take into consideration the variable interest rate. If you always pay off your balance in full, this won’t make a difference to you. On the off chance that you do use your credit card for an emergency, a lower interest rate will make your accrued debt lower.

Where Can it be Used?

Firstly, I mean that certain cards are more widely accepted than others. VISA and Mastercard are accepted almost everywhere in the United States. I believe they are widely accepted abroad as well, but your mileage will vary. Discover now seems to be more widely accepted, but when I was a child I know there were a fair amount of establishments that wouldn’t accept Discover so we would have to use another card like VISA. American Express is notorious for being a prestigious card, but it is frequently not accepted by businesses due to the high fees they charge businesses to accept the card. If you are looking to get a second card, I would recommend looking to get a card with a variety of carriers so you are never stuck because your brand isn’t accepted.

Secondly, knowing if you can use your card abroad (with or without fees) is an important thing to know. I specifically got my second card for the express purpose of having a card that I could use overseas without foreign exchange fees. If you are going to be living abroad for an extended time, it may be prudent to research cards from within that country or region.

Reward Systems

Almost all cards offer some kind of reward program now, as I mentioned before, there is no reason not to get a card with a good reward system. Research the various types of reward systems available and determine which will be the most relevant to your current habits. Many cards will have specials where if you spend so much in a certain amount of time, then they’ll give you a reward bonus. Don’t be distracted by the one time offer, especially if it exceeds your normal spending habits. Look for the offers that will give you the best return over the course of the life of the card.

Annual Fees

Many cards charge an annual fee to be able to have their card. Make sure you know the cost to have each card you research. Personally, I don’t see the point in paying an annual fee when so many good cards are out there without any annual fees. Especially if you are working on tighter funds, look into cards with 0 annual fees.

Early Repayment Penalties

Avoid all cards with a penalty for early repayment or guaranteed interest payments! These negate all of my earlier advice by still charging you the interest you would accrue in the allotted time even if you pay back the total early. You do not want this. Most cards don’t have these penalties, but it is essential that you avoid any that do.

Some Cards I Use and Like

  1. Capital One Quicksilver* – I got this card when my credit history was too young. It’s a good card for those with growing credit.
    • It offers 1.5% cash back on all purchases. That’s a pretty good deal in my opinion. If you aren’t earning interest fees, that means every purchase they pay you a little to use the card.
    • It has no annual fee, and is accepted anywhere VISA is.
    • It has no foreign transaction fees.
    • It has push notifications for every purchase on my phone. Gives me a sense of security that if anyone used my card without my permission, I would immediately see the unauthorized purchase.
  2. Amazon Prime Credit Card by Chase* – My credit was much better when I applied for this card. I don’t know if those with younger or lower credit will qualify.
    • This card varies it’s cash back based on whether or not you are a prime member.
      • 3% or 5% – Amazon Purchases & Whole Foods
      • 2% – Restaurants, Gas Stations, and Drugstores
      • 1% – All other purchases
      • It has no foreign transaction fees.
  3. Credit Card through my Bank
    • This is the best place to start for someone with little to no credit history.
    • They often don’t have rewards or not a great system.
    • They are a great way to build up credit history to boost your credit so you can upgrade to better card later.
    • I don’t use this anymore, but I didn’t close it because it’s my longest credit card account.

Please do not use a credit card as an excuse to put yourself in debt. Credit cards can be an amazing tool when used correctly. 

Please use responsibly.

Remember, these are more like guidelines.

I am not a certified financial advisor. All opinions are my own. Please, consult with a professional before making any financial decisions.

*I am not affiliated, endorsed, or compensated by Chase, Amazon, or Capital One in any way. My experience and opinions are my own.

Finance Getting Your Finances in Order in Your 20's

Getting Your Finances in Order in Your 20’s: Student Loan Repayment

Thinking about finances when you’re starting out can seem scary. Sometimes you feel like just pretending these expenses aren’t there, but it is actually not so bad when you take it step by step.

First things first, chances are you have some student debt if you went to university. I know my student debt felt really overwhelming, but it made me feel so much better to sit down and make a plan.

Creating a Debt Repayment Plan

1. Know How Much You Owe Each Month – when you’re entering the world of repayment, you should first consider your required repayment number. This number is non-negotiable and you must pay it off every month. Otherwise you will default on your loans and that is just not good, don’t do that. Sometimes it’s possible to apply for Income based repayment. This is a way to ask your Loan Servicer to take your income level as a consideration to make your required payment amount lower.

2. Decide How Much You Can Afford – once you know how much you have to pay, figure out how much you can pay. You are going to want to pay back as much as you can each month. It’s going to be incredibly tempting to just pay the minimum so you can spend more money on a nicer apartment or eating out, but don’t. Paying off your loans as early as possible will let you have these things and more in the future, and most importantly, save you a ton of money. Think of it this way: every dollar more you pay, is one less dollar that is going to increase your interest owed.

3. Choose a Repayment Plan – when choosing a repayment plan, it’s important to know what’s most important to you. There are 2 routes you could take for repayment: The Snowball Plan or The Avalanche Plan. Remember you will still have to make any minimum payments on all accounts no matter which plan you choose. You take the amount you decided you could pay each month on loans and pay off the minimum requirement on each loan, and then all remaining goes toward one account that you focus on. The Snowball Plan: You focus on the loan with the lowest balance. This method is good if you need to keep your motivation up by getting the satisfaction of paying an account off. The downside to this plan is you will end up paying more in interest. The Avalanche Plan: You focus on the loan with the highest interest rate. This method is the one that will result in you paying off the least amount of interest overall. The downside to this one is you won’t see accounts hitting zero as fast. I chose Avalanche for my repayment plan because I cared more about saving money than seeing the little accounts hit zero. I still get that enjoyment from seeing my most daunting account get lower each month. I actually have a really helpful Excel sheet that can help you see the difference in each of these plans. (Download below) You enter each of your loans, their interest rates, and then you can select which plan you want to view, and it will show you the amount of interest you’d pay and when you’d have each loan payed off. I found this little tool to be the most comforting when I was first looking at my loan situation. I got this form from Financial Advisor, Robert Moritz in Indianapolis. I’m sharing it with you with his permission. If your looking for someone to help you with investments, retirement planning, or other financial advice; look him up and schedule an appointment. Here’s his website. Don’t feel shy about telling him I sent you.

4. Set Your Loans on Autopayment – Once you know how much you’ll be paying each month, and where you want that money to go; set your loans on autopayment. Some repayment servicers will give you a little rate reduction for setting your loans on autopayment. It will also help make sure you don’t miss a payment. Don’t just set it and forget about it though. You should keep an eye on it to make sure nothing has changed, make sure you have enough money in the account it’s pulling from, and it gives you the chance to see your balance going down and get that little sense of accomplishment.

Most importantly do what works for you, these are more like guidelines anyway.

*Disclaimer: I am NOT a financial expert nor should this be received as professional advice. Always take the advice of a professional over mine.

This is part of my Getting Your Finances in Order in Your 20’s series.