I am not a money expert. Never have been. And also, let's go ahead and get this out of the way: money is sort of awkward to talk about, right? I think of it kind of like body image– we all think about it, it's a part of all our lives, but it still feels kind of weird to talk about. And honestly, I can only talk about my own experiences and perspective. So, take that for what it is.
Despite the money weirdness, I wanted to share with you a few money lessons I've learned so far in my 20s. And I'd love to hear about your experiences and different perspectives as well… if you want.
1. Seek Advice and Don't Be Afraid to Learn.
Like I said, I am no expert and I never have been. I'm okay admitting that. The truth is, numbers in general terrify me. I have always struggled with math (gradeschool through college). So when it came time to start thinking about my own personal finances, I was more than a little intimidated. And if I'm being honest, I still am at times! What has helped me most over the years is to try and approach it all with an attitude that is willing to learn. I seek advice, I ask questions, and I read articles and books on things like budgeting. It's helpful. Two authors I've always enjoyed are Dave Ramsey and Suze Orman. So if you have no idea where to even start, try checking out one of their books from your library and see what you think. The more you read about these types of things, the more confident and empowered you will feel. You don't have to know everything in order to make a good decision.
2. Build Credit Now.
I think it's super easy to think about credit as this nebulous thing that you'll need some day way far in the future. Credit scores are so mysterious, right? But the truth is, credit can be a little tricky to build. It takes time. And although it might feel like you don't need it right now, you probably will need it sooner than you think. Having good credit is useful for a whole host of things from getting a loan to buying a car or house to credit check requirements for rental agreements (even renting a car!). Bottom line, it doesn't hurt to have good credit. So, it's good to start building it now.
There are lots of different ways to do this, and tons of helpful resources out there that you can research (and you should). But here's the true story of how I built credit for myself, making it possible for me to buy a house when I was twenty-five. First off, I got a credit card when I was pretty young (like eighteen or nineteen). Sometimes this is referred to as your account mix, meaning how many lines of credit you have open. Having a few is good. Although I would not suggest this to just anyone, as having a credit card can have some bad consequences if you are careless. The secret is to pay off your balance (or the majority, like 90% of your balance) every month. There have only been probably 3-4 times over the course of the last ten years that I didn't pay off my credit card balance in full every month. If you feel you are the kind of person who will overspend and then not be able to pay off your balance, then I would not recommend a credit card. They can be dangerous in the wrong hands, but honestly pretty useful if you can stick to a budget.
The second thing I did was take out a small loan to, again, have multiple lines of credit in my overall credit history at a young age. I think it was around $3,500 from my bank. During the summer before my last year of college, I had decided to utilize my university's study abroad program. I spent a summer semester taking a few classes at the University of London while also checking out the city, and I got to visit Paris as well. I had never been to the United Kingdom or Europe before, and that was probably just about as educational as the classes I took. Anyway– I had saved up enough money to do the trip without the loan. But I had read (while seeking advice, my first point!) that taking out a small loan or line of credit and then paying it back is a good way to build credit when you are young. So I did it. I paid the loan back easily within the year (before I graduated). Yes, there was a small amount of interest that I ended up paying along with the initial loan (as that's how loans work). But, because the loan was so small and I paid it back so quickly, it didn't amount to very much at all. A worthwhile investment into my future credit score.
3. Avoid Unnecessary Debt.
Sort of the opposite of those two stories I just told you, right? Not really, well maybe, let me explain. I chose to get a credit card and take out that small loan because I had a plan: to build credit. And I knew I could manage those two little bits of debt. Debt that you are unsure you can manage is what you should aim to avoid. It sounds simple, but it's SO hard to do! And there's no clear cut way to do this. I have three challenges for you to think over though. Just a thought experiment.
First, and this goes back to the previous point, ask yourself if you really need a credit card. If you already have one and there's some kind of promotional to sign up for another, do you really need it? It's not bad to have multiple credit cards or to leave a little balance on your credit card each month. But do you really need all that? Credit cards tend to have fairly high interest rates, so once you get into a cycle of debt with it, it can be difficult to get out.
Second, if you want to buy something just for fun but don't really have the money, ask yourself if you'd be willing to sell something in order to pay for it. That's right. You really want a new food processor? (Now you know where my head was at in my early 20s.) Well, would you be willing to sell part of your DVD collection for it? Mainly this exercise helps me figure out if I really want something useful, or if I'm just in the mood to shop. Shopping for fun is fine if you have the money for that kind of thing, but if you don't, it's just a money suck.
Last, and this one's tough, but I would challenge any young person to really think hard on their college choice before jumping into a school that will require them to take out loans (which is most schools unless you have scholarships or outside help). Educational loans tend to have the best interest rates out there, but even still, if you find yourself at the end of your college career with a degree you don't really plan to use and a bunch of debt, you'll be disappointed. Even though I absolutely think we should value education, you still have to consider the worth in perspective with what job options you'll have when you're done with your schooling.
Thanks for letting me ramble on about a few things I've learned in my 20s. So, what's the verdict? Do you like talking about money? Wanna hear more? Or did you hate it and never want to hear about it again? I love talking with you guys about life stuff, but I also love hearing what you all think and want to talk about. Also, if you all have any lessons or personal stories you'd like to share, I am all ears. xo. Emma
Credits // Author and Photography: Emma Chapman. Photo edited with A Beautiful Mess actions.
This was SUPER helpful! Please do more posts! This broke down complicated things really well and was a very good read. I loved the personal anecdotes! I am starting out on my own and this put things in perspective! Thank you!
I particularly love (and agree!) with your tip on considering your education before signing up for a loan.
I’m not sure what it’s like in America, but in Australia and New Zealand, we’re REALLY starting to see the tables turn on universities; they’ve been touted forever as the “must-do”, but as you mentioned, unless you’re completing a degree that you’re passionate about and tend to use, unfortunately, for a lot of people, they can wind up being a tremendous finance drainer.
This was a very good read.
Thanks for being so open and honest. I honestly like these life reflection posts best, I love learning from your business and careers and I appreciate you being so vulnerable about it!
One thing I have always wondered about was the red velvet clothing line. I am starting my own clothing line now and I always wondered why you didn’t continue on with that venture?
I love your Tips, thank you!
I am 23 years old and just paid off my college loans in full (by sucking it up and living with my parents, not going out to eat much, spending less, and starting my own etsy shop. It’s been a tough 1.5 years, but I am debt free and it feels great!
I recently learned that the credit score is an i-love-debt score and isn’t necessary in life. I don’t want to be a slave to my credit card or slave to any lender (Proverbs 22:7), so last week I cut up my credit card! I will no longer stress about my credit score!
Take a look at this article: http://www.daveramsey.com/article/the-truth-about-your-credit-score/lifeandmoney_creditcards/
Loved this article. So important to understand your finances and the nuances of the weird world of credit.
Love the post! I think it is a really important topic that you don’t often hear others talk about. I made all the classic mistakes in my early 20s (too many credit cards, late payments, etc) and Suze Orman’s advice about tackling one credit card at a time totally helped me turn things around. I kept a small journal where I would list and check off the bills I paid each month and slowly the list of credit cards got smaller and my credit got better. I wish I would have had money advice at a younger age. It is also good to let others know that you can start taking steps towards better credit even if you’ve already made a few mistakes. 🙂
I don’t often comment on blogs, but I felt compelled to after reading this article. Not only do I agree with and wish I had known all of the information you have presented, but I must chime in about your last point re: school/degree choice.
In the UK and Australia there is a common practice in place called the gap year. This is a customary time for young adults leaving high school to take a year off in order to evaluate their priorities before making a decision about attending university or starting in a trade. I wish this was the norm in the US too! I am currently saddled with nearly $35k in debt with a degree I am not planning on using once I return to work. For the time being, I stay at home with my son and baby on the way and when I go back to work it will be in the teaching field so I can have a comparable schedule as my littles.
It is very worrisome to me that young people take on massive consumer and educational debt without any real knowledge of how to resolve it! End rant.
I’m in my early 30s and I’m still learning those lessons – although it gets easier somehow. Great reminder though – thank you
Thanks so much for the advice! No, I love talking about issues that we all deal with. It’s hard but we all struggle with it. I am a small business owner too, and it has been a struggle to get out of college debt and credit card debt. It’s possible, just a lot of work. Good luck with all your endeavors and keep chatting about whatever is meaningful to you! It’s probably just as meaningful to us! XO, julie
These are wonderful tips! Thank you.
Some great points in there Emma. It’s so important to make sure you can manage your debt, Bec x
The last one about college? I regret now looking at my loan debt. I wish I could have just worked and waited it out. A lot of what I’m doing now I learned by teaching myself, but our society (specifically in America) says in order to be successful we have to have a degree and blah, blah. It’s not for everyone, and that’s really OK.
And the university you decide to go to? It’s no longer about the name.
Love this post. Thanks Emma!
I’m in my mid 20’s and am still figuring out the finance game… Here I am with $10,000 in debt and still trying to figure out a plan of how to tackle it. I’ve made a list of my financial necessities (bills, food, etc) and my wants (clothing, eating at restaurants, etc) and have tried to shift my spending habits and my mindset. Instead of thinking about all of the things that I don’t have, I think about all of the wonderful things that I do have. Some days I feel more positive than others, but when I start to get overwhelmed it comes down to coming up with a solid plan, sticking to it and staying positive. It’s almost unreal how much your attitude effects the outcome of things. If you have a negative mindset about money, then negative things will come your way unfortunately. One thing that I just recently discovered on my financial journey is to not spread your finances out too thin. I was trying to save money for a big move coming up, and also try to pay off my 10K in debt. I had no money to live off of- and I was working so hard! I realized that I needed to change my plan- after all, the point of making money is to be able to reap the benefits of it. Now that I’ve once again changed my plan, I feel great about it. I’m focusing on one thing instead of 5 things and it feels like a weight has been lifted. In the words of my mom, “Life doesn’t have a manual, and everybody has to figure out what works for them.” I hope this helps someone out there a little bit! I know the stresses of debt and I’m here for support!
This post is so great (and helpful). I just turned 20, and am just starting to have to think about these things! I am also studying abroad in London right now just as you said you did, and did a similar thing with the loan! Thank you!
I love your tips and optimistic helpful views on everything I have come to read that you wrote. I’ve learned a lot from you and just wanted to thank you. I’m 23 years old thinking about my future business goals and just hearing your advice has helped me throughout this process of “discovering’ myself and being financially ready to start working towards my future. Thanks for everything! 🙂
The biggest issue that I face with money is Saving. I save a few bucks and then spend all of them in one go. I don’t want to do that. Any tips so that I could stop doing that?
I honestly did not know about the whole credit score thing until I arrived in the UK and I only obtained my first credit card this month 🙂
One thing I do is put some money on my savings as soon as I get my payslip instead of waiting till the end of the month to see if there is any left!
Growing up my folks were always in debt. And I got a credit card too early. I racked up a few thousand dollars and had high interest rates. I didn’t really understand how to manage and budget. It got out of control, but I mustered up the courage to talk to a rep with my creditors and they got me on a payment plan. That is my biggest suggestion if you feel that your debt is overpowering. Just talk to a rep, and they will work with you. Now those cards are all paid off and I have a new one that I pay off every month. It feels a lot more comfortable to be in control of my money.