When it comes to life in general, for you to be successful, there are certain things you must do, and steps that you must follow to achieve that success. And in this article, we’re going to go over the investing must-do’s to set yourself up for success and wealth later on in your life. Not many intros, let’s get talking.
1. Get A Credit Card
The first thing is to actually get a credit card. This is a must-do because as you guys may or may not know, debit cards don’t actually do anything for you when it comes to building your credit.
The reason that you need a credit score in the US, Canada, and some international countries is that almost everything is worth owning, well, maybe not Pokemon cards. But almost everything else worth owning runs on a credit score.
A credit score is just like a financial report card, it shows you how trustworthy you are in the eyes of a lender. When you’re young, one of the first things that you should actually do is to focus on building this credit score, because it’s going to save you a lot of money down the road.
You’ll qualify for lower interest rates on home mortgages and auto loan insurance rates, and you’ll also get approved to rent different places a lot quicker.
How To Build A Good Credit Score
One of the best ways to build this credit score is with a credit card. There are a lot of different criteria when it comes to building your credit score with credit cards, but one of the things that you should focus on with a credit card is to always pay off your balance in full if you can and on time. But if you cant pay it off in full, you want to at least make the minimum payment because by making the minimum payment, your credit score will stay intact.
The other thing you should know is to not use too much of your credit limit because if you use too much of your credit limit, you’re actually viewed as risky in the eyes of a credit bureau. A good rule of thumb is to use less than 30% of your total available credit, and this will keep your credit score as good as it can be.
In addition, if you select the right types of credit cards, you can actually get cashback and rewards for just doing your normal everyday spending. And while these rewards are sometimes often pretty small such as 1% back or 2% cashback, these rewards will slowly add up over time.
One of the best mental hacks that you can do with a credit card is just to treat it like cash because if you treat it like cash you’re always going to be responsible when it comes to spending. And you’re going to build your credit score at the same time.
Fixing Bad Credit Score
Since we’re talking about credit score, I’d like to mention this too. If you happen to have a bad credit score, fixing it should be a priority for you, as it will negatively affect your finances. You’ll have fewer loan options, and if you do get your hands on a loan, the interest rate on that loan will be way higher.
To manually fix a bad credit score, check out my article below.
Recommended: 5 EASY Financial Goals That Anyone Can Start
If you’re looking for a beginner credit card, some of the ones that I like to recommend are the Discover, It’s a secured card as well as the City Double Cash Rewards Card.
Now the next must-do, when you’re younger, is to
2. Open Up A Bank Account
This sounds elementary, and some of you guys might already have a bank account already. But when you’re 18, one of the first things that you should do is open up a bank account, and hopefully get checking and a savings account.
In your savings, you want to save up what’s called an emergency fund, which is three to six months of living expenses set aside just for emergencies. Once you have this fund, you’re going to be more financially free to explore other types of activities such as investing or growing your wealth.
As far as where to get a bank account, it doesn’t really matter too much as long as they’re not charging you a monthly fee or have minimums, and hopefully, they have an online banking portal as well. An example would be Chase, Chase actually offers what’s called a student checking account that has no fees at all while you’re in college. After you graduate, you can just switch to a Chase total checking account, which will have no fees if you maintain an average balance of $1,500 in the bank account.
There are also a lot of other online banking options if you’d like to pursue that route. A lot of these online banks have what’s called a high yield savings account, where they offer you a little bit of higher interest than your typical checking or savings account from a traditional bank.
Online banks typically don’t have a monthly minimum or maintenance fees either. Some examples are ally bank and markets by Goldman Sachs.
Alright, now that you have a bank account and a credit card, the next thing to do is to actually hit the share button. By doing so, Google’s algorithm will hopefully push this article out to even more people, and those people will be educated on how to become wealthy as well. A
All joking aside, the next thing that I have on this list is to actually
3. Start A Side Hustle
I wish that I had a side hustle earlier in my life because then I’d be earning some extra cash that I could use to either pay off high-interest loan debt, high-interest credit card debt or just save for investing.
When it comes to side hustle, we all have a bunch of skills, especially when were younger. We probably have done some sort of hobby in the past, so let’s say you’ve played the piano, maybe you’ve played the violin, maybe you’re really good at video games like League of Legends or Fortnite. You can offer all of those skills as services as lessons over online zoom.
If you’re really good at crafting, you could do some sort of craft and sell it on Etsy. That’s another example of a good side hustle.
Other Forms Of Services
There are also those side hustles that just involve manual labor. You could go rent a power washer or a lawnmower from your local hardware store, and you could mow people’s lawns, or do power washing and make some money on the side as well.
Obviously, this is easier said than done, but I do think having a side hustle is going to help you further down the road because it’s either going to help you with idea generation or just a little bit of extra income.
4. Roth IRA
Hopefully, after you’ve graduated college or you’re younger, you’ve hopefully entered the workforce and you’ve started to earn some income. So, what are you going to do with that income? You’re going to start the next thing which is a Roth IRA.
Personally, I would suggest starting a Roth IRA as soon as possible so that you can take advantage of compound interest. A Roth IRA is an individual retirement account, where basically all of the earnings on your investments in that account grow tax-free.
By the time you retire after the age of 59 and a half, you can withdraw any of your earnings from the Roth IRA, and you don’t pay any taxes on it. You may have heard of whats called a Traditional IRA, the Traditional IRA differs from the Roth IRA in the manner in which it is taxed.
In a Traditional IRA, you’re contributing to it with pre-tax dollars, you don’t get taxed when you contribute to it. But as a result, you actually get taxed when you withdraw from it at the age of 59 and a half or later. I think most people would rather just be taxed upfront, so they don’t have to worry about taxes later on, especially when they’re retired.
The main importance of starting a Roth IRA really early on is to take advantage of the concept I talked about earlier which is compound interest. Let’s say you have $1,000 and you get an 8% return on your money. Well, at the end of year one, you’re going to have $1,080. At the end of year two, you’ll get another 8%, but now that 8% times $1,080 is going to be $86.4 extra dollars totaling $1,166.40. At the end of year three, that actually becomes even more its going to be $93.31 incrementally totaling $1,259.71, and so on and so forth.
You kind of see where the snowball effect is going.
That’s actually the beauty of compounding, you’re actually making money on top of your money already.
As far as what to actually invest in a Roth IRA, a lot of people choose safer types of investments such as index funds and ETFs, because they know that they’re going to grow consistently over time. Other people that are riskier and want to make their accounts grow as quickly as possible, sometimes choose growth stocks such as Tesla, Apple, Amazon, etc.
All right, with that being said, the next must-do thing I think that you should do when you’re younger is to
5. Start investing
It’s more advisable to start investing and not to keep all of your cash in cash. Because of the value of cash going down over time due to inflation, your purchasing power of a dollar is going to be a lot less in let’s say 20 years.
Here is the reason why you don’t want your entire net worth sitting in cash in a bank account, earning zero percent interest. The reason is that it’s not gonna be as worth as much as it is today.
I’m sure you’ve heard your parents say something like “oh man, when I was a kid a gallon of gas was only $0.5, and once was like less than $5”. Well, that’s going to be us just in 20 years.
Had your parents just left their entire net worth in cash in a bank account, let’s say the 60s, 70s, and 80s. Well, back then that amount of money let’s say nowadays $50,000 is not worth that much anymore. The solution here is to invest in assets that keep up with inflation or even beat inflation over time.
The S&P 500
The S&P 500 for example if you invested in it through an Index fund or an ETF, basically, it returns 8% a year on average for the past 50 years. That’s why I do think investing while you’re young is always going to be a good idea especially for the long term because at least your money is going to keep up with inflation if not beat it.
But I will say you should not be investing your money unless you have your financial foundation covered, which means you have most of your high-interest rate debt paid off as well as you have that emergency fund that we talked about earlier.
The next thing that I think is a must-do for all younger people is to
6. Track Your Spending
By tracking your spending, you’re figuring out exactly where your money is going. You might not have to track it down to the penny, but knowing where your money is going, is going to give you a good idea of what your budget looks like.
All a budget is, is making sure that your spending is in line with your income, and that your spending is not getting too out of control. If you really think about it, all personal finance kind of boils down to is making sure that your income is higher than your expenses.
As long as your income is higher than your expenses, then you’re going to be just fine with that extra income. You can save it, or you can invest it so that it grows and doesn’t lose purchasing power and ultimately just makes you feel more financially free.
In terms of where to track your spending, I personally like to use google sheets. Other people like to use different types of budgeting apps like YouNeedABudget, Mint, and Truebill. Either way, make sure you have a system for tracking your expenses and doing a budget if you can.
Alright, the next thing that you should really be mindful of and you must do when you’re younger is to
7. Be Aware Of Lifestyle Inflation
If you’ve read my articles before, you’ll know what lifestyle inflation is. But basically, this occurs when you get a raise, and now all of a sudden you think you’re balling out, and you can spend a lot more money.
People have a strong tendency to spend more when they make more money, and when you’re younger it’s really easy to fall into a trap of keeping up with your friends. If everyone drives a BMW to the office, and you pull up to your parking lot and you’re driving a used Honda civic, you actually might feel pressured to go buy or lease a new BMW today.
Along with a higher lease payment, and the fact that no beamers come with a blinker, you’re basically not doing yourself any favors.
What You Can Do
To avoid lifestyle inflation like this, what you want to do is, whenever you get some extra income instead of trying to spend more money, try to save or invest more money for your future. That’s also easier said than done, but at the end of the day no matter if you’re making 50k or 500k, it doesn’t matter how much you’re making, it really matters how much you’re saving.
Personally, I like to judge myself based on how much I’m able to save every single month because if I’m able to save more money in the short term, that money will hopefully turn into more money through compound interest and investing so that I can be even more financially free in the future.
Now, I think that’s a great way to rewire your brain when it comes to lifestyle inflation.
Does that mean you shouldn’t go enjoy a cup of coffee, especially if your friends ask you to go get coffee or go get dinner? Absolutely not. But I do think that there’s a difference between sensible spending and frivolous spending as well.
The Bigger Gap
A lot of millionaires build their wealth by increasing what’s called the gap. The bigger the gap between your income and expenses, the more you’re going to be able to save and invest. So the more that we can resist the temptation of lifestyle inflation, the better off we’re going to be in the long run.
And the reason for that is, that we’re going to hopefully accumulate our wealth faster.
The next thing I want you to do when you’re a lot younger is to actually take a lot of
At some point in your life, you’ll wish you took more risks when you were younger because there are really only two outcomes when you take risks. When you take a risk, you can either fail and hopefully learn from that failure, or you can get rewarded for taking that risk.
Basically, the younger you are, the generally more risk that you can take because you have a lot more time ahead of you. Also, you have more time, and you’re going to have more opportunities to make money in the future.
When you’re young, it’s a really good time to take a lot of risks such as starting a business. A business is rather risky to start because most businesses fail, but I do think that businesses are one of the quickest ways to learn a lot about a certain area, or a certain industry, and then you can leverage that experience in the future as well.
I think this tip can be applied to your personal life as well. When I was a lot younger, which I still am, I would get invited to some social activities that I would often say no to in favor of doing other things like playing video games at home. While I don’t think video games are a huge waste of time, I do think that if I did take more of a risk in my social life personally, I would have more experiences to draw from.
Since we’re mostly just the sum of our experiences, the more exposure we can get to different types of experiences is going to give us a lot of wisdom.
I do think taking on more risk when you’re younger is going to be worth it. I mean don’t jump off a bridge just because it’s risky, that’s not what I’m trying to say. But take as much risk as you can tolerate.
The next tip I have for you guys when it comes to building your wealth is to
9. Avoid Debt At All Costs
Whenever I’m trying to make a decision around money, my flow chart for these decisions usually involves, okay, is this going to put me in debt? And if it is, I’m probably going to avoid it.
I think not incurring too much debt is actually one of the most underrated things out there, because it offers you a free and clear mind. Having this freedom of your mind will then help you build more wealth, by being able to take on more risks.
Having debt paid off means that you can allocate more money into the things that actually make you money, rather than taking money away from your investment pile.
Methods To Pay Off Debt
If you’re interested in different types of methods to pay off debt, such as the snowball method or the avalanche method that are popularized by Dave Ramsey, check out my article below.
That’s it for that. The next tip I have for you guys is actually on
Most people as they grow older, wish that they did more of this when they were younger. Personally, the more that I teach myself things, and the more that I educate myself, the more I seem to be getting paid.
This was true when I started working online as a freelancer, the more skills I picked up, that always seemed to translate to even more money down the road.
Some of the best ways to educate yourself are to read books, listen to podcasts, take a course online or maybe get a certification. Having more skills and education means that you’re just going to be able to command more money in the job market.
In terms of podcasts, I do have one that I would love to shout out because I’ve listened to it about four or five times. And that’s actually Naval Ravikant’s Podcast, where he goes over three hours of content on how to actually get wealthy. I think it’s a really great listen for anyone that’s young, who wants to build their wealth in the future. I highly recommend that you check it out.
I hope you guys enjoyed this article, make sure to share the article and subscribe to my mail list for more personal finance and investing content. Peace and Happy Hustling!