Things to know about the adult world.

KellyMirth

Live below what you can afford.

Always pay yourself first, from every paycheck you receive. I suggest at least 15% of all of your income. The more you put away now while you're young, the better off you'll be when you get older. Don't wait until you can afford to save, you'll never get there.

If your employer has a retirement plan take advantage of it, especially if they contribute to it. It doesn't matter how much you make, what matters is that you put the money away every single paycheck without fail.

Keep track of where you spend your money, write it down and learn the difference between a need and a want.

Budget is not a dirty word.

Don't use credit cards unless you are that rare person that can pay off the whole balance at the end of each month. Credit cards are not real money, they are simply debt waiting to happen.

Go to the library and get some books on finance. One of the easiest to read is "The Richest Man In Babylon". Written in the 1920s, it still holds true today. Simple, straight forward information that everyone can utilize.

Keep it simple, finances don't need to be complex.

Redbird99ky

Interest rate is the rate you would pay to use someone else's money to buy something. When you borrow money, you are assigned a risk factor that is based on your credit (borrowing) history. Let's say you borrowed 100 dollars, at 20 percent interest rate (annual percentage rate), and you were to pay it back over the period of one year, in equal monthly payments. You would pay the original 100, PLUS the 20 dollars (20 percent of 100) or 120 dollars. You would be required to pay the lender 10 dollars a month. There are different types of interest, but they all work fairly similarly.

All that being said, why would you use someone else's money to buy something? Opinions vary, but the majority of people who borrow (especially on a credit card or a car note) do so to buy something they don't NEED and can't really AFFORD to impress people they don't really like.

Dave Ramsey has a book called "Financial Peace Revisited" that you can find at most bookstores in the personal finances section. I STRONGLY encourage you to buy it and read it. Dave dispels many myths such as "It's important to build your credit score" and "you NEED to have a credit card" and "you'll ALWAYS have a car payment. Dave's motto is if you have to borrow money to buy it, you can't afford it. save up for it and pay cash. His ONLY exception, however is a home, but there are conditions that you should meet prior to taking out a mortgage.

His program works, and we haven't had a credit card payment since about 2003, a car payment since 2005, and in 2006, were able to take a flight out to Oregon to visit my brother before he died, stay in a hotel for a week, rent a car for the week, and pitch in on the groceries, all with CASH ( we determined that this was an emergency and used money from our emergency fund), which meant we didn't have to worry about any credit card bills coming in two months after we came back home.

That was on top of the cruise we took to Alaska that year, which we also saved up for and paid cash for. Again, no vacation financial hangover.

We have refinanced our home twice, each time going to a shorter term, with a lower interest rate. Our home, which we bought in 2002 on a 30 year note, will be paid off in October of 2017 at the latest. Thank you Dave Ramsey, and thank you God!

I hope this helps.

Redbird99ky

Can anyone explain to me credit scores?

Im 21, and so far I have paid everything off in full.

car, rent, food, groceries, holidays everything paid IN CASH

however next up on my list is a house. I dont have a credit score, and so they wont give me a loan ( I assume..)
how do i get around this? and do i HAVE to put stuff on credit (they pay it off straight away) just to get a goos score?

Pay your rent on time for at least two years, and pile up money while you are doing so to build up a nice down payment, of at least 20 percent. Then you'll be bankable for a traditional mortgage from a company that does MANUAL underwriting, not FICO score lending. You don't need to go deeply into debt so that you can go even deeper into debt.

Get receipts from your landlord to show your rent payment record.

michellekicks

Can anyone explain to me credit scores?

Im 21, and so far I have paid everything off in full.

car, rent, food, groceries, holidays everything paid IN CASH

however next up on my list is a house. I dont have a credit score, and so they wont give me a loan ( I assume..)
how do i get around this? and do i HAVE to put stuff on credit (they pay it off straight away) just to get a goos score?

Well, okay, yeah... I've heard this. You could get a small credit card - say, with a $500 limit - and use it for your monthly groceries or something. Each time you buy groceries, put them on the card, then transfer the money once or twice a month (whatever coincides with your pay) and be sure to pay off the whole balance each month. You can maybe earn points towards something too... but don't use it for anything else. Having a credit card is almost a necessity in this world - the phone company and other utilities will want to secure your account against one. Also, if you buy music or stuff on amazon you have to use a card anyway, but just be sure to transfer real money to pay it off right away. Then you'll end up with an excellent credit score.

aradalj1

Interest rates came about because of something called "the time value of money". Basically it means that money is worth more today then it is in the future, because if you have money today you can invest the money and earn a return. The investment could be anything from buying stocks to putting it in a savings account.

So basically when you borrow money from a bank or any lending institution, the bank will expect you to pay back MORE than the amount you initially borrowed, because the bank is giving the money to you now and receiving it in the future (when you pay it back). As we know from 'the time value of money" the bank would be better off to have the money today than in the future, so to compensate for the money they gave to you, which could have invested elsewhere, they ask for you to pay an Interest rate.

So instead of just paying back the initial amount you borrowed, you end up paying back the principal+interest. How much interest you pay back is determined by the rate you agree on, it might be a fixed rate which won't change over time, or a variable rate which will change over time.

With big loans, like a mortgage you end up paying more interest then the initial amount you borrowed! But debt isn't always bad, if you invest right debt will magnify your return, but if you invest wrong it will magnify your losses.

Interest rates also work the other way around, if you have money saved up and give it to a bank to hold onto (i.e put your money into a savings account), the bank will pay you interest, because you are giving the bank money today, which you could be investing elsewhere. However, the rate you receive from the bank will be much less then what you pay on your loan, this is because banks are greedy and like to maximise their profit.

becoming_a_new_me

Interest is based upon a yearly rate but can be compounded monthly or quarterly. This means that if you finance $1000 at a 6% interest rate, .5% will be charged to you monthly or 1.5% will be charged to you quarterly. That means that you will be charged $5 per month interest on your debt or $15 per quarter. The interest is charged on the balance owed, so the first month if you pay $200, the balance of the debt is $800, so you will be charged .5% of that amount, which is $4. The faster you pay off the debt, the less you pay in interest.

Let me tell you some things that I have learned in life:

Avoid debt...if you want something big, keep a savings account to put money into until you have enough to pay cash

If you are going to finance (a car or home), try to have 25% as a down payment as a minimum. That means if the car is 10,000, you need to put down at least 2,500

Instead of making monthly payments, pay your payments bi-weekly. If you do this, you will end up with 13 months of payments instead of 12. This allows you to lower your overall interest rate and pay off your bill sooner.

Ensure that whatever you finance does not have a penalty for early pay-off. If there is, then walk away...you can do better.

PAY YOURSELF FIRST...put at least 5% of each paycheck into a 401K or retirement fund. You are young and if you do this, you can retire comfortably later. It also reduces your taxable income. Put another 5% of your income into an emergency savings account. Make it your goal to have at least 6 months worth of monthly expenses set aside in case of an emergency. Most employers will allow you to direct deposit to multiple accounts, so set an amount to have put into your savings account and DO NOT TOUCH IT.

Make sure you pay your bills first (rent, utilities, car payment, car insurance, and student loans), then buy your groceries, then you can play. Bills ALWAYS come first...create a budget and stick to it. I keep mine in an excel spreadsheet....I know where every penny of every check goes.

If you want to buy something, put it back, go home, and think about it for 24 hours. This will help you avoid impulse purchases and allow you be logical about need vs. necessity.

There is more, but these are the most important lessons I have learned.

nichalsont

Can anyone explain to me credit scores?

Im 21, and so far I have paid everything off in full.

car, rent, food, groceries, holidays everything paid IN CASH

however next up on my list is a house. I dont have a credit score, and so they wont give me a loan ( I assume..)
how do i get around this? and do i HAVE to put stuff on credit (they pay it off straight away) just to get a good score?

I have been in the banking industry for over 25 years, primarily commercial loans. I have also taught basic financial principles to 16-19 yr olds. First, do some research as suggested by other posters before going into a bank. Some banks pay employees incentives to open certain types of accounts. I find this highly unethical, but it happens.

Next - credit scores are determined by an equation based on four factors:

How long you have had credit - young people are at an automatic disadvantage here
Payment history - credit bureaus usually report 24 months
The types of accounts you have - installment loans (like for a car), revolving (credit cards)
The difference between how much credit you have available (limits on credit cards) and what you owe. The bigger the difference, the higher the credit score.

Whether you borrow much or not, you need a good credit score to get the best rates on loans, lowest premiums on insurance, and maybe even a job.

ZebraBri

Everyone....this has been so incredibly helpful to me. I wish I could respond back to every single one of these. Thank you all so much! If you have more advice, feel free to add something else!

I'm also so glad someone also asked about credit scores. I understood credit a bit, but since I plan on never getting a credit card, I didn't know how people would find my credit history reliable. But the answers about the credit question helped, too!

aegisprncs

One thing I learned early in life that a boss told me, no question is stupid. I live by it, otherwise how would you know? Ask away and don't feel silly about it. I hope you get some answers.

guardian419

Whoever said talk to your bank had some good advice. Whenever I get bored I go onto my bank's (USAA) website and do research. I also frequent forbes.com motleyfool.com, and a few other websites. Theres a lot of good advice out there, just make sure its from good sources. The smartest thing you can do, which also was said, is avoid debt. Not to say don't use it at all, because you need some to develop credit, but make sure you use it RIGHT. The WORST thing you can do is use it, get too much, and then be the average american with $15,000 in credit card debt. Not counting house/car, I have $3,000 in CC debt.

taxidermist15

Can anyone explain to me credit scores?

Im 21, and so far I have paid everything off in full.

car, rent, food, groceries, holidays everything paid IN CASH

however next up on my list is a house. I dont have a credit score, and so they wont give me a loan ( I assume..)
how do i get around this? and do i HAVE to put stuff on credit (they pay it off straight away) just to get a good score?

I have been in the banking industry for over 25 years, primarily commercial loans. I have also taught basic financial principles to 16-19 yr olds. First, do some research as suggested by other posters before going into a bank. Some banks pay employees incentives to open certain types of accounts. I find this highly unethical, but it happens.

Next - credit scores are determined by an equation based on four factors:

How long you have had credit - young people are at an automatic disadvantage here
Payment history - credit bureaus usually report 24 months
The types of accounts you have - installment loans (like for a car), revolving (credit cards)
The difference between how much credit you have available (limits on credit cards) and what you owe. The bigger the difference, the higher the credit score.

Whether you borrow much or not, you need a good credit score to get the best rates on loans, lowest premiums on insurance, and maybe even a job.

so im at a disadavantage because ive paid everything off in full.. well thats just not fair.
how do yo recommend starting to get a good credit score?

soccermoma11

Can anyone explain to me credit scores?

Im 21, and so far I have paid everything off in full.

car, rent, food, groceries, holidays everything paid IN CASH

however next up on my list is a house. I dont have a credit score, and so they wont give me a loan ( I assume..)
how do i get around this? and do i HAVE to put stuff on credit (they pay it off straight away) just to get a good score?

I have been in the banking industry for over 25 years, primarily commercial loans. I have also taught basic financial principles to 16-19 yr olds. First, do some research as suggested by other posters before going into a bank. Some banks pay employees incentives to open certain types of accounts. I find this highly unethical, but it happens.

Next - credit scores are determined by an equation based on four factors:

How long you have had credit - young people are at an automatic disadvantage here
Payment history - credit bureaus usually report 24 months
The types of accounts you have - installment loans (like for a car), revolving (credit cards)
The difference between how much credit you have available (limits on credit cards) and what you owe. The bigger the difference, the higher the credit score.

Whether you borrow much or not, you need a good credit score to get the best rates on loans, lowest premiums on insurance, and maybe even a job.

so im at a disadavantage because ive paid everything off in full.. well thats just not fair.
how do yo recommend starting to get a good credit score?

I use my credit card for gas, and than pay it off every month online. Its not much, I know I can afford it, It wont put me over my limit but it will help to build your credit score. Just never ever ever miss a payment! Always pay it off in full. It seemed daunting to me at first as i would rather just pay cash for everything but its become a habit now, so paying it off isnt a big deal.

elenathegreat

Avoid debt as much as possible. If you can't afford it, you don't need it, end of story.

^^^Best financial advice there is!

I will second this! If you have no debt, you don't have to worry about interest rates.:bigsmile:

Doing_The_Unstruck

Just give your money to me and let me worry about it :laugh:

Jezebel9

There is this movie called 'The Corporation" it explains some interesting things about finances, banks, corporations etc. But this is further than answering your basic question about interest rates. :drinker:

nichalsont

Can anyone explain to me credit scores?

Im 21, and so far I have paid everything off in full.

car, rent, food, groceries, holidays everything paid IN CASH

however next up on my list is a house. I dont have a credit score, and so they wont give me a loan ( I assume..)
how do i get around this? and do i HAVE to put stuff on credit (they pay it off straight away) just to get a good score?

I have been in the banking industry for over 25 years, primarily commercial loans. I have also taught basic financial principles to 16-19 yr olds. First, do some research as suggested by other posters before going into a bank. Some banks pay employees incentives to open certain types of accounts. I find this highly unethical, but it happens.

Next - credit scores are determined by an equation based on four factors:

How long you have had credit - young people are at an automatic disadvantage here
Payment history - credit bureaus usually report 24 months
The types of accounts you have - installment loans (like for a car), revolving (credit cards)
The difference between how much credit you have available (limits on credit cards) and what you owe. The bigger the difference, the higher the credit score.

Whether you borrow much or not, you need a good credit score to get the best rates on loans, lowest premiums on insurance, and maybe even a job.

so im at a disadavantage because ive paid everything off in full.. well thats just not fair.
how do yo recommend starting to get a good credit score?

Start with a credit card with a limit no higher than $2,500. Use it occasionally and always pay it in full. Keep adding to a savings account. When you have decent amount, put it in a CD and borrower against it (use the CD as the collateral for the loan). This will introduce a different kind of credit to your history, an installment loan. Pay it back in as short a time as the bank wiill allow based on your income. The interest rate will probably only be 2% or so more than your CD earns. Also, you may not need a co-signer since the loan would be 100% cash secured. Hope this helps.

Redbird99ky

If you're winning with money such that you can afford to save up and pay cash for everything except for a home, you DON'T need to have a credit score. As I said, pay your rent early or on time for at least two years, and you're bankable for a conventional mortgage at a competetive rate by a company that does manual underwriting.
As for insurance, yes, it's true that most insurance companies base part of their premium on your credit score, but the difference between having a low / no credit score and having a high credit score is not likely to be worth the interest and fees you would end pu paying on your credit card you're getting to establish credit.
Again, talk to your insurance agent. Chances are that if you are winning with money (have an emergency fund in the bank of 3 to 6 months, that will count for "financial responsibility" and you'll get a better rate on your insurance than someone who is a bankruptcy waiting to happen.

ZebraBri

Credit cards....actually seem unappealing to me. It kind of sounds like trouble So if I gave people documents, showing proof I've paid all my bills on time, would that be good enough to get something major, like a house? Or do I need to get a credit score? I think someone may have said something similar to this earlier, but I just want to get it clear.

And I'm already going to be so much in debt...and I'm a social work major! While I am not doing my job for the money, it's also a bit unfortunate that it's one of the lowest paying jobs when I have so much to owe back when I'm finished with school.

Redbird99ky

Credit cards....actually seem unappealing to me. It kind of sounds like trouble So if I gave people documents, showing proof I've paid all my bills on time, would that be good enough to get something major, like a house? Or do I need to get a credit score? I think someone may have said something similar to this earlier, but I just want to get it clear.

And I'm already going to be so much in debt...and I'm a social work major! While I am not doing my job for the money, it's also a bit unfortunate that it's one of the lowest paying jobs when I have so much to owe back when I'm finished with school.

If you show that you pay your bills on time, you should be bankable for a good rate on a mortgage with a company that does manual underwriting. Just ask the lender if they do so.

That being said, your student loans that you have taken out will count toward your credit score. make sure you pay aunt Sallie Mae on time also. then, once you get going, pay her off as quickly as possible and kick her to the curb!

ZebraBri

Credit cards....actually seem unappealing to me. It kind of sounds like trouble So if I gave people documents, showing proof I've paid all my bills on time, would that be good enough to get something major, like a house? Or do I need to get a credit score? I think someone may have said something similar to this earlier, but I just want to get it clear.

And I'm already going to be so much in debt...and I'm a social work major! While I am not doing my job for the money, it's also a bit unfortunate that it's one of the lowest paying jobs when I have so much to owe back when I'm finished with school.

If you show that you pay your bills on time, you should be bankable for a good rate on a mortgage with a company that does manual underwriting. Just ask the lender if they do so.

That being said, your student loans that you have taken out will count toward your credit score. make sure you pay aunt Sallie Mae on time also. then, once you get going, pay her off as quickly as possible and kick her to the curb!

Thank you so so much, you've been a big help!