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One Thing I Wish I Knew About Money When I Was Younger

| December 22, 2016
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As children, credit cards seemed like magic plastic cards that allowed our parents to purchase anything they wanted, regardless of the price. When we got older, we learned what credit cards really are, but when we’re young and in our twenties (or even our thirties or forties), it can be hard to stop viewing credit cards as magical pieces of plastic.

In my youth, I, like many young people, didn’t understand how dangerous credit cards could be, or how to properly manage my savings. Relying on my personal and professional experience, I hope I can help other people avoid the common credit card mistakes people make and build a healthy savings habit.

The Current State of Debt

In the past decade, overall U.S. household debt has grown 11%, with the average household with credit card debt totaling $16,061. With such a high number comes the equally as devastating credit card interest, totally $1,292 per year.

When the average credit card interest rate is 15%, credit cards can snowball to become the priciest of loans. The more credit card debt consumers rack up, the harder it is to pay off balances and the more interest you have to pay.

Using Credit Cards

Credit cards don’t have to be an instrument for debt. When used properly, they can play an important role in your finances. First, credit cards can help defend you and your money from fraud. Most credit cards won’t hold you liable for unauthorized purchases, unauthorized purchases don’t impact your bank account (unlike debit cards), and if you lose your credit card, you don’t lose real money.

If you’re using credit cards, you’ll want to focus on building credit without accumulating debt. By sticking to one credit card, you can establish a good credit rating without having to balance multiple bills. Try to keep your balance as low as possible and pay your entire balance in full every month. Treat your credit card like it’s a debit card or cash. If you don’t have the funds available in your bank account, don’t make the purchase.

Managing Your Savings and Debt

Credit cards can serve as a helpful tool — or they can quickly veer into dangerous territory if they aren’t used responsibly. To prevent credit cards from playing a detrimental role in your finances, it’s essential to understand how to balance your spending and your saving and proactively paying off debt.

To start managing your debt, create a spreadsheet listing all loans and debt, along with the principal, interest rate, term, and any late payment penalties. Compare this with your other monthly bills, savings, and income to evaluate how much you can afford to pay off each month. If you can, make additional payments to your principal to pay off certain loans faster. Along with paying off debt, avoid accumulating additional debt. Stick to a minimum number of credit cards and, as shared earlier, spend on your needs, not wants.

Next, consider managing your savings by adhering to a budget. Budgets are helpful whatever your age but they particularly come in handy when you’re just starting to build and manage your money. To create your budget, start by taking into consideration your goals, income, debt, and expenses. Determine how much you want to spend per month and identify any areas where you can cut back on spending. Aim to save around 15% to 20% of your annual income. Setting a budget helps you stay on track of your debt, know where your money is going each month, and how much you are saving.

Next Steps

At HBA Wealth, we help our clients balance the high cost of living and paying down debt with saving enough to pursue financial freedom. If you haven’t been saving enough in the past, have questions about credit cards, or are interested in learning more about budgeting, I encourage you to meet with me. We can discuss your goals and concerns, review your debt, and create an actionable plan. Set up an appointment with me today at (626) 529-8347 or email me directly at [email protected].

About Ricky

Ricky Biel, CRPC® is a wealth manager with Haydel, Biel & Associates, an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at [email protected].

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