If you’ve ever been to my personal finance blog you already know that I grew up poor. My dad died when I was 7 and my mom struggled financially as she raised my two brothers and me. We always had a roof over our head, even if it meant moving in with friends temporarily, but there were some tough times.
Thankfully, my brothers and I all worked like crazy to build a more stable financial foundation for ourselves and go to some of the best schools in the world. And while my mom taught me some incredible lessons about perseverance, grit and empathy, she didn’t have the tools to teach us about money and personal finance.
As an 18-year-old, I knew nothing about money other than I had very little of it and knew I needed to have more of it to have a more comfortable life. I didn’t have a clue that buying a new car is foolish. Honestly, I don’t remember if it was from TV commercials or from somewhere else, but I thought that having a strong credit score was one of the most important things you could do financially.
Establish credit early, but focus on the right things.
So shortly after I turned 18, I went out and applied for my first credit card. It was a Chase Freedom card, I believe, which at the time was targeted to college students. I think my initial credit limit was something like $300, but I was elated. I remember holding it in my hands and hardly believing I had a credit card.
Growing up poor, I was afraid to use it because I didn’t want to owe someone money I couldn’t afford to repay so I only used it sparingly. Maybe a few dollars here and there to keep the account active. In retrospect I did everything perfectly to build phenomenal credit. Now, it’s 12 years later and I still have that account open. Today, the credit limit is $10,000 and I still carry a $0 balance on it. See below.
And while I worked hard to build credit starting at an early age and it helped me have a credit score over 800, I wish I would have been focused on a few other things instead. In reality, having a solid credit score is awesome, but it’s not really going to help you retire or invest for the future.
Your personal savings rate is more important.
When it comes to personal finance and managing your money, few things are more important than your personal savings rate. This is simply the percentage of your take-home pay that you are able to either save or invest.
Let’s take the example of a recent reader who reached out to to me via email asking for help. The 29-year-old Chicago resident felt like desperation when it came to her money. She was in credit card debt and wasn’t sure how to get out of it.
The good news for Sarah was that she was saving 22% of her income so she actually had really solid financial habits (other than her penchant for racking up credit card debt).
The reason that your personal savings rate is critical is because it’s incredibly tough to change behaviors. So once you get into the habit of saving money and making wise investment decisions, it can pay off for years and years. It’s also a strong indicator of your ability to whether an economic downturn.
If you get laid off, lose your job, or your income drops you’ll be better able to make ends meet if you are living well below your means. Saving and investing a large part of your income will also help you reach your long-term financial goals like buying a home, sending your kids to college, and retiring.
You need to learn to manage a personal budget.
If you love the idea of increasing your personal savings rate, but aren’t sure where to start, let me introduce you to the personal budget.
In fact, using a monthly budget is much more important than having stellar credit.
Most people think a budget is a buzz-kill. They think it’s nothing more than a document which tells you you’re broke. If you feel that way, you are totally missing the point. A budget actually gives you permission to spend and it helps you identify the things that are most important to you.
A budget helps you prioritize how you want to spend your hard earned money. Who cares if you have solid credit and can get a cheap mortgage if you can’t afford to make the monthly mortgage payments! This is why having a solid budget is so important.
And if you think you are good at saving your money, just remember that budgets aren’t just for those who are bad savers or for people who live paycheck to paycheck. The world’s largest companies like Amazing and Apple use budgets to manage their money and plan their investments and financial goals. Just because you already save money doesn’t mean you shouldn’t save money on your phone bill or pay less for contact lenses!
Budgeting is a HUGE missed opportunity!.
Crushing it at work is more important.
As much fun as budgeting is, it’s hard to budget, save, or invest if you don’t have cash coming in through the door. For the vast majority of Americans, all of their wealth will come from their professional career.
Unless you plan on inheriting a fortune or winning the lottery, you need to make sure you are setting yourself up for success professionally. What are you doing to stand out at work?
You only have one life so you need to take it seriously. NO one is going to look out for your career more than you will. If you don’t work hard for that promotion or ask for a raise, it’s probably not going to happen for you. At least not as quickly.
So having good credit might be cool, but it’s not going to pay the bills like a fat paycheck will. And there’s no better way to get a fat paycheck than to do a really great job at work. Heck, if you are really motivated and have an awesome idea, nothing will transform your finances like owning an awesome company.
The sky is the limit if you go out and make it happen. No one who is being honest says becoming wealthy is easy.
You can’t eat your credit score.
When push comes to shove, a credit score isn’t going to feed your family. Credit card points are not as valuable as the credit card companies want you to think they are.
Think about it. If credit card points were THAT valuable why would credit card companies hand them out. They are essentially just returning some of the annual fee or interest you pay in the form of points.
Don’t get me wrong, if you are going to buy something anyway, you might as well get the points or cash back, but just remember that you pay the credit card company every single time you swipe the card in the form of processing fees they earn from every transaction.
A lot of people want strong credit so they can get credit card points. The best credit cards often require strong credit in order to qualify for them. But don’t lose sleep over not having perfect credit. It can take time to get there, and the underlying habits to establish good credit are the important part.
After a certain point, your credit doesn’t score doesn’t matter.
A lot of people say that they want to get a perfect credit score of 850, but they don’t fully appreciate the fact that having a score of 760 (almost 100 points lower than ‘perfect’) is seen by many lenders as perfect.
This means that you can qualify for the lowest interest rates possible with a credit score of 760. So a score of 800 or 850 won’t actually bring you anything than bragging rights. And if you are bragging about your credit score you need to find some new hobbies.
For most people your credit score matters most on one single day, and that’s when you get a mortgage. Mortgages are often so large in size, that a lower interest rate can save you a lot of money. Otherwise, it’s not that big of a deal.
This isn’t to say that credit scores don’t matter at all and that you should trash your credit. But it should give you peace of mind that if you are living paycheck to paycheck there are much bigger fish to fry.
Camilo is a personal finance expert who was raised in poverty by a single mother and had to learn everything about personal finance on his own. In addition to writing for his personal finance site, The Finance Twins, he has been featured on Forbes, Business Insider, CNBC, US News, The Simple Dollar and other top publications. Camilo began his career as an investment banking analyst on Wall Street at J.P. Morgan. He has a master of business administration (M.B.A.) degree from Harvard University and a Bachelor of Science in finance from the Wharton School of Business at the University of Pennsylvania. You can contact Camilo via Instagram @thefinancetwins.