Establishing good money habits early in life (trust me, at 53, if you're in your twenties, you ARE early in life,) is paramount for building a solid financial foundation for the rest of your life. Since we aren't taught these things, no matter what level we educate ourselves, or to what degree, people ask me how to start their financial life.

There are three things to consider:

You Need A Credit Card

This is the best way to establish credit. If you're under 21 you'll have to jump through some hoops to get one, and even after 21, it may present some challenges since you may not have enough history to qualify. However, if you've had a student loan, or financed a car, and you made your payments on time, you probably will have enough history to get a credit card.

If you don't have enough history, consider a secured credit card. This looks just like all other credit cards, it's just that you put up collateral in order to get the card, that collateral usually being in the form of cash. A secured credit card really works essentially like a debit card, as the charges against it are being paid by the cash you put up for the card.

So you ask, why not simply use a debit card? A debit card will not create a credit history for you.

Charge Only What You Have Money For

In 1981 I created my budgeting system, now patented and named Liquid. In rudemintary terms, my budgeting system started out as a mechanism that tracked my spending on my credit card and compared the balance to my checking account balance. After backing out my credit card balance from my checking account balance, I then backed out all my upcoming expenses and anything I was saving for.

The net number became my liquid number and I never put anything on my credit card that isn't in my upcoming expenses, or something I'm saving for, or that I can safely deduct from my liquid number.

Budget Your Expenses

Yes, I know, the "b-word!" Budgeting is NOT a bad thing. It tells you what you GET to spend. Start with income and write down all your expenses. There are four categories: monthly that are fixed (rent), monthly that are variable (utilities), more often than once per month (food), and less often that once per month (tuition).

This becomes your blueprint. If your expenses exceed your income, you need to analyize your expenses and pare them down so your income exceeds your expenses. Aim to have your expenses at 95% of your take-home income. 

Now you're on your way to a solid financial foundation.

Do you know of anyone who doesn't know where to start?


CategoriesCredit & Debt