As we’re entering into the adult world, many of us are encountering something that the entire world seems to be after: money. Money is not a bad thing, nor is it a good thing. Depending on how you use it, it can be good or bad. We’ve all heard the phrase that money can’t buy happiness, but poor management of money can quickly lead to unhappiness.
Managing money normally starts out pretty easily for us, and if you haven’t started, you can probably start out simply. If you get an allowance or work a job, you have x amount of money to spend in y amount of time. So long as you don’t exceed x amount of money in y amount of time, you’re in the black and don’t have to worry about it. But if you spend x + z in y amount of time, you’re in trouble because you don’t have that much money.
How do you spend money you don’t have? At first, you probably can’t, because you don’t have the cash in your wallet. But what about when you get older and get a credit card?
First of all, you have to be 18 to get a credit card, and once you do get one you’ll probably only be approved for a small amount of money because you don’t have any credit.
Your credit score (forget the numbers because they’re really confusing right now) is basically an indicator of how well you pay off debt. If you pay with credit (which means you’re not paying with actual money in your bank account but with borrowed money from the credit card company who is counting on you to pay them back with interest) it goes on your card and the expenses add up, so when you get the bill it tells you how much money you owe the credit card company. To build up good credit, you have to pay your bill on time. If you don’t pay your bill on time (or at all) your credit score goes down.
So why does a credit score matter? It matters when you want a loan to buy a car or a house, because most of us don’t have thousands, or hundreds of thousands, just waiting in our bank accounts. If you have good credit, it means that you are responsible and pay off your debt on time, so the bank is more likely to give you a loan.
How do you build up credit? Some banks, like Wells Fargo, have special accounts set up for college students and young adults. They’ll help you manage your money and start building credit, so they’re a great place to start when you need advice. But some good general advice is to start by paying for a few things a month with your credit card (maybe 40 or 50 dollars total) and then pay your bill right away. This way you’ll start building up credit without having to worry too much about it. What you want to avoid is using your credit card for everything, because when you pay with credit, all you have to do is stay within your credit limit, not the limit of how much is in your bank account. If you’re not careful, you could end up spending more on your credit card than you can actually pay back.
Keeping track of your spending can be hard, especially in the age of plastic when you just swipe your card and go. It’s easy to buy something cheap here, there, and a few other places, and before you know it you can’t remember how much you’ve spent. Something people will swear by always paying in cash, because you’re more aware of how much money you’re spending when you have to hand over the physical bills instead of just swiping a piece of plastic. You can also keep track of your spending on your computer with online banking, or if you prefer pen and paper you can keep a simple register with basic addition and subtraction just so long as you remember to write down all your expenses.
Maybe you don’t have to worry about this just yet, but it’s always good to learn about it so when you do have to manage your own money or build up credit you have a general idea of how it works. You can ask your parents for help and advice, or you can go to the bank when you set up an account and they’ll explain how it works. Making and managing your own money is a step toward independence—a really big step—but it’s also a really big responsibility.
Madeleine, 18, says: “I want to help people and I want to tell stories, especially the stories of people who don’t have a voice of their own.” Visit her blog at http://yourstorydieswithyou.blogspot.com