Every other week, we deliver Young Money, a newsletter on young people and economics that you’ll actually want to read, to your inbox. In it, we include personal finance tips–The Word–from experts on subjects that are actually relevant to you. You can find the most recent edition of The Word in your inbox (sign up for Young Money if you haven’t already), and we’ll archive previous editions here.
Today’s word: investing. Or rather, how to invest whether you have $500 saved or $5,000. Because I regularly look at my checking account balance to see how close I am to overdrafting before buying something, we turned to David Madland, a senior fellow at the Center for American Progress who focuses on economic policy and economic inequality, to tell us what Millennials need to keep in mind when it comes to investing our money. Here’s what he told us:
- Pay off your debts: Your first step should be to pay off your debt—but prioritize specific kinds of debt. David advises paying off credit cards and high-interest debt first, and then deciding how and when to pay off lower-interest debt depending on how much debt you have, how manageable the payments are, what the interest rates are, and where you are with your other financial goals.
- Create an emergency fund, because you just never know: As soon as you’ve started getting your high-interest debt under control, David says start saving so that you’ll be able to cover your living expenses for at least a month, but ideally three or more. The goal is to make sure that losing your job, going to the doctor, or needing to get your car fixed won’t put you over the edge of financial insecurity. If you have lots of high-interest debt that you’ll be paying off for a while but have gotten under control, you’ll still want to start saving to be able to cover a minor emergency. And no matter how much low-interest debt you have, start building that emergency fund!
- Time to start thinking long-term: Once you’ve got a substantial emergency fund, you get to think about more fun things, like saving for a house and retirement. Even if you’re not saving very much, you should put at least something towards your longer-term goals. If your job offers a 401(k) match (where they match a percentage of whatever you put in), take advantage because it’s free money. If you don’t have a plan at work, David says you can start an individual retirement account (an IRA) and you don’t need to have too much saved to start one. Either way, put your money in a low-cost, lifecycle index fund—so Wall Street isn’t ripping you off—and let the power of compounding interest work to your advantage. It seriously works.
- You’re almost done, I promise: Once you’ve done all that, congrats! You’re doing great! Now just make sure that if something bad happens you’re prepared: get adequate insurance so that a health problem, car crash, house fire, or other catastrophe doesn’t cause you to lose everything.
- Okay I lied, there’s one more step: If you’re able to get through steps one through four, pat yourself on the back. Post a humble-braggy post on Instagram. Get a dog. Whatever. But once you’re done with that, David suggests taking some time to make sure your friends and family have the same chance to get ahead: tell your elected officials to take steps to make jobs pay more, education cost less, and stop Wall Street from ripping people off. Basically, invest some time into making it easier for others to invest.
Today’s word: tuition equity, aka equal financial aid for undocumented and documented students. We recently chatted with Giancarla Rojas-Mendoza, who works at the immigration advocacy organization FWD.US, for tips on how to get to college if you’re undocumented and how to be an ally if you’re not.
Learn the ins and outs of your state’s policies: if you’re looking to go to a public college in-state, Giancarla says to make sure to look into your state’s policies. Some states allow undocumented students to attend state schools with in-state tuition, some allow only those with DACA, others allow you to attend but to pay out-of-state rates, and still others don’t let any undocumented or DACAmented students attend, period. If you’re in a state that isn’t welcoming to undocumented students, look into the Opportunity Scholarship, which is specifically meant for undocumented students in states where you’re locked out of higher education because of your citizenship status. Private schools can be a mixed bag: some schools offer tuition equity, others don’t. Find out if private schools you’re interested in are undocufriendly, as Giancarla puts it.
Money money money money: Undocumented students cannot legally receive any federally funded financial aid, including loans, grants, scholarships, or work-study money, Giancarla tells us. Most states also bar undocumented students from getting state financial aid. That makes scholarships all the more important, and Giancarla suggests the scholarship lists here and here as good places to start. You can also check out our list of scholarships and resources for undocumented students.
Documented but want to help? Find out the laws in your state, and contact your representatives if they need to be changed. Speak out. If your DACAmented or undocumented friends ask, Giancarla says you can help them make a plan for school and look for opportunities after college. Generation Progress is also leading an effort for students and alumni to encourage their colleges to support undocumented students, email firstname.lastname@example.org if you’d like to learn more. And if you’re a civic leader who wants to take a stand for DACA, the program that allows undocumented people who were brought here when they were young to live and work here and is now under attack, check this out.
Today’s word: credit. It may just be a three-digit number, but your credit score can make or break your financial options. As Maggie Germano, a financial coach for women, puts it: “You should care about your credit score if you care about your future.” Because we care about your future, we asked Germano, who does one-on-one financial coaching and writes about financial advice, to tell us a bit more about why having good credit is important, and how you can build a good score. Here’s what she told us:
- First, the basics: the reason you want a good credit score is because it’s one thing lenders use to decide whether or not to lend you money, and what percent interest they’ll attach to it. So investing a year or two of time into improving your credit score can save you hundreds or thousands of dollars down the line when you want to take out a loan to go back to school, buy a house, start a business, or buy your dream couch (hello, west elm). If you don’t know what your credit score is, you can find it out in less time than it takes to watch the latest Game of Thrones episode for free here.
- Don’t be late: late payments hurt your credit score and will stay on your credit report for years, so set up that auto-pay or payment reminders now.
- Not sure what to pay?: Germano says a good bet is to pay down your credit card balance in full each month if you can, and if you’re working on paying off debt, start with smaller balances first. If you have debt you need to pay down, be wary of new credit cards that offer balance transfers–just stay focused on paying down your debt.
- Tricks of the trade: Germano suggests avoiding applying for unnecessary new credit accounts if your credit is suffering, and keeping your balances under 30% of the overall limit–so if your credit limit is $3,000, only putting around $1,000 on it every month. She also advises sticking with your day one card (okay, those are my words, not hers)–part of your credit score is determined by the age of your credit history, so even if you want to close your oldest card it might actually be better to keep it open and just stop using it. That’s what we like to call extra credit.
Today’s word: homeownership. I’m 23 and the closest thing I have to a home is this one time when I went to see Edward Sharpe and the Magnetic Zeros in concert and they played their song “Home.” That’s it. It was great, but I still don’t own a home. If you’re like me and the thought of owning a home seems not only impossible but downright terrifying, then boy oh boy is this section for you. This week we talked to Tineshia Johnson, a realtor who specializes in helping Millennials and other folks who might not think they can own a home figure out how to do it. While buying a house isn’t right for everyone, it’s also one of the best financial investments you can make (plus we just went through the housing crisis in 2008, so we’re not due for another one of those for a while right? don’t worry, Tineshia knows more than I do). Here’s what we learned:
- There are real reasons to buy a home even if you won’t be on an episode of House Hunters: A 2015 study found that it was cheaper to buy a home than rent in 98 out of 100 metro areas studied when you take into account all the long-term benefits of buying a home. So even though far fewer Millennials are buying homes today than their parents did at the same age because of low wages and high student debt rates, buying a home might counterintuitively be a way to start saving money. Plus, you might be on House Hunters.
- Don’t be scared by the sticker price: As a home buyer, you’re generally responsible for making a down payment, which according to Tineisha cost around 3.5% of the home’s purchase price, and closing costs, which run around 4%. I don’t know about you, but lots of Millennials don’t have 7.5% of the cost of a house saved up–but there are creative ways to get around that. Specifically, there are incentive programs for first-time home buyers that will help you out with the down payment. Tineshia suggests looking into the Within Reach grant (formerly known as the Sapphire grant), or checking with your realtor about local programs. A realtor can also help you negotiate those closing costs, significantly reducing your out-of-pocket costs. Here’s a nifty calculator from the New York Times on whether you’ll save more renting or buying a home.
- Not ready to take on a mortgage right now? That’s okay: While there are programs to help you out with buying a home, you still need to be able to make your mortgage payments. If you’re not able to do that right now, that doesn’t mean you shouldn’t be thinking about owning a home! There are steps you can take now to prepare yourself down the line for homeownership, like getting your credit in good shape. You can talk to a realtor like Tineshia to start figuring out what steps you can take today to get yourself ready to buy a home in the future.
Buying a home seem like a ~home run~ to you, or just want to learn more? Here’s a pretty comprehensive guide on what to do if you’re a first-time home buyer (and you can also reach out to Tineshia). Or read our profiles of a few young people who navigated buying a home and how they did it.
Today’s word: LGBTQ equality. This month being Pride month, we asked our friends over at the National Women’s Law Center to tell us how being LGBTQ affects your shot at economic stability, and what each of us–regardless of sexual orientation or gender identity–can do about it. Here’s what they said:
Navigating a new workplace is already a tough job but for LGBTQ folks it may be a matter of entering a hostile environment without explicit legal protections. That’s where the Equality Act comes in. Reintroduced in 2017, the Equality Act is a federal bill that explicitly protects LGBTQ folks against discrimination based on sexual orientation or gender identity. If passed, it would provide these protections in multiple contexts including employment, housing, and education.
- If you’re a member of the LGBTQ community: Know your rights. Right now, different states, towns, cities, and organizations all have varying policies and laws concerning the rights for LGBTQ people on the job. Look carefully at your company’s policies to see what protections they do or don’t set out. Moreover, in some states, courts have held that federal law protecting against sex discrimination reaches discrimination on the basis of gender identity or sexual orientation. In other states, courts have not. You can also go here to learn more about what laws do–or don’t–protect your rights where you live.
- If you’re an ally: Listen and learn. Recognize that although the LGBTQ community has made huge strides toward equality, they still face significant barriers in education, health care, the workplace, and elsewhere. Join their fight for legal equality. Challenge instances of homophobia and transphobia in your workplace or your community. Be mindful not to misgender, out, or otherwise put a colleague (or anyone else!) in a position that could harm them or put their livelihood at risk.
- Take Action: This Pride month, raise your voice for positive change. Tell your congressional representatives you support the Equality Act. Tell your Senators how repealing the Affordable Care Act would remove essential health care protections for LGBTQ people. And of course, stay on the lookout for more actions that you can take!
Today’s word: financial abuse. Did you know that financial abuse is a component in 99 percent of domestic violence cases? It’s a common tactic used by abusers to gain power and control. Financial abuse can include withholding money, giving “an allowance,” refusing to pay bills, ruining the victim’s credit score, or sabotaging employment opportunities by stalking or harassing the victim at their workplace. The short- and long-term effects of financial abuse can be devastating. We asked our friends at the National Network to End Domestic Violence (NNEDV) to tell us more–here’s what they said are financial red flags to watch out for:
- Your partner makes financial decisions without consulting you. They might say “I bought us a new car!” or “Our internet was terrible, so I canceled the old one in your name and got a new service in mine.”
- Your partner tries to talk you out of going for a promotion, bothers you constantly at work, or suggests that you quit your job. They might stop by work when you don’t have a workplace that really encourages drop-ins – or when you talk about your career goals, they might say “I make plenty of money, you don’t NEED a full-time job.”
- Your partner lies about or hides assets. For example, not finding out about your partner’s massive debts until after you get married, or finding out about a home or car loan in your partner’s name after getting denied for a new home or car loan.
- Your partner withholds money or gives you an “allowance.” They may say, “We are budgeting because we are trying to save for a nicer apartment, remember?” or something to minimize or normalize this behavior.
If any of these points seem familiar, check out the “Moving Ahead Through Financial Management curriculum” (available as a free download in iBooks!) to learn more about combatting financial abuse–including information on financial fundamentals, credit basics, budgeting strategies, and building a financial foundation.
Today’s word: retirement. Whether you’re just starting out in a job or you’ve been at it a while, figuring out how to save for retirement is tricky, especially if you have student debt. We asked one of our favorite student loan gurus, Rohit Chopra, whether it’s better to use extra cash to pay down your student loan faster or if you should put that money in a retirement account. Here’s what he told Young Money:
- Don’t miss out on your match. If you’re lucky enough to have a job that matches your contributions to a retirement plan, don’t miss out on it. Rohit tells us that this is worth it even if you have a lot of student debt: “free money, plain and simple.”
- Set it and forget it. Hopefully, you have some wiggle room in your budget to save for retirement. Rohit recommends the rotisserie chicken method. Set up automatic deductions through your employer or auto-debit for other retirement plans. Automating your investing will allow you to keep building up your nest egg over time.
- Listen to your stomach. No, this doesn’t have anything to do with the rotisserie chicken method. A lot of Millennials are squeamish about shouldering so much student debt. There are lots of good tax advantages to saving for retirement rather than paying off your student loans early, but if your student debt makes you sick, make some extra payments to pay it down faster. If you go down this path, check this out.
Today’s word: salary history. That was two words, I know. But it turns out those two words can have a huge impact on your life. When potential employers ask you for your salary history in an interview or application, they’re tying your future earnings to your past wages, likely using your old salary to reduce their offer to you. That’s bad news if you’re a person of color, a woman, or a Millennial (or, god forbid, all three). You can check out more from us on why asking about salary history harms young people here, but if you’re really just looking to find out how to avoid getting tied down to lower wages than you deserve, here are some tips:
- If a job application asks you for your salary history, you can leave it blank, enter $0, or put “N/A.”
- If in an interview a prospective employer asks you for your salary history, you can instead answer with your salary expectations for this job—and then hold firm.
- For various reasons, not everyone can push back on salary history questions, and that’s totally fine! You can still try to curtail the practice by supporting legislation at the state and federal level that would ban would-be employers from asking about salary history.