My Financial Advice to My Younger Self
Table of Contents
As school is starting back up I have found myself wondering about what I would have done differently when I turned 18 (I say as I am currently 19) when it came to my finances. I wanted to compile a list of things I would do to help others going through it now or in the future. Finances and money in general is a deeply personal topic; This is my one take on it so it shouldn't be taken as a one size fits all approach, and more like a what I would have done knowing myself.
Disclaimer
The information in this post is not intended as, and shall not be understood or construed as, financial advice. I am not an attorney, accountant, or financial advisor, and the information contained in this post is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation. I am just a college sophomore with a business minor and a hyperfixation on personal finance. Another thing to note is that this post is focused on the US in particular. I don't know how personal finance works in other parts of the world.
Step 1: Independence
Move your accounts
In my opinion, the first thing you should do is get all of your current (if they exist) joint financial accounts under your name and your name only. You may opt to keep one joint account if your parents are planning on helping you with rent/college/etc (lucky duck). Now that you are no longer a minor you can open checking/savings/investment accounts in your name and I would recommend you do so. Your parent/guardian(s) that set up your existing accounts could have no malintent with your money, but even then they could fall victim to something like a refund scam, accidentally losing your money. While you're doing that if you want to make a quick buck have a look out for any bank bonuses that might apply to you. Bank bonuses are a great way to make some side money especially when you are younger. Make sure to properly file the bonuses as interest though when tax season comes around. If you already have a brokerage account (lucky duck again) consider a brokerage bonus.
Recommendations
My personal recommendation is to have a checking account at a local bank that offers no maintenance or ATM fees, a high-yield savings account (HYSA), and a brokerage account with low/no fees. Your local bank I obviously can't comment on one but looking online Charles Schwab's checking seems like a great nationwide candidate. In terms of HYSA, it honestly depends on how rates are but a consistently recommended one is Ally. My personal favorite is Discover because of their amazing customer service. Another option is a money market in your brokerage account of choice which is what I have slowly been moving towards. Finally, when it comes to a brokerage account three big players are favored by Bogleheads: Vanguard, Fidelity, and Schwab. Vanguard has come under some fire recently for introducing new fees, especially their $100 processing fee for closing or moving an account. None of these fees are major but make sure they fit your plans before jumping on board. My personal favorite brokerage is Fidelity for their great Fidelity ZERO funds and minimal fees. Schwab is a player I haven't heard much about but at first glance, they don't look too bad, but again my personal recommendation is Fidelity.
After moving all of your accounts over you have gotten over the biggest pain in this process. It is an annoying process to create all of your own accounts but the modern web has made it so much easier than what it used to be. Next up we're going to talk about another important thing to get started on your own after you turn 18, credit.
Step 2: Establish Credit
Why
A lot of things in the US rely on your credit, from credit cards to car loans to mortgages. A key to getting good rates in all of these is having a good credit score. One of the major components of your credit score is the age of your oldest account. That is why it is very important to establish credit as fast as you can. If you aren't 18 yet a great way to develop credit is to have your parent/guardian(s) put you on as an authorized user (AU) on their credit card. This will allow you to have a little bit of credit history when you turn 18 helping you get your first credit card. Do note that a lot of underwriters don't care about AU accounts but it can't hurt (unless your parents have a high credit utilization then you might reconsider or become an AU for one of their dormant cards). The age of your oldest account makes up about 15% of your credit score which is a significant chunk and all you have to do is keep your oldest card open.
How
To get your first credit card you're going to want to pick up a starter or student card. My personal recommendation is the Discover it Student. Discover is known to approve pretty much anyone. There are other student cards like the SavorOne for Students. If you aren't a student (some student cards don't require you to be a student FYI), then you can go with something like the Chase Freedom Rise. If none of these options work for you then there are other options like a secured credit card. My personal recommendation is the Discover it Secured. With all of these, I would recommend getting a referral from someone you know to get access to things like pre-approval or a sign up bonus (SUB). For example, Discover gives a $100 statement credit to both the referrer and the referee on acceptance of a Discover it Student card.
Future
Once you are approved for your first card it makes it a lot easier to be approved for future cards. To maximize your score it is recommended to have at least 3 to have a higher overall credit limit reducing your credit utilization and also to show to creditors that you can handle multiple accounts. If you need help deciding on your next credit cards and when to apply for them r/CreditCards is an excellent resource.
Warning
A very important part of having a credit card is paying it off in full. You are not able to reap the full benefits of a credit card if you have to pay interest on a balance month over month. APRs for starting cards are normally around 24% which comes out to about 2% in extra money compounding you would owe month over month. If you don't think you are responsible enough to pay off your card in full every month then maybe consider sticking to debit until you feel comfortable doing so. A great debit card is Discover's debit card because it has 1% cash back on all purchases up to $3,000 a month.
Step 3: Budget
Create your budget
You aren't able to grow your money and prepare for retirement without having more money in than money out. I know preparing for retirement at 18 sounds a bit extreme, but it is closer than you think. Preparing a budget is a great way to know what you can and cannot afford and set yourself up for success. Take a bit of time to figure out what your recurring expenses are and what your incoming money stream is. Next, look over your last couple of months and see your "one-time" expenses. Try and come up with an average monthly spending amount on those "one-time" expenses.
Optimize your budget
If you are now noticing that you have more money out than in or they are the same it is most likely time for a change. The easiest way to do this is, assuming you can cut down on excess spending. Instead of purchasing top-of-the-line maybe consider mid-range. Or instead of eating out, try and cook for yourself more often. I noticed my biggest decrease in spending when I decided to start cooking my own meals going from about $30/day in food costs down to $30/week. If you do the math on that it is about $9k less spending a year. Especially at the level of income you have at the age of 18 that is a sizable amount. These tips may not work for others or you may already be saving as much money as you can. Thus, another option you have is to make more money. You do have to remember that you have to pay taxes on extra income so it is normally easier to cut back than to take on more hours at a job.
Follow your budget
Once you have decided on what you want to allocate towards spending and what you want your revenue sources to be it is now time to follow through with your budget. Try your new budget for a couple of months and adjust accordingly. You should find that this makes it a lot easier to save than without a budget. No doubt with this new budget you will be saving money up. The next question is where should you put that money?
Step 4: Invest (in yourself)
Equipment
Normally this is where people say to put your money into a savings account or something to that effect. In my opinion, your best bet for saving is to buy things (I know it sounds counterintuitive) that allow you to save money. For example, to get into cooking I had to invest in a pan and other utensils. Make sure that you aren't overspending. You don't need a 14-piece pack of pots and pans when a 12-inch skillet will do pretty much everything. The same goes for knives, you most likely need just a chef's knife to start. Another example is coffee. If you drink coffee or another drink every day and are getting that from a shop you are most likely paying a lot each day. Buying a coffee machine for your home is a way to brew your own most likely healthier and sometimes better tasting coffee from the comfort of your own home. Once you can save money then you can keep the snowball effect going.
Debt
If you have any debt whether that be a car loan or student loan paying that off could be a great way to reduce your recurring expenses. Even if it doesn't make the most financial sense sometimes paying off that loan will offer you better piece of mind. If your debt is at a low enough APR sometimes it is better to invest in your future but most of the time just pay off the debt. There are several ways to do this. The most effective way is to pay your highest APR debt first (also known as the avalanche method), but sometimes psychologically it is better to utilize what is called the snowball method where you pay off your smallest debts first.
Investment
While you have access to tax-advantaged accounts it doesn't make sense (at least to me) why you wouldn't use them. The nice thing about investment vehicles like a Roth IRA is you can take out all the money you put in in case you need it. My recommendation is if you are saving for school and know you are going to pay for part of it, consider a 529. At age 18 it might be a little too late to start using a 529 but especially for people under 18 it is a great way to have tax-free gains that go towards your education. If a 529 doesn't fit your plan then my next recommendation is a Roth IRA. Roth IRAs are amazing in that they allow you to have tax-free gains and take them out when you are older without paying taxes. This contrasts with a Traditional IRA which requires you to pay taxes when you take the money out. The other major benefit I already mentioned was having access to that liquidity. I would not recommend pulling money out of your Roth but the option is always there. This flowchart from r/personalfinance is one of my go-to's on explaining where to put your money and when. It isn't as tuned to an 18-year-old as I would like it to be but it is supposed to be a general flowchart.
Step 5: Enjoy yourself
Money is a stressful topic and for obvious reasons. Even if you don't do everything perfectly you are still setting yourself up way better than the average American. While making these financial decisions make sure to consider your health and time. Don't get stuck doing 3 jobs at the same time (totally not talking from experience) when you don't need to be. Enjoy your younger years in life but do make sure to set at least something aside because compound interest is your friend when it comes to retirement. If you want to toy with the numbers for retirement I recommend this calculator.
Resources
I don't want to write everything I know about finances here because that would take way too long. Instead, I would like to link you to resources that I recommend.
I also recommend The Frugal Professor's video to anyone especially those that are starting college.